why *shouldn't* our healthcare be expensive?

Suppose you go to a restaurant.  You look at the menu, and there you see a soup.  The soup uses prime meat, fresh, exotic vegetables, and rare seasonings.  The soup is personally prepared in a time-consuming process, by the very highly qualified head chef himself.

The price of the soup is very high, and many patrons cannot afford it.  The manager demands to know why, and sets out to see which "inefficiencies" are making the soup too expensive.  Somebody, he reasons, is charging too much for something that's going into the price of the soup.

Many people have started from the conclusion that healthcare is simply "overpriced," and are now working their way backward from that conclusion to find evidence that supports it.  Somebody, somewhere, they reason, is simply making too much profit.  Somebody, somewhere is "wasting" healthcare dollars.

Ignoring whatever you believe the actual performance of the American healthcare system is, relative to other systems, consider the purely technical requirements it must meet, compared to those systems.  Forgetting whether you are satisfied with the product, consider the quality of the ingredients that go into it relative to the products delivered in other countries.

Are our healthcare professionals any less trained than in other countries?  Are our facilities any less capable?  Do we have less equipment, or is our equipment inferior in any way?  Do our medicines and procedures go through a less expensive approval process?  Do we use more midwives than other countries, or permit more nurses to do procedures that require doctors in other countries?  Is an injured patient likely to receive less compensation than in other countries?  Does our healthcare culture take more shortcuts, or is it any more likely to forgo expensive tests? 

In other words, if we are going to require that only the finest ingredients go into a product, then we should fully expect that the product is going to be very expensive -- irrespective of whether individuals agree that the product is a good value.  Even if nobody thinks the product is a good value.  Furthermore, the law of diminishing returns tells us that at the very high end of the quality continuum we should expect to pay increasingly more for marginal improvements.

We focus an awful lot on whether healthcare is simply overpriced, considering that we already know the high bar for all the factors that go into it -- again, regardless of whether you agree that the quality of the care delivered is worth it.

I know many people favor paying less for doctors, for example -- not just ripping off the doctors we have, but accepting slightly inferior doctors -- presumably as a way a government plan could economize.  But I notice they never advocate less expensive (lower qualified) doctors in the system we have now.

You know, if we were to cut out enough of the gold-plating in the system we already have, then the scope of the problem -- the number of people who are excluded from it -- would be smaller, making it an easier problem to solve.

Except, of course, for people who are really only in this because they want a particular solution.

That's the John  Galt Line.

Comments

[J Green]

Your premises are spot on, but it seems to be the trend of late to defend a faulty system to avoid a more terrible institutionalized one.

When paying for quality, expect to pay an appropriate value.

Unfortunately, production and research costs in America do not on reflection account for the high gross incomes in the medical industry - an industry that has seen ever increasing growth in production and available staffing with lower wages yet has not reactively lowered costs that were never true reflections on the value or product or service offered. I've had two throat infections during the time I spent in the United States, my total medical bills ran upwards of 1500 dollars and I suffered post treatment complications I could've sued over had I not been forced into a situation where I was flat broke simply to attain the minimum of care available. I returned to the UK due to ill health where I was informed I had been misdiagnosed, I was treated for the same symptoms at a cost of 10 pounds total (around 1000 times less).

One thing to consider is that those majority millions of people paying high prices but receiving poor service, contribute much more to the medical industry's ability to provide excellent care than the minority paying a surcharge to attain better service and a higher standard of care.

The point is the concept of expensive and inexpensive healthcare is unreasonable to apply in any context, it should never be either. It should always be logical and reasonable.

Right now the Medical industry predominantly uses the poorer middle class to fund the rich, who complain about having to fun the lower class. The medical industry, like the government, is very good at passing other people's money around like a game of cups, and like government the only way to win is to bribe someone, whether that bribe be injecting money into a presidential campaign or signing up for an expensive plan that you feel justifies the comparative level of care you receive.

If I was American, I'd rather not feel like I was making the choice between two evils - even if one suited me.

[John Galt]

The reason I made no statement about actual delivered quality is precisely because I know we don't all agree. I think the quality of care here is better than you obviously think it is, but I don't need to fight that battle to make the point: We demand something that should be very expensive, regardless of whether we get it.

Medical incomes in America may appear to be out of step with rest-of-world, but they are competitive with other American salaries requiring similar training. When an American chooses an occupation, the alternatives are not to undertake the same employment in other countries, but to undertake other jobs in America.

Your 10 pound treatment -- was that the actual cost, or simply your portion of the bill?

Healthcare is a regressive expense, but more so because the poor are only permitted to purchase a level of care designed for deep pocket payers.

"The point is the concept of expensive and inexpensive healthcare is unreasonable to apply in any context, it should never be either. It should always be logical and reasonable."

I don't think that rings true when you consider the prospect of an expensive test to rule out a diagnosis that's both serious and improbable. A wealthy person could logically and reasonably make a different decision about ruling it out than a poorer person.

"If I was American, I'd rather not feel like I was making the choice between two evils - even if one suited me."

The system we have is arguably not as evil as the propagandists who seek an alternative would have you believe. Despite call for reforms, Americans are quite satisfied with the care they receive, and that is why there are such strong promises that people will be permitted to keep their current plans.

[Francisco Domingo Carlos Andres Sebastian d'Anconia]

I am usually all for profits, but in the case of health care, I'm not. They are not profits based on people giving value for value. They are profits from fixed prices not market based trading.

Most of healthcare is a commodity just like wheat, corn or oil. There is little difference in an advil in one hospital or another. There is little difference in anesthesia from one hospital to the next. There is little difference in mole removal from one doctor to the next. Insurance companies pay for services at a flat rate, based on the service, and do not negotiate lower prices from doctor to doctor though some doctors may accept lower fees.

