As the deadline approaches, many are questioning why we need to rush to pass reform. Make no mistake, our perilous financial state demands that we reform how we pay for health care. Why has this debate shifted from health care reforms to insurance reform? Because it’s in the financing where our system is failing us. What you pay for health care services is more like roulette than accounting. And insurance is at the heart of our system’s financial failures in addition to the uncertainty and care denials that give health care consumers a raw deal.
In the US, we spent about 15% GDP on health care. This is the highest figure in the world, and almost 50% higher than runners-up Switerland and Germany. Estimates show that this year the US will spend 18% of our GDP on health care. The startling figure is that in terms of overall health outcomes the United States does no better than the countries that cluster around the 11% GDP range like Sweden, Switzerland, and Germany…So in fact, somebody is getting a raw deal here.
We know that the US has many of the most advanced health care centers and the best technology available. We also have rigorously trained doctors who work long hours and are devoted to their practice. Given those facts, we should either have less expensive, more efficient care, or better care that results in better outcomes. Some people probably do have great outcomes, when they can afford to get the care they need, it turns out to be really good. But for others, they are getting sub-standard care or are getting ripped off.
Why should Americans, who live with the “freest” market, with no organized care, be getting the worst deal in the world. The prices for most other goods are set by market forces: food, restaurants, gas, property, electronics. These prices are generally the same in terms of quality except where there are some subsidies, of which there are a few in 1st world countries. However, the free market has failed for health care and health insurance.
In most states, for the private consumer of insurance, there are one or two choices. Imagine having just two parties to choose from when deciding on elected officials… Heh, well there you go. Hold your nose and choose the one you think is “best,” and prepare to be disappointed. When you end up with a broken leg or get cancer, you may or may not get what you thought you would to cover your medical bills. If you are lucky, you will have your care covered, but maybe the wheel will come up double zero and you get the “pre-existing condition excuse.” Maybe you thought you could use your doctor, but he turned out to have gone out of network, and you get to pay 50% of the bills for your orthopedic surgery. How can one make a good decision if they don’t even know what they are getting? Can Adam Smith’s invisible hand operate if it is also blind?
If the system worked well, you would submit your bill for services that a doctor said were essential to bring you back to health, and an insurance agent would quickly look to see that it was signed by the doctor and quickly pay off the bill. Instead, there is an entire bureaucracy using your premium dollars to make your service as bad as possible. Once you get an expensive malady, the insurer has no reason to care if you are satisfied or not. Now, with a choice of many insurers, one could read reviews of different providers and there would be competition in customer service if they wanted anybody new to sign on. In reality, with virtual monopolies (or duopoloies), you don’t have a choice, both can collaborate to be equally stingy in payouts, and if you become an unsatisfied customer, you can switch providers but if you manage to succeed in changing, you will never get coverage for anything related to the now “pre-existing condition” that was so poorly treated by the other insurer.
Let’s go a little further shall we. Many of us have coverage through our employer. Here, your health care is subsidized by the government by virtue of it coming out of pre-tax employment benefits. If you are unfortunate and have to purchase coverage for your and your family, give Uncle Sam his due first. Here, there is probably not much consumer choice as you are stuck taking what your employer gives you. It’s probably better insurance and a better deal; but don’t get fired, or you will only be able to keep that great deal for 15 months under COBRA. And you will have to pay through your nose to commission the help of an evil terrorist organization bent on taking over the world. And once it’s over, hope that you don’t have any health problems when you want to pick up one of the privately available providers or you will be denied. Great choice there.
So the market for health insurance doesn’t hold a candle to a free market. There is low consumer mobility, lack of choices, and light competition. There is also a lot of uncertainty in the services that are provided, a lot of subsidies, and a lot of overhead. Remember, health insurance is like paying for services before they are rendered, so the financier benefits by paying out as little as possible.
This is only the insurance part of health care financing. In the next installment we will look at the free market failures of pricing, billing, and compensation.
In the US, we spent about 15% GDP on health care. This is the highest figure in the world, and almost 50% higher than runners-up Switerland and Germany. Estimates show that this year the US will spend 18% of our GDP on health care. The startling figure is that in terms of overall health outcomes the United States does no better than the countries that cluster around the 11% GDP range like Sweden, Switzerland, and Germany…So in fact, somebody is getting a raw deal here.
We know that the US has many of the most advanced health care centers and the best technology available. We also have rigorously trained doctors who work long hours and are devoted to their practice. Given those facts, we should either have less expensive, more efficient care, or better care that results in better outcomes. Some people probably do have great outcomes, when they can afford to get the care they need, it turns out to be really good. But for others, they are getting sub-standard care or are getting ripped off.
Why should Americans, who live with the “freest” market, with no organized care, be getting the worst deal in the world. The prices for most other goods are set by market forces: food, restaurants, gas, property, electronics. These prices are generally the same in terms of quality except where there are some subsidies, of which there are a few in 1st world countries. However, the free market has failed for health care and health insurance.
In most states, for the private consumer of insurance, there are one or two choices. Imagine having just two parties to choose from when deciding on elected officials… Heh, well there you go. Hold your nose and choose the one you think is “best,” and prepare to be disappointed. When you end up with a broken leg or get cancer, you may or may not get what you thought you would to cover your medical bills. If you are lucky, you will have your care covered, but maybe the wheel will come up double zero and you get the “pre-existing condition excuse.” Maybe you thought you could use your doctor, but he turned out to have gone out of network, and you get to pay 50% of the bills for your orthopedic surgery. How can one make a good decision if they don’t even know what they are getting? Can Adam Smith’s invisible hand operate if it is also blind?
If the system worked well, you would submit your bill for services that a doctor said were essential to bring you back to health, and an insurance agent would quickly look to see that it was signed by the doctor and quickly pay off the bill. Instead, there is an entire bureaucracy using your premium dollars to make your service as bad as possible. Once you get an expensive malady, the insurer has no reason to care if you are satisfied or not. Now, with a choice of many insurers, one could read reviews of different providers and there would be competition in customer service if they wanted anybody new to sign on. In reality, with virtual monopolies (or duopoloies), you don’t have a choice, both can collaborate to be equally stingy in payouts, and if you become an unsatisfied customer, you can switch providers but if you manage to succeed in changing, you will never get coverage for anything related to the now “pre-existing condition” that was so poorly treated by the other insurer.
Let’s go a little further shall we. Many of us have coverage through our employer. Here, your health care is subsidized by the government by virtue of it coming out of pre-tax employment benefits. If you are unfortunate and have to purchase coverage for your and your family, give Uncle Sam his due first. Here, there is probably not much consumer choice as you are stuck taking what your employer gives you. It’s probably better insurance and a better deal; but don’t get fired, or you will only be able to keep that great deal for 15 months under COBRA. And you will have to pay through your nose to commission the help of an evil terrorist organization bent on taking over the world. And once it’s over, hope that you don’t have any health problems when you want to pick up one of the privately available providers or you will be denied. Great choice there.
So the market for health insurance doesn’t hold a candle to a free market. There is low consumer mobility, lack of choices, and light competition. There is also a lot of uncertainty in the services that are provided, a lot of subsidies, and a lot of overhead. Remember, health insurance is like paying for services before they are rendered, so the financier benefits by paying out as little as possible.
This is only the insurance part of health care financing. In the next installment we will look at the free market failures of pricing, billing, and compensation.
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