There are those who believe that health care lends itself to the usual market forces, meaning that competition will bring about the best products at the lowest prices. For instance, comparative quality ratings and pricing for items such as autos and vacuum cleaners allow us to obtain the best products at the lowest possible costs.
But do these principles apply to health care? Clearly not, for several reasons. For example, if we suddenly become ill and need an ambulance, we summon the nearest local provider with its prevailing charges (which can be substantial), then taken to a nearby medical facility and usually charged exorbitant rates for emergency and/or hospital services. If you are lucky enough to possess decent insurance, you will be billed according to whatever has—or has not—been agreed to with the ambulance service and hospital as reasonable compensation, and you will usually be required to ante up for any co pays or deductible amounts in your contract. All prices are entirely out of your control and obviously not subject to free market forces. And so it goes through the entire spectrum of medical care that includes drugs and devices, doctors’ fees, and numerous tests and additional services. At the end of this process, you are apt to receive an incomprehensibly large bill that is not coupled with reality or market forces, and even if you aren’t responsible for most of the payment, the money must come from somewhere, for your insurance carrier is not a philanthropical organization.
So, how much are we contributing as a nation to these healthcare expenditures? The bills total approximately $3 trillion annually, or about 17% of our overall economy. Of that total, hospital bills account for 40-50%; tests and ancillary services, 20-30%; doctors, 20%; drugs and devices, 15%: and nursing homes 5%. These amounts generally are twice the total expenditures of other western countries, which generally range from 6-11% of their respective economies. Since our outcomes seem not superior to those of the aforementioned nations, some experts even argue that our illness and mortality rates are even worse than those of other countries. But complicating factors such as obesity, poor lifestyle choices and others, may account for poor outcomes in this nation. Nevertheless, at best, our healthcare system is providing no clear advantage over those of other nations.
So how do we explain all this? We are overpaying for virtually all components of our health care system. We are doing so because there are few if any restraints on the charges. For instance, Obamacare put no controls on the pricing of drugs or clinical care. Pharmaceutical companies’ charges are not only unrestrained, but they can often “game” the system to overcharge for older, generic drugs. The insurance carriers were granted unrestricted leeway in setting premiums and deductibles in exchange for allowing policies that provide maternity and preventive care and that mandate coverage for patients with preexisting conditions. Hospitals can pad their bills through the use of opaque charges that include all sorts of add-ons and “facility” fees, making them all but impossible to decipher. Fortunately, Medicare serves as a partial restraint on many of these excesses: For instance it applies a so-called Disease Related Grouping (DRG) system to bundle and restrain allowable hospital charges for given diseases/and or treatments. Although this system does restrain charges somewhat, medical purveyors often use other means’ to circumvent these amounts, and hospitals can still bill private insurers at higher rates, depending on prior agreements. Also, coding of procedures and even physician’s services has become a science of gaming to extract the highest possible tariffs. In all cases, those who are uninsured—and are least likely to afford them—receive the highest bills.
In order to understand these large expenditures, we can learn from other countries’ experiences. Although there are several contrasting systems, they all employ governmental price controls coupled with universal participation. In Germany and France, for instance, all individuals must be insured. Most people purchase state sponsored insurance, with premiums based upon one’s income. Private insurance is allowed and may supplant the base insurance for the few who can afford deluxe services. In Canada and Australia, a single payer system is used, analogous to Medicare for all, making private insurance unnecessary. In the United Kingdom and Denmark, an extensive health care structure includes a single payer system with state ownership of hospitals and medical infrastructure. Notably, all these systems couple price controls for services, together with the requirement for participation by the entire population, a factor that spreads the costs widely and is sufficient to cover all those with “pre-existing” conditions.
The U.S. could adopt any of these methods, but a single payer (“public option”, or Medicare for all) would seem to be the most direct and cost-effective. Administrative costs for Medicare average about 2-3%, in comparison to about 20-30% of most private insurers. Even under the mandate by the ACA (“Obamacare”) to limit these costs provided by private insurers to 15% of total outlays (the other 85% devoted the health care), this is still a significant amount. Moreover, private companies can encourage larger medical bills, thus increasing the overall size of their pool but passing on the costs to those who are insured. This means that the 15% could be substantially greater as a portion of the larger pie, allowing CEOs and other directors to receive millions in compensation.
Expanded Medicare would not preclude the addition of supplemental private insurance, as we now have in combination with its basic coverage. An overall plan must be empowered to limit prices for all drugs, procedures, and hospital bills, which would control the entire cost structure of the medical system, allowing us to emulate costs of other western countries. Nationwide pharmaceutical prices must be subjected to negotiated limits as placed by Medicare or related agencies. A single payer system would also simplify record keeping and unify documents, reducing time required by physicians and office personnel.
Obviously this is but a start, and other issues must be addressed that are too numerous to enumerate here.
In all cases, rational solutions must contain two vital components: 1) Mandatory participation by the entire population. 2) Careful and rational control of all expenditures
Any program lacking these two vital components will be, at best, too costly, or, at worst, socially unacceptable or disastrous.