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Posts Tagged ‘health insurance’

This article that I read today by Michael Tanner clearly and eloquently states the case that I’ve been feebly trying to make for a long time – the reason health care is so expensive is because consumers do not, by and large, pay for it.

When Jana and I first got married I was self-employed (as a private math tutor) and, as such, did not have any employer-provided health insurance.  At the suggestion of my brother Mike (known to CAI as Michael) I purchased a high deductible health insurance policy and began saving money to insulate ourselves from sudden, unexpected medical costs (I think the deductible was a couple thousand dollars, so the policy was only intended to be used for catastrophe).  I remember during that time how, the few times we did need medical services, it was so strange to actually pay for service with cash.  We were surprised to learn that deals could be found with a little searching- for example we found a clinic in Seal Beach that had a completely different price structure for those paying with cash, and it actually wasn’t terribly expensive (I had never actually seen prices displayed in a doctor’s office before).  During that time we avoided the doctor as much as possible, and when we finally decided to go, we shopped around and found a deal.  All of this language is of course very foreign to the topic of health care, and that’s part of the problem.

When I eventually got hired full time as a teacher I got a very generous health care plan, and we ceased to look around for deals.  I remember, in fact, discussing my new benefits with a co-worker who encouraged me to “start taking advantage.”  The new plan didn’t include dental benefits for Jana though, so we continued our frugal ways in that department.

The point is pretty straightforward – the consumer is best suited to ration goods and services when normal price mechanisms are in place.  When we (and I’m speaking about myself here) don’t feel the cost of purchases, we have little incentive to restrain what we purchase.  More consumers purchasing more freely creates more demand, thus higher prices (as was the case with the housing boom and interest-only loans – guilty as charged again).

I’m not suggesting any particular policy here, but I do wish that this simple economic reality would at least make it into the discussion from time to time, rather than the continual demagogue of insurance companies and health care providers, who are only operating according the to same free-market principles that we expect from other sectors.  I have met doctors and people in the insurance industry, and they are no more evil or greedy on average than the rest of us in my experience.

One more anecdote: One time I got some metal debris in my eye and went to the emergency room.  The doctor put a drop of numb juice (I think that’s the medical term for it) in my eye, told me the debris was now out, and gave me some mild pain medication.  To make a long story short, the debris was not out of my eye and was only removed once I visited an eye doctor a few days later.  Nonetheless, the bill for this emergency room visit was over $700.  To make another long story short, I offered to pay the bill in cash if they would bring down the price.  The hospital initially declined my request, but I eventually spoke to a manager at the hospital who apologized and explained that I never should have seen that price.  As he explained it, that price is what they send to the insurance company, because they expect the insurance company to come back and low ball, so they have to start high.  Or some really convoluted scheme along those lines.  He cut the bill in half for me.

In this case I wish I would have rationed myself, and waited to get an appointment with an eye doctor (now I know) but this story clearly demonstrates just how convoluted the health insurance process is, and how costs go up because of it.  If more people were paying cash for medical service we would have a lot more (self) rationing and a lot less wasteful red tape.  Again, I don’t know what kind of legislation (if any) could create this scenario, but I wish it would get discussed more.

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If you have time (and I encourage you to make time) you will find this article by David Goldhill in The Atlantic Monthly very illuminating.  Goldhill’s father passed away in hospital due to infections he received from the hospital and in this article he chronicles his subsequent obsession with, and research into, the American health care system.  He is not a reporter, he is a businessman… and a democrat I might add.  It is a very honest, commonsense, and thorough look at our whole system and his experiences within it:

For that matter, try discussing prices with hospitals and other providers. Eight years ago, my wife needed an MRI, but we did not have health insurance. I called up several area hospitals, clinics, and doctors’ offices—all within about a one-mile radius—to find the best price. I was surprised to discover that prices quoted, for an identical service, varied widely, and that the lowest price was $1,200. But what was truly astonishing was that several providers refused to quote any price. Only if I came in and actually ordered the MRI could we discuss price.

Several years later, when we were preparing for the birth of our second child, I requested the total cost of the delivery and related procedures from our hospital. The answer: the hospital discussed price only with uninsured patients. What about my co-pay? They would discuss my potential co-pay only if I were applying for financial assistance.

Keeping prices opaque is one way medical institutions seek to avoid competition and thereby keep prices up. And they get away with it in part because so few consumers pay directly for their own care—insurers, Medicare, and Medicaid are basically the whole game. But without transparency on prices—and the related data on measurable outcomes—efforts to give the consumer more control over health care have failed, and always will.

He doesn’t come out against single-payer (which I definitely am against) but his review and critique of the existing system causes serious suspicion upon giving even more leverage and influence to government.  Insurers come out very poorly in his assessment, and rightfully so, but by his own admission they are simply playing the game that has been laid down in law.  From top to bottom you will see how health care has gotten so tangled in a matter of just 60 years.  In light of what is being proposed in congress and the white house you will be interested to have this breakdown of the system in your bag of knowledge.  Be forewarned, it’s not a brief article.

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