Having a 2,500 deductible has taught me more about healthcare that I would have imagined. Every time I go to the doctor I ask him what it's going to cost me. He names a price and I counter offer. He either accepts or counters himself. We search for the price that gives us both value for value. I usually get 50% off.

The insurance company doesn't do that.

That’s the Francisco Money Speech.

[John Galt]

"Most of healthcare is a commodity just like wheat, corn or oil. There is little difference in an advil in one hospital or another. There is little difference in anesthesia from one hospital to the next. There is little difference in mole removal from one doctor to the next."

There is little difference because the product is so heavily standardized by regulation and litigation. You are accepting the very false premise that the original post challenges.

Allow physicians and patients to decide what constitutes an adequate healthcare solution to the patient's particular circumstances, and the resulting combinations will no longer be a single uniform commodity.

As it stands, the "packaging" is determined by the FDA and the ABA.

[Francisco Domingo Carlos Andres Sebastián d'Anconia]

Who pays sticker price at a car dealership? Who pays sticker price at a hospital?

When you shop for Advil (or generic) in the store, how much do you pay for it? When you are given 1 pill in the hospital, how much do you pay for it.

Trick question. For 90% of people the Advil they receive in the hospital is cheaper because it is *free*. It is of no concern because the insurance company is paying for it. In reality, it's $20-30 per pill on your itemized hospital bill vs. .08 at Wal-Mart.

There is no concern about the cost by the end consumer because they aren't directly paying for it. They are spending *other peoples* money.

The premise I'm challenging is this:
"In other words, if we are going to require that only the finest ingredients go into a product, then we should fully expect that the product is going to be very expensive -- irrespective of whether individuals agree that the product is a good value."

I do not purchase anything that isn't a good value. Value is a function of price and utility. I only pay a price that matches my perceived utility. People will only accept a price that matches their perceived utility. Only when there is an over lap between two parties does trade occur. Do you think an Advil is valued at $20 in the hospital? I doubt people with full coverage believe it is that valuable either. But they pay it indirectly through their insurance company. This is not trade or capitalism.

[John Galt]

There's no doubt that you are insulated from prices because you go through an insurer. But the premise you are working with is that you need an insurer because it's too expensive for you to buy the care on your own.

I'm exploring whether care could be so affordable that you could pay for it out of pocket, if, for example, you gave your doctor a waiver to only provide the treatment he thinks you need, rather than what protocol says he must provide.

If you committed to pay that part out of pocket -- instead of laundering it through an insurer -- then actual catastrophic insurance, for only statistically unlikely things mere mortals cannot afford to pay for on their own, could be quite a bit more affordable -- for everyone. Crisis solved.

There are many tests and procedures in the treatment of disease, but much of that is precautionary; a sort of CYA for the doctor. What if your doctor could treat you on the basis of what he thinks you need in order to be cured, instead of what he thinks he needs in order to be safe from litigation?

[Francisco Domingo Carlos Andres Sebastián d'Anconia]

No, that is not my premise. My premise is that health insurance should match auto insurance. Auto does not pay for oil changes, it doesn't pay for tires or windshield wipers. People can afford trips to the doctor without insurance. People can't afford if someone t-bones their car at an intersection.

"I'm exploring whether care could be so affordable that you could pay for it out of pocket, if, for example, you gave your doctor a waiver to only provide the treatment he thinks you need, rather than what protocol says he must provide."

No need to explore, my care IS so affordable that I pay for it on my own. Simply because I ask for a lower price. My insurance is only for major issues.

To your theory of "doctors have their hands tied" I'm sure there is some truth to it. But have you ever asked for less care? I have. Ever get a mole removed? It costs about $35 for 3 of them. Cancer lab analysis cost $125 / piece. You don't need to get it. I don't.

People with insurance always get the analysis because they aren't paying for it.

[JohnJ]

But the reason why it doesn't is because of government regulation. I linked to a John Stossel piece explaining more today.

[Brandon]

I worked as a consultant for a major health insurance provider and I was disgusted by the way they waste resources. Instead of fixing a simple software problem that results in dropped medical claims, they'll hire 3-4 people to manually edit and resend the claims. Those people then stay on for years, doing the same thing every day. This has resulted in entire departments of employees whose only purpose is to push paper, and all these processes have a bureaucracy, which adds more overhead. All this overhead costs money in terms of salaries and it reduces the quality of service. This doesn't even consider whatever bonuses the executives are giving themselves for band-aiding up their problems.

I don't know a lot about medical clinics and hospitals, so I won't speak to that. I do think there's a big problem with health insurance though. That market is in desperate need of leaner, smarter competition. The concept of distributing risk through insurance is a good one but there's way too much dead weight, and I don't fancy supporting that load on my back.

[John Galt]

Brandon, if you wanted leaner, smarter competition, then presumably you would have a problem with entire states that are served by only a handful of insurers (or fewer), no?

Or are you saying that simply adding one more big (but government-sponsored) competitor would actually reduce the bureaucracy?

[TQ]

I'm skeptical that insurance companies have entire departments of useless people whose only job is to push paper around. They have profit margins between 2% and 3% and they're not running a charity. Why on Earth would they keep around a bunch of people doing nothing when those people reduce profits? If they are actually mismanaged that poorly, well shareholders ought to be asking management why they're intentionally reducing profits.

I suppose it is possible since insurance companies are protected from competition, but you'd think they'd want to squeeze more profit out of their monopolies. I know my monopolistic cable/internet provider sure does this. But this would just make a stronger argument for real deregulation and competition. If you keep around useless employees in a competitive market you will go out of business.

[Dagny Taggart]

If healthcare existed in a free market it is unlikely that we would even be discussing this issue.