Contributors

Wednesday, March 27, 2013

Bursting the Health Care Bubble

The cost of American health care has been back in the news since Steven Brill's Time article "Why Medical Bills are Killing Us" was published. The Washington Post has a feature that shows the problem in 21 charts.

The charts compare the prices insurance companies pay for office visits, hospital stays, procedures and drugs in the United States to prices paid in nations with comparable health outcomes (most have longer life expectancies than the United States). For example, an angiogram costs $35 in Canada, and between $173 and $2,430 in the United States. A routine office visit is $10 in Argentina ($30 in Canada) and $68 to $176 in the United States.

Those numbers are astonishing, but if you compare the lowest price in the US to the second highest price, the United States sometimes comes in lower. For example, the costs of C-sections, hip replacements and knee replacements, the lowest cost in the US is less than the cost in Australia. The cost of an MRI in the US varies between $522 and $2871. Which means the lowest price Americans pay for MRIs is actually less than South Africa ($1072), Switzerland ($928) and New Zealand ($554).

The reason that there's just a single price for all those other countries is that prices are set centrally. In a big country like the United States it's harder to set a single price for medical care. The health care markets in elderly Florida and child-oriented Utah are much different. And that's why Medicare reimbursements can vary widely from state to state. And they can vary even within the same state.

So we should expect some regional price variability in the United States. But there's no way in hell that MRIs should cost some Americans five times more than other Americans. The problem is much deeper and more endemic than price gouging: it's the basic model of employer-provided health insurance.

For example, I recently had surgery. We have a large deductible policy, so we get all the bills. One from the hospital was asking for $9,000. However, the insurance company rejected that and would pay only $4,000, which the hospital immediately accepted. Now, one wonders why the hospital bothers to bill for $9,000 when they know full well it's going to get less than half that.

But the real point is that the insurance company dictates the price to the hospital. Instead of a faceless bureaucrat in Washington setting the price for  my surgery, a faceless bureaucrat at my insurance company sets the price. If either faceless bureaucrat decides they won't pay for the procedure I need, I'm out of luck.

And don't think that you can just go somewhere else to get what you need: most people get health care through their employer, which means they have no choice in the matter. But if I pay for my own healthcare — and I do — I can't just switch to another one that will cover the procedure. Because insurance companies can deny coverage to applicants who have pre-existing conditions. That is, until 2014 when Obamacare fully phases in.

But that brings us back to that huge price range. Why are prices so wildly divergent in the United States? How can one American company provide an MRI for less than a fifth of the cost of another company? Is the expensive MRI provider simply gouging insurance companies that are bad at negotiating, or is there collusion between the insurer and the provider?

In the United States general inflation has been nearly non-existent for decades. That's due to globalization, a flat labor market and companies like Walmart whose business models depend on driving down prices. Yet health care costs, dictated by large insurance companies, have been rising at an annual average of 10% or more for most of that same period (though the rate of growth has declined recently -- perhaps in part because of the passage of Obamacare).

The only justification for the existence of health insurance companies is that they're supposed to keep down health care costs. But these apparently worthless middlemen have utterly failed to do that, and have been consistently failing for two decades.

The fact is, health insurance companies have had no motivation to keep costs down. Their only motivation is to keep profits up. If costs go up, and they can pass those costs on to consumers by increasing premiums, that's what they'll do. And that's what's been happening. And increasingly insurance companies are buying health care providers. Which means they've have absolutely no motivation to reduce costs to their customers.

Until now. Because Obamacare has placed limits on premium increases.

There's been a lot of fearmongering that Obamacare will drive many companies to stop providing health care coverage for their employees. That might actually be a good thing: if we buy our own insurance, it will make insurance companies responsible to the people who actually receive medical care, rather than the CEOs of the companies that employ them.

Right now all the people involved with setting prices on American health care are wealthy insurance company execs, wealthy employers, wealthy hospital directors and wealthy doctors. They're all scratching each other's backs without any concept of how expensive all this medical care is for regular people. But the reality in other countries — and even in the US — shows that costs could easily be halved. Corporations deduct the cost of health insurance from their taxes, which means that we the people are actually paying for outrageously high medical system. Patients, the real customers, have no say. The market forces that are supposed to keep costs in check simply do not function in health care.

The world economy has been the victim of one economic bubble after another: the dot com bubble in the Nineties and the real estate bubble in the 2000s. But the biggest danger facing the United States economy is the health care bubble, not only because it will drive up the cost of Medicare, but because it makes American businesses less competitive globally. The health care sector been eating a bigger and bigger chunk of the US economy, and will soon swallow up 20%.

That has prompted more and more companies to get on the health care bandwagon, and become involved in the elderly and disability sectors of health care in particular (the "growth" sectors). If you've every watched cable TV during the day you know what I'm talking about. The SCOOTER Store, which sells power wheelchairs, floods cable TV with hundreds of millions of dollars of ads every year. These ads promise that they'll get the government to pay for your powered wheelchair, or they'll pay for it themselves. Yeah, right.

According to an article on the CBS website, the Senate Special Committee on Aging has been investigating this. Apparently the SCOOTER Store has been "bulldozing" doctors into writing powered wheelchair prescriptions for patients. I've seen how this works first-hand.

When one of my sisters had a stroke at age 49, she lost the ability to speak, to walk, and the use of the right side of her body. She had to use a (regular) wheelchair to get around, which was difficult with only her left hand. Two of my other sisters, having seen the SCOOTER Store's ads, were outraged that the government wouldn't buy a powerchair for my sister.

Instead, my sister's doctors prescribed physical therapy. And it worked. Now my sister gets around with a cane, rarely uses the regular wheelchair and can even walk short distances unassisted. If my sister had been given the powerchair right off the bat she'd never have walked again.

According to CBS, the SCOOTER Store agreed to return almost $20 million to Medicare for chairs that should never have been bought. But the even greater crime is the terrible medical outcomes for people who got powerchairs when physical therapy was in order. Being unable to walk drastically lowers your quality of life, increases the risk of complications like blood clots and lowers your lifespan because of the inability to get proper exercise.

The real problem here is not that the government helps people, but that corporations use the  misfortunes that befall Americans to make themselves rich at the expense of the American taxpayers and to the detriment of the health of the very patients they're supposed to be serving.

7 comments:

Juris Imprudent said...

http://www.csmonitor.com/USA/DC-Decoder/2013/0327/Obamacare-to-drive-up-health-care-premiums-Report-sets-off-firestorm

Anonymous said...

A Nation of suckers.

Typical proggie tripe missing the forest for the trees.

Mark Ward said...

You guys are right. We should have just left the health care system as it is and done nothing. None of these awful things would be happening right now.

Larry said...

Oh yes, of course, because Obamacare was the only thing we could do. Well, either that or straight to NHS/single-payer. Nothing else was possible on Planet Markadelphia, nor did anybody have any other suggestions. Sheesh. Pull your head out of your ass for once, Mark.

The Bubba T said...

Bubble Boys, you are all clueless on what AHC does. For most people nothing will change and by the way its still months before we will see what it all looks like. So sick of white dudes on this blog talking shit just talk shit. Your a bunch of self-centered pricks.

Juris Imprudent said...

We should have just left the health care system as it is and done nothing.

By all means, let's double down on creating more opportunities for scam artists!

Larry said...

Have you learned to roll over yet, Blubba the Whiter-than-White Hutt? Your spit-bubbles are still deficient.