One Simple Reason Why Health Care Costs More In The US Than Anywhere Else

[Greenbeard]

The aspirin costs $5 because a third party will pay that much.

Is an insurance company a rational actor? Does it seek to maximize profit?

Whatever the answer to your question, the fact remians - the aspirin costs that much because the third party is willing to pay that much.

And I'm curious why you think that is.

The argument against third party payment is that it insulates the end user--i.e. the patient--from the price of the services rendered, leading to higher utilization and a lack of cost-consciousness when "comparison shopping" for health services (though obviously the actual nature of the provider market muddies the waters).

But that doesn't explain why the actual payer for the bulk of services--the insurer--would be indifferent to prices and thus willingly accept outrageous reimbursement rates or otherwise overpay. Are health insurance companies simply the most poorly or irrationally run corporations in recorded history? Or is there something else going on here that has important implications for any payment structure proposal?

 

[M14 Shooter]

Is an insurance company a rational actor? Does it seek to maximize profit?

Whatever the answer to your question, the fact remians - the aspirin costs that much because the third party is willing to pay that much.

And I'm curious why you think that is.

Simple: No one can charge more than others are willing to pay - because if they do, they won't sell anything.

But that doesn't explain why the actual payer for the bulk of services--the insurer--would be indifferent to prices and thus willingly accept outrageous reimbursement rates or otherwise overpay

It doesnt matter -why- they pay what they pay -- the fact remains that the provider charges what they charge because the insurance comnpanies are willing to pay.

 

[dblack]

Is an insurance company a rational actor? Does it seek to maximize profit?

Whatever the answer to your question, the fact remians - the aspirin costs that much because the third party is willing to pay that much.

And I'm curious why you think that is.

The argument against third party payment is that it insulates the end user--i.e. the patient--from the price of the services rendered, leading to higher utilization and a lack of cost-consciousness when "comparison shopping" for health services (though obviously the actual nature of the provider market muddies the waters).

But that doesn't explain why the actual payer for the bulk of services--the insurer--would be indifferent to prices and thus willingly accept outrageous reimbursement rates or otherwise overpay. Are health insurance companies simply the most poorly or irrationally run corporations in recorded history? Or is there something else going on here that has important implications for any payment structure proposal?

Excellent question. It really gets to the heart of the problem. This is what needs to be discussed and brought under intense scrutiny. Here's my take on it.

It's not that insurance companies have no incentive to keep prices down, but that incentive is mitigated by some important factors. First, and foremost, they're dealing with what is essentially a closed market. There is some opportunity for employers to "shop around" for cheaper insurers, but overall the employees - the people actually paying the rates - don't have that option. For most of us, it's a single checkbox. Some don't even get a choice at all, ie our enrollment to a given insurance company is included as a fixed part of our compensation package. We can walk away from it, but we can't just ask for the cash and buy our own. This is by design.

The insurance companies also insulate themselves against competition with a thick regulatory regime that prevents any radical divergence from the norms they've set. It prevents innovation and decreases their incentive to keep premiums lows. Further, and admittedly this steps into 'freakonomics' that I can't back up with hard numbers yet (I'm looking), I claim that health care inflation, up until very recently, has been a boon to the insurance industry and not a burden. It has galvanized the assumption that they want permanently ingrained in our world view: we can't afford health care without insurance. But, as I and others here have shown, that assumption is false. Beyond protecting us from catastrophic risk, insurance isn't a good deal; it's a terrible way to finance regular health care expenses.

Regardless of their incentives, insurance companies are limited in their practical ability to keep a lid on every single questionable charge. They can negotiate for fixed, and lower, rates on big-ticket treatments and services, or those that can be standardized and cataloged. But they rapidly reach a point of diminishing returns, where challenging every "five dollar aspirin" costs them more money than it would save them. Simply put, they aren't present for each of the millions of daily health care transactions that make up the whole. Only the patient and the doctor are.

To your last question, "... is there something else going on here that has important implications for any payment structure proposal?" I would answer an emphatic "Yes!". Any payment structure proposal will run into similar problems. I think this gets at why you and I seldom have fruitful discussions when it comes to the health care problem. You don't seem capable of imagining a solution to the health care problem that doesn't involve some kind of structured proposal. It's the limitations and inflexibility that come with any level of artificial structure that are at core the problem. As long as market dynamics are at play, there's simply no replacement for the individual consumer, motivated to look after their own financial interests.

 

[editec]

Don't come back and explain to me again why the system we currently have sucks.

WE AGREE on that.

Now tell me what YOUR plan looks like.

I don't have a lot of time to get into it today (gotta get some work done), but it doesn't require any grand plan.

No plan except to abandon the business model of the multitrillion dollar a year industry, you mean?

As I said, it's a transition that is/was happening already.

Is it? I don't see it, In fact I see exactly the opposite happening.

Obama's HC plan will force everybody to become a PRIVATE HC INSURANCE purchaser whether they want insurance or not

You hadn't noticed that?

Its rather odd that you've missed that given the GOP has been bitching about for the last few years.

We can, and should, remove government policies propping up the current status quo (the tax incentives and regulatory hurdles).

You're guessing, aren't you?

What tax incentives or regulatory hurdles do you propose we remove?

You don't know do ya?

You're just spewing phases like regulatory hurdles becaise its a phase that apparently makes sense even if you don't know anything about those regulations.

