I was chatting one day with the handyman who does stuff at our house and was shocked at the prices that he and his wife (who is also self-employed) have to pay to buy health insurance. Even after paying so much, that coverage provides much less than what my wife and I have through her employer-based insurance. For even routine medical procedures, he pays far more out-of-pocket than I do.
One might think that this is because our insurance company is paying the difference but that is not the case. It is because hospitals charge what they think they can get away with and the weaker you are, the more you pay. In a long article in Time, Steven Brill says that people without insurance or with individual insurance policies, are mercilessly ripped off, with hospitals charging patients prices that are sometimes five times what those with employer-based insured pay. Why? Because they can.
The stories that Brill tells are horrifying. Hospitals and doctors often encounter people at their greatest hour of need when they have little time or energy to negotiate. Hence they can refuse to discuss lowering prices and blatantly rip off people who do not have any clout. The health industry acts like any other corporate conglomerate, making profits at the expense of sick and powerless people. Describing one such hospital system, Brill writes,
The hospital’s hard-nosed approach pays off. Although it is officially a nonprofit unit of the University of Texas, MD Anderson has revenue that exceeds the cost of the world-class care it provides by so much that its operating profit for the fiscal year 2010, the most recent annual report it filed with the U.S. Department of Health and Human Services, was $531 million. That’s a profit margin of 26% on revenue of $2.05 billion, an astounding result for such a service-intensive enterprise.
And this profit margin is achieved after having huge overhead costs and paying its executive princely sums. But as Matt Yglesias points out, after exhaustively describing the litany of horrors of the health industry, Brill shies away from obvious solutions in favor of tinkering at the edges.
The framing device, which is clever but wrong, says we spend too much time debating who should pay for U.S. health care and not enough time debating why the prices are so high.
The analytic core of the article shows that when it comes to hospital prices, who pays determines how high the price is. When an individual patient comes through the door of a hospital for treatment, he or she is subjected to wild price gouging. Insane markups are posted on everything from acetaminophen, to advanced cancer drugs, to blankets, to routine procedures. Because these treatments are so profitable, internal systems within the hospital are geared toward prescribing lots of them. And even though most hospitals are organized as non-profits, most of them in fact turn large operating profits and their executives are well-paid.
In addition to providing insurance services, a key service that a proper health insurance company provides is bargaining with hospitals so you get screwed less. No insurer worth anything would actually pay the crazy-high rates hospitals charge to individuals. But in most markets, the hospitals have more bargaining leverage than the insurance companies, so there’s still ample gouging. The best bargainer of all is Medicare, which is huge and can force hospitals to accept something much closer to marginal cost pricing, although even this is undermined in key areas (prescription drugs, for example) by interest group lobbying.
I can see two reasonable policy conclusions to draw from this, neither of which Brill embraces. One is that Medicare should cover everyone, just as Canadian Medicare does. Taxes would be higher, but overall health care spending would be much lower since universal Medicare could push the unit cost of services way down. The other would be to adopt all-payer rate setting rules—aka price controls—keeping the insurance market largely private, but simply pushing the prices down. Most European countries aren’t single-payer, but do use price controls. Even Singapore, which is often touted by U.S. conservatives as a market-oriented forced-savings alternative to a universal health insurance system, relies heavily on price controls to keep costs down.
Felix Salmon points to another flaw in the Brill article and that is that he does not say much about doctor salaries, apart from a sweeping statement that US doctors would not earn what they ‘deserve’ under a Medicare-for-all system.
Weirdly, in 24,000 words which include a lot of railing against the large salaries enjoyed by hospital executives, Brill never supports or clarifies this assertion: he never says how much money doctors deserve, how much they actually make, or how high physician salaries would need to be in order to make future doctors want to practice. That last one, in particular, seems very unconvincing to me: the world is full of highly-qualified doctors who would love to be able to practice in the U.S. for much less than the current going rate.
In his conclusion, Brill says — again, without adducing any evidence whatsoever — that “we’ve squeezed the doctors who don’t own their own clinics, don’t work as drug or device consultants or don’t otherwise game a system that is so game able”. It’s a bit weird, the degree to which Brill cares so greatly about keeping doctors’ salaries high: he certainly doesn’t think the same way about teachers.
Kevin Drum looks into the issue of doctor salaries and finds a handy chart that compares doctor remuneration in the OECD countries and it is easy to see that the US doctors do pretty well.
I have long been an advocate that we need a single-payer universal health care system in the US and that the best way to achieve it would be to simply expand Medicare to cover everyone. The private health insurance system in the US is, next to the finance sector, the biggest rip-off around, a system that pays the people at the top extremely well at the expense of those at the bottom.
Reader Norm sent me a link to an article describing a new study that says that traditional Medicare administrative costs are only around 1% compared to that of the private health insurance industry which is around 20%. But those who want to preserve the awful existing system misleadingly lump in the costs of the privatized portion known as Medicare Advantage, which raises the costs to around 6%.
Why people are not up in arms about this issue is mystifying. I have to suspect that part of the reason is that elite opinion takes as a given that the private health insurance system is the only way to go and thus it is difficult to break through that phony consensus.