Thursday, February 15, 2007

Why is U.S. Health Care So Expensive?

Business writer Steven Pearlstein had an excellent article in yesterday's Wash Post about U.S. health care costs:

The reason the system has been so resistant to change is that lots of powerful interests do very nicely with things just the way they are.

Although doctors, hospitals, insurers and drug companies say they, too, want things to change, any comprehensive reform would reduce their incomes and their profits.

For example, the American Medical Association hopes no one will notice that American doctors make a lot more money than doctors elsewhere -- roughly twice as much. The average incomes of $274,000 for specialists and $173,000 for general practitioners are, respectively, 6.6 and 4.2 times those of the average patient. The rate in the other countries is 4 and 3.2.

MP: In "Capitalism and Freedom," Milton Friedman describes the American Medical Association as the "strongest trade union in the United States" and documents the ways in which the AMA vigorously restricts competition to achieve above-market income.

Pearlstein cites a recent
study by McKinsey Global Institue that shows that "the U.S. spends approximately $480 billion ($1,600 per capita) more on health care than other OECD countries and that additional spending is not explained by a higher disease burden.

Instead, MGI found that the overriding cause of high U.S. health care costs is the failure of the intermediation system — payers, employers, and government — to provide sufficient incentives to patients and consumers to be value–conscious in their demand decisions, and to regulate the necessary incentives to promote rational use by providers and suppliers."

MP: Consumers of health care pay only 14% of health care costs out-of-pocket, and being insulated from the full burden of costs, there is no incentive to be cost conscious. If consumers aren't cost conscious, the providers of health care are much less likely to be cost conscious.


At 2/15/2007 10:21 AM, Anonymous Anonymous said...

I suggest you should go over to the Coyote blog and see what Warren Meyer has to say about Mr. Pearlstein's article.

At 2/15/2007 10:21 AM, Anonymous Anonymous said...

The medical field is not set up for the consumer to shop for price. It is difficult, but possible. I asked my doctor in Flint, Mi. how much my knee surgery would cost. I called around and found it $2000 cheaper in Southfield, Mi.

Since I have very good medical insurance, my doctor in Flint was somewhat surprised when I called back and canceled my surgery because I found it cheaper. I don’t appreciate being taken advantage of because doctors think that we blindly follow their orders and prices.

Even though it is the insurance company's money, I believe many consumers would opt for equal and cheaper care if medical cost comparison was easier. Nowadays, I think, many more people are asking themselves if they are will lose their health care insurance. The health insurance cost increase and availability problem is highly publicized. Who doesn’t know someone who has lost theirs lately?

Maybe we need legislation like the automobile repair industry has that requires an approximate estimate before work is completed. After all, how many people do you think would drive 40 miles to a better hospital to save $2000? I think quite a few. Give the consumers the information: Let them decide!

At 2/15/2007 4:52 PM, Blogger GJR said...

That is the problem, Walt. Most people have insurance so they don't shop for a lower price. In fact, I have even heard people say they don't care how much it costs because their insurance covers it.

In addition, when you get sick generally you don't want to shop around for the cheapest price, you just go to the nearest doctor or hospital to get relief as quickly as possible.

I do commend your efforts at shopping around for the surgery! That is great.

I'm not sure how best to solve this one. If corporations did away with healthcare coverage, it would be hard for individuals to get the healthcare they need - at first (they wouldn't want to pay the price out of pocket). After a while, perhaps the market would work its magic and the price would drop to what the market is willing to bear.

Socializing it would be a mistake and would end up costing more in the long run, and be less efficient - as most government run organizations are.

At 2/16/2007 7:42 AM, Anonymous Anonymous said...

I think people are getting a lot more concerned about the price of medical care even if they have insurance. All of us realize, or should realize, that medical costs are included in the price of everything we buy. Consumers ALWAYS pay for businesses' costs: We can’t escape that fact. Even people who believe that businesses magically absorb employee medical costs realize that they may be the next ones to lose health care insurance.

If medical cost information was more readily available and disseminated people would oftentimes choose less expensive providers and procedures. Even if some people don’t use the information and insist on more costly but equally effective treatment, health care providers might be more careful pricing their services if they realize patients are looking over their shoulders and holding them accountable. How can a more open and transparent system be a bad thing? Next time you go to your doctor ask him or her: How much is this going to cost? You have a right to know. Don’t be bashful about asking—they are not bashful about sending you or your insurance company a bill.

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