In the mean time we can beef up safety nets for bottom rungs, as they'll be in the tightest pinch until prices come down.

The bottom run on the plan you proposed (and then quickly abandoned when I asked you to explain it) was to ELIIMATE the third party payment system we have and force the people to pay for their health care out of pocket.

And you didn't give that silly idea a even a moment's thought either, did you?

You FREE MARKET kneejerked yourself into looking like an bullshitting ass, man.

 

[Greenbeard]

It's not that insurance companies have no incentive to keep prices down, but that incentive is mitigated by some important factors. First, and foremost, they're dealing with what is essentially a closed market. There is some opportunity for employers to "shop around" for cheaper insurers, but overall the employees - the people actually paying the rates - don't have that option. For most of us, it's a single checkbox. Some don't even get a choice at all, ie our enrollment to a given insurance company is included as a fixed part of our compensation package. We can walk away from it, but we can't just ask for the cash and buy our own. This is by design.

This design is now changing with the introduction of the SHOP marketplaces.

The insurance companies also insulate themselves against competition with a thick regulatory regime that prevents any radical divergence from the norms they've set. It prevents innovation and decreases their incentive to keep premiums lows.

And yet the repeated insinuation that insurers are overcharged that's been made in this thread suggests that competition in the insurance market has limits. Insurers in a poorer negotiating position relative to providers will be unable to reject extortionate reimbursement rates; presumably at some point an insurance market can be too diluted, at which point all of them end up negotiating higher reimbursements (which, of course, make their way into premiums).

We've seen insurers control costs before, if only for a few years. The problem they faced--which ultimately led to the abandonment of that experiment--was the perception among consumers that in doing so they were sacrificing quality. Indeed, in the absence of well-defined and publicly reported quality metrics, a well-defined and broadly disseminated body of comparative effectiveness research, and robust measurement capability (say with an electronic health record), it's possible some of them were. People want to know they're getting value. If we can spot it, demonstrate it, and pay for it, we'll all be a lot better off.

Regardless of their incentives, insurance companies are limited in their practical ability to keep a lid on every single questionable charge. They can negotiate for fixed, and lower, rates on big-ticket treatments and services, or those that can be standardized and cataloged. But they rapidly reach a point of diminishing returns, where challenging every "five dollar aspirin" costs them more money than it would save them. Simply put, they aren't present for each of the millions of daily health care transactions that make up the whole. Only the patient and the doctor are.

You've wandered, perhaps accidentally, into payment structures. Fee-for-service payment structures, with their unremitting emphasis on volume, volume, and more volume, are what make focusing on countless small transactions and services rendered necessary. A better strategy would be to pay for results, not volume, and move away from fee-for-service. Some payers are now attempting to do that more aggressively, though they're proceeding with baby steps; Medicare is the obvious example in the public area, but the Alternative Quality Contract BCBS of Massachusetts is trying out is an important step in the private sector.

How we pay for things is important. Can an "individual consumer, motivated to look after their own financial interests" negotiate a global capitated payment to promote greater hospital efficiency? Probably not.

I think this gets at why you and I seldom have fruitful discussions when it comes to the health care problem. You don't seem capable of imagining a solution to the health care problem that doesn't involve some kind of structured proposal. It's the limitations and inflexibility that come with any level of artificial structure that are at core the problem. As long as market dynamics are at play, there's simply no replacement for the individual consumer, motivated to look after their own financial interests.

As I've pointed out time and time again, the majority of health expenditures in the United States are for treating chronic illness and paying for big ticket (catastrophic) items. Health expenditures are extremely concentrated on a relatively small piece of the population with half of us incurring virtually no health costs at all in a given year.

You seem to want to focus exclusively on that part of the population that isn't driving costs or expenditures. The only reference to expenditures I see in your post is to the undefined "regular health expenses" that are no doubt causing us so much trouble. For those folks who don't incur any costs we can define "innovative" insurance products, to segment the risk pool as best we can and discourage the costly cases from trying to enroll (where the law doesn't allow us to outright reject them).

We could indeed simply ignore the big picture and look at the happy slice of things--that's a fine way to convince ourselves that we don't need any coherent system in place, everything's fine already. But I don't particularly think policy should be made by ignoring major aspects of an issue. And, frankly, thinking of creative ways to indiscriminately limit access doesn't solve any problems.

 

[dblack]

As I've pointed out time and time again, the majority of health expenditures in the United States are for treating chronic illness and paying for big ticket (catastrophic) items. Health expenditures are extremely concentrated on a relatively small piece of the population with half of us incurring virtually no health costs at all in a given year.

And, as I've pointed out, time and time again, the amount of total expenditures is not the same thing as price inflation. They're different, mostly unrelated, concerns. An aspirin doesn't cost five dollars because the insurance company is spending the ranch to keep grandma alive. It costs five dollars because the two people most directly in charge of authorizing the charge - the doctor and the patient - have no incentive for it to cost any less.

You seem to want to focus exclusively on that part of the population that isn't driving costs or expenditures.

That's true. I'm not worried about total "costs and expenditures". I'm concerned with the forces driving health care price inflation. I want to deal with the problem of basic health care prices being to expensive for the average person to afford. There's no good reason why they should be.

 

[GHook93]

Not quite true, every doctor and hospital that accepts an insurance plan negotiates with the insurance plan for the rates. That is the reason health procedures cost more for the uninsured than for the insured!