The Problem With Health Care In America In A Nutshell

This passage from an Associated Press article about wildly disparate prices charged by hospitals for the same treatments and procedures sums up in a nutshell the entire problem with health care in America:

There are vast disparities nationally. The average charges for joint replacement range from about $5,300 at an Ada, Okla., hospital to $223,000 in Monterey Park, Calif.

It’s not just national or even regional geography. Hospitals within the same city also vary wildly. In Jackson, Miss., average inpatient charges for services that may be provided to treat heart failure range from $9,000 to $51,000, the Department of Health and Human Services said.

Hospitals usually receive less money than they charge, however. Their charges are akin to a car dealership’s “list price.” Most patients won’t be hit with these bills, because they are paid by their private insurance, Medicare or Medicaid at lower rates. Insurance companies routinely negotiate discounted payments with hospitals.

Is there any other place in the market place where an item might cost as much as 40 times more in one place than another? Obviously, prices vary from place to place. Things like geography, seasons and the type of product or service being purchased all have an impact. But prices for things like books and food don’t vary as wildly as the price of a joint replacement. Not with modern shipping capacity and online shopping.

So what gives in the medical markets? The answer lays in the bolded sentences above. Most Americans aren’t the direct customer for their health care.

Most Americans are covered by some sort of comprehensive health insurance plan, provided either by an employer or the government. Americans don’t shop around for the best price in health care because, unlike with books or food or cars, they aren’t paying out of pocket. The bulk of the cost gets passed on to insurance companies who may or may not negotiate the price.

Further complicating the market is that most Americans aren’t even the customer for their insurance plans. The third party who is providing the plan is the one who choose it, and also picks up a chunk of the cost.

Because of these layers of disconnect between American patients and the cost of their health care, huge and unnecessary inflation in health care costs is possible. Even hospitals that operate in the same city, as the article notes, can get away with overpricing one another by thousands or even tens of thousands of dollars because the patients aren’t really paying attention to the bill. Because it just gets passed on to other people.

The patients pay ultimately, to be sure, through higher co-pays and higher premiums, but by then they’re blaming the insurance companies and the employers (who are, to be fair, often not without blame).

Can you imagine Walmart charging 40 times more for a CD or a bag of potato chips than Target? Can you imagine a Chevy dealer charging 30 or 40 times more for a pickup than a Ford dealer? Of course not. That would be ridiculous. People shop for the best prices on CD’s, potato chips and cars.

But not health care. In the health care markets the ridiculous is possible because we have a third-party health insurance system which disconnects the consumers of health insurance services from the cost.

And not only does Obamacare not address this, Obamacare makes it worse by inserting more layers of bureaucracy and regulation between the patients and the cost.

Want health care costs to come plummeting back down to earth? Promote policy which makes health insurance an individual responsibility, and health care an individual cost.