Trying to Explain

A good friend from the UK follows our markets and even our politics pretty closely, so when he recently asked why we spend 2.5 times as much (purchasing power adjusted) on health care as the OECD average, I had to stop and think about it.

After all, we don’t even cover (unless you count emergency rooms) roughly 10% of our citizens.  We don’t live as long, and we have a higher infant death rate.

Plainly a lot of our problem is our diet.  Some might say being the center of the video game world and having 200 channels of TV adds to the problem.

But even taking that into account, why does it cost so much?  Of particular interest in his comments was the fact that the US was not really that far out of line with the rest of the world until the 1980’s.

I think it’s no coincidence that it was in the 1980’s that our health insurance industry built a national database tracking what care each of us has had.  I even spent tens of hours trying (unsuccessfully) to get a copy of my personal report back when I heard about it.  To my way of thinking at the time, inaccurate date getting into such a database might be as pernicious as wrong information getting into your credit report.

The result of all that is that whenever I’m faced with a new doctor or clinic or lab, I have to fill out a form giving them permission to share all the results of my visit with that data collection agency.  I don’t have to, but if I don’t, my insurance company won’t pay the doctor.

What this gave our private insurance companies was the means to do precision underwriting at a level they could never achieve before.  It also gives them the ability to rescind insurance on anyone that looks extra risky before they start costing too much in claims, or, if they are part of small group or an individual, to raise their annual insurance premium so high and so fast that the patient will take themselves out of the insured pool for economic reasons.

Anyway, here’s what I told my friend, and I think it pretty well describes why we spend so much for such mediocre results:


I started working on a real analysis of why our system costs so much, and it comes down to this:

The price is being set by the broker.

The buyer (patient) and the seller (doctor) actually do not know what the price is when they order the service. It’s kept hidden, with multiple layers of pricing with variance of as much as 400% from low to high for the exact same service. Imagine what would happen to real estate prices if the buyers and sellers had no say (other than choosing to walk away and live under a bridge), and only a 20% commission broker in the middle could set the prices.

Now imagine what would happen if the broker only took 20% from some customers, but 50% from those with less money (individual customers). Then imagine that the broker could refuse to serve any buyer that they think might take up too much time or work, even if that buyer had been paying the broker for years without ever costing anything. That is our “system”.

But it gets worse, because we have the most expensive patients pushed out of the private system and dumped onto the taxpayer. On top of that, we tell the biggest users (the elderly) that they are entitled to everything they ask for, no matter the cost, and charge the current workers (only the wage earners, not the investors) for their purchases.

Your thoughts are invited.

I’m at least glad that my parents weren’t financially ruined by my mother’s recent cardiac arrest episodes.  After her heart attack, she got a (defective) pacemaker, so they had to open her up twice in a week, and the amount my parents paid was a tiny fraction of the actual bill.

I can’t be sure whether it was Medicare or my father’s Army retirement benefits that paid the bills, but for sure it was a government check that paid.  He served in two wars and did a great job (for very low pay) according to his commendations, so maybe I should take the attitude that he already paid for that care.

From a purely dollars in – dollars out standpoint, it will take only a couple more like that in my family, and the hundreds of thousands of dollars I’ve personally paid toward Medicare will be returned to my family, even if it’s unlikely ever to be returned to me.

hh

PS.  I’m not a fan of the Heritage Foundation/Insurance Industry/Nixon Administration idea of mandatory insurance purchase, but I simply don’t see an alternative unless we built out a public health system available to any citizen.  I sure don’t want the ideal of “individual freedom” to give a selfish few the option of costing the rest of us a fortune.

And I still think the stock market is going up because even this horribly flawed version of reform gives individuals, small businesses and entrepeneurs the option of paying only what their insurance would cost if they were part of a big company. That is good for the economy.

Advertisements

5 Responses to Trying to Explain

  1. Fred says:

    Howard,

    Good to see you still expounding away. Your comments make a great deal of sense.

    What I have noticed is that when there is a third party paying the bill without regard to cost/benefit and when the purchasing party is not part of the negotiation, then the price is dictated by the third party. Also when the purchasing party has no limit on how much can be purchased, then there is waste. Also when the supplying party can dictate what is to be purchased, there is a tendency to overbill.

