The High Cost of Health Care is Its Biggest Issue

The problem with health care is not Medicare, Medicaid, or Obamacare.

It’s what health care costs.

The United States leads the world in one area of health care – it costs more here than in any developed country. Higher cost does not mean better care.  The United States lags many other countries in length of life and infant mortality.

Most industrialized countries have some version of a single payer system in which the government is the insurer and can influence the prices it pays for various procedures and medications.

In this country, the government, insurers, and individuals all pay for health care.  And, when the government is not paying, health care providers are free to set prices that everybody must pay.

Why are hospital costs so high?  A recent report by Steven Brill in Time magazine provided answers.

He revealed that both non-profit and for-profit hospitals make money, with non-profits doing better.

Where does the money go?  It pays for more sophisticated equipment, whether it is needed or not, advertising to attract more patients, and astronomical salaries for the top officials.  

And for lobbying Congress to keep the system just as it is.  The health care industry spends more on lobbying Washington than the defense, aerospace, and oil and natural gas industries combined.

The industry is rapidly becoming a monopoly.  In most areas, there is no longer any choice among hospitals.  There is one in each area, making the concept of a “market” purely theoretical.

As the number of hospitals is reduced, so is the number of independent doctors’ offices.  In the near future, it is expected that 75 percent of physicians will be on hospital payrolls.

To boost hospital income, these doctors are often required to see more patients each day, resulting in less attention to any individual.  And insurance reimbursement is more profitable for hospitals, Brill says, with doctors in-house.

The hospitals’ big profits are obvious, when the costs charged to the uninsured based on hospitals’ “chargemaster” price lists are compared with Medicare payments.

The chargemaster sets prices well above cost and even levies outlandish charges for simple bandages, which ought to be included in overhead costs.

In one case Brill cites, a hospital bill came to $121,414, but the hospital accepted $16,949 from Medicare.

Hospitals and doctors are not required to participate in Medicare.  If they are not paid enough, they can quit the system.

But they don’t.  In fact, in Florida, where many patients are on Medicare, hospitals advertise for retirees to use their services.

Even Medicare, the largest single customer for health care in the country, is prevented from bargaining to get the lowest prices for drugs.  If one medication is better than another and cheaper, Medicare must still pay the average price of all approved drugs of the same type, which means it must overpay.

The Veterans Administration, which also buys a lot of prescription medicines, does not have such a rule, and its costs are estimated to be 40 percent less than Medicare’s.

Obamacare will not fix the problem.  It can only create competition among insurers, though one of the players in each state will be a non-profit company. 

Opponents of Obamacare see this so-called “exchange” as being able to underprice the private companies so that it ends up as the single payer.

That would have to happen at some point in the indefinite future if the non-profit insurer could ever be powerful enough to force the industry to bring its costs under control. 

Meanwhile, the health care industry is increasingly acts like an unregulated monopoly where, for the time being at least, the insurers have little ability to place a brake on its charges.

Experience shows there are essentially only two ways to deal with the pricing power of “natural” monopolies, those that cannot simply be broken up, because of the type of services they provide.

We can see how such controls work, because both approaches having been applied to electric utilities, which are natural monopolies.

One is regulation, where “just and reasonable” prices are set by independent regulatory bodies, acting like judges.  Those areas where competition is possible – electric generators or equipment manufacturers in the health care sector – are left largely unregulated.

The other solution is government as the single payer.  For electricity, government takes the form of the municipal utility.  It makes no profit and bargains for what it will pay for power.

We seem to be moving toward the point in health care where regulation or the single payer or both will become essential and inevitable.