    In the case of medical services, clever coders can increase the reimbursement with the breakout of individual services. Who is the wiser? Certainly the patient in this instance does not care. After all the patient is not paying the bill. And the M.D. does not know because they have left the billing in the hands of the coder. The third party payer may care, but in practicality, what can they do? Challenge every coded item?

    It is a difficult problem that the government has taken on, and I don’t see how they will control costs. The record of the fed hasn’t been very good with Medicare and the Drug program.

    At one point in my career I worked for an insurance company selling life and health insurance. The health insurance was top of the line. It was “non-cancellable and guaranteed renewable”. What this meant was that as long as you paid the premium, the premium could not be raised and the company could not terminate your policy, and each procedure was covered up to the limit of the policy. You could get coverage that did not include those featues at a lot lower price, but then you were at the mercy of the insurance company. Too many people opt for the price break, and don’t consider the long term consequence of that unwise decision.

    To sum up. You may get health insurance, but you may not get health care.

    Fred

    • hhill51 says:

      Fred —
      I love that phrase “you may get health insurance, but you may not get health care.”
      I think you’ve put your finger on the hole the insurance companies plan to drive their truck through. Under the rubric of “buying across state lines” we’ll have the weakest of the 50 state regulators setting the bar so low that all the “insurance” will be issued out of that state. Just look at all the states that found out their usury laws didn’t mean squat when South Dakota laid out the welcome mat for credit card issuers, telling them they can charge any interest rate they’d like.
      hh

  2. Bruce B says:

    You have nailed a large portion of the problem. When the buyer doesn’t care about the price, the hope for cost containment is nothing more than a fantasy unless it’s imposed by uncaring bureaucrats. I have read that the cost of plastic surgery has decreased in real dollars. People pay for it with their own money and price matters.

    Another problem we have created is the fact that people do not think healthcare should cost them anything at any level of care. The $5 co-pay as a result of company provided insurance has been damaging to the psyche of our populace. It costs us to eat and to live. It should cost us something to go to the doctor. The employer provided healthcare (which I enjoy) has been a major distortion in the healthcare market.

    My mother, age 84 is currently undergoing many expensive tests for continued dizziness. Medicare is paying the freight. She and her sister, age 91, feel as though they have become huge takers from society, taking far more than they ever contributed economically. These are tough, tough problems.

    • Tom D says:

      “Another problem we have created is the fact that people do not think healthcare should cost them anything at any level of care.”

      This is key. In most cities we have long had free health care in hospital emergency rooms and in-patient hospital rooms. If you look poor or try to look poor you will not be billed nor have you ever been. Instead all the insurance companies, including the feds, by necessity subsidize care for the “look poor” by paying higher rates for their own insured clients. The old description for this was “charity care”, but Uncle Sam can’t have that. Uncle wants to be rolling out the dole in his full dress uniform and not leave it to the “market”.

      The middle class now wants the same deal without pretending to be poor, and the feds want to oblige them for voter registration purposes. The only way to do that is to punish the providers more than they did to themselves before. In addition they want to tax those who already provide their own insurance plus the charity subsidies through their incurance carriers.

      The apologists for this scam do not have a clue about what good medical care is, how it is or can be delivered, and what it does or will really cost. It’s just another socialist power grab by greedy politicians and bureacrats for their own electoral and organizational power needs.

      I hope that Howard will get a policy that can’t be canceled before he goes on Medicare. That’s about all we can hope for out of this whole exercise. I hope it’s worth it, Howard.

      I’m appalled that so few market “economists” have any idea what this is all about. They all just seem to want charity care too.

      • hhill51 says:

        I beg to differ. What we have is “free” emergency care, and that’s a big part of the problem. I’m sure you can see a difference between treating acute problems only and health care.

        Frankly, I’m surprised that you stoop to repeating gibberish like “socialist power grab” for the mess we’re in, rather than looking through clear eyes at the systems around the world, not necessarily socialist, that work so much better than our corporation-dominated scam, to use your word. Since when is paying twice as much for worse results not a scam at some fundamental level?

        Please explain what makes the Swiss system, implemented in the past 15 years, “socialist?”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: