My Case for Single-Payer

The current health care reform bills, as far as fixing the absolute problem goes, don’t cut it. One of the biggest problems is the medical system. Consider this story about a student’s struggle with the American medical education system:

“Mitchell had scraped together the money to prepare for and take the med-school admissions test, but even as she studied, she had begun to waver. “It had taken me over a year to save the $1,400 for the test and prep course and they said, ‘We recommend that you apply to no less than twenty schools,’ at about $200 each.” And there were still the costs of plane tickets and a proper suit to interview at schools. She did well on the exams, but Mitchell was spending a lot of money to fulfill her goal of serving the poor.”

That’s just trying to qualify to and to apply for schools. The rest of the journey through the medical education field is even more expensive.

Then there’s the problem with people wanting to be specialists because of the pay:

Melissa Rose Mitchell was discouraged. After taking the Medical College Admission Test, she was uneasy about applying to medical schools. In prep courses for the exams, she had glimpsed her future as a doctor, and she didn’t like the environment she saw. “People were like, ‘What kind of doctor do you want to be?’ and it was all based on how much money you make,” the Oakland resident recalled.

So medical schools are churning diplomas for greedy people and calling them doctors. This is all a part of the pay-per-service system we have: the more people get churned out through the hospitals and clinics, the more money is to be made–and specialists make it possible to turn medicine into an assembly line. You would think, then, that this would make health care cheaper! It doesn’t, because specialists demand an arm and a leg because they have leverage with their educational background to demand a bigger piece of the hospital’s pie. The hospital wants those specialists because they want the best and brightest to compete with other local hospitals. On top of that, the hospitals want to compete by having the best and newest expensive equipment and machines. Some hospitals even advertise this; whenever you see a hospital advertising about their state of the art heart care facilities, they’re touting the most expensive equipment available.

Hospitals keep trying to one-up the competition, trying to convince the locals their hospital is better. These machines, as expensive as they are, don’t always add to the actual benefit and health of the patients.

According to the latest data, the United States has just over one MRI scanner for every 40,000 people. That number that may not sound high, but it means that we have more than three times as many devices per person as you will find in the United Kingdom or France, and almost four times as many as in Canada. Only Japan, an MRI-happy outlier, has more.

Obviously, the MRI is an extremely useful tool, giving doctors an ability to see inside the body and diagnose conditions that would otherwise have required them to probe and cut their patients’ bodies. It is also expensive to buy—about $2 million—and expensive to operate. Worse, the machine is used aggressively for tests such as breast cancer screening and yields a high rate of false positives that lead, in turn, to unnecessary surgeries.

So, not only do these $2 million machines make hospitals have to charge patients (and, as a result, insurance companies) more, they hire specialists to run them and perform the unnecessary surgeries that result from the false positives (which occur much more than people think).

This also forces insurance companies to haggle with hospitals and medical facilities about the soundness of the medical results, adding to denials of coverage. Regardless, insurance companies still pay up despite the growing price of medical care and, because the insurance companies have to do right by their stock holders, either drop their high risk/liability customers and raise their insurance premiums in order to ensure they maximize potential revenue and profit.

Insurance companies dropping customers and raising premiums is much easier than haggling down medical prices in general. The monolith isn’t the insurance companies, it’s the medical industry itself. Insurance companies have to do what they must to keep profit margins at least level with previous profit margins or, perhaps, increase that margin–it’s their duty to their stock holders. The medical industry does the same thing but they compete like crazy with other hospitals and, as a result, drive prices up. There goes the more competition drives prices down false meme people love to throw around.

Why does competition not work? Because hospitals will still get paid more than they won’t get paid. Insurance companies will pay more than they will deny.

So perhaps the rug should get pulled from under the medical industry and insurance companies should be gotten rid of? Make people pay for their own damn health care instead of the not-insurance companies paying for their medical care? Consider how health insurance works: it’s a pre-paid system, not a real insurance system like car insurance. It’s a proxy that’s not that necessary.

Niklas Blanchard has more on this:

I favor the former. What is called insurance in the United States and throughout the world is a perversion of the word “insurance”. What it amounts to is pre-paid medical care. Under these type of systems, there is little incentive to keep costs from ballooning. Nearly everywhere in the developed world, growth in the price of medical care is an unsustainable portion of public budgets. Many leftist-liberals bandy around levels of spending:

This looks like a large anomaly…but what you should be looking at is rate of growth. Ceteris paribus, levels are misleading here, as the richer the country becomes, the more it spends on health care. Here are the growth rates:

It is hard to see, but the US is at the end, in orange…with an average annual growth rate of 3.66%, less than the OECD average…and much less than OECD outliers like Greece, South Korea, and Turkey. The rub is, we may be getting more health care, but it is highly unclear that we are getting better health care.

So what do we need to do to improve the situation? My first answer will not sit well with leftist-liberals — we should turn routine care over completely to the marketplace, with payment on delivery of service (in cash). This is one area of care where price should be falling. There is very little new technology that you encounter when you go to get a yearly physical, or get checked out for a bad cold, the flu, or strep throat. Indeed, in my 25 years on this earth, the same tools have been used to administer tests for every one (besides digital scales…but tons of people have one of those in their bathrooms today). This is a portion of medicine that should behave like retail. Call it retail medicine. In fact, bundling it with chains could provide for loyalty incentives that included free checkups, like your Safeway Card gets you discounts on gas. These services should be advertised on TV, complete with prices! I have heard it said that insurance should lead to lower prices…but that does not follow from the economics. In this market, insurance companies exist to extract rents, and then use monopsony power, along with the provider’s monopoly power to fix prices. It doesn’t matter to the insurance company what that price is, because it will just extract the rent from its customer base.

There’s much more to his blog post, including how to deal with catastrophic insurance; it’s worth a look.

One big benefit of this is that hospitals and clinics will not be so sure they will get paid at the end of the day. Patients will come through their doors and carry cash. Great! Some won’t. Bummer. More people will pay than won’t, much like insurance companies do, but individuals are not as capable of paying as much for medical care as insurance companies potentially can. This essentially counters the current competitive nature of the medical industry: instead of trying to compete with the best and brightest, hospitals will compete by bringing down prices. That would, in turn, make medical care more accessible to those who would but can barely pay.

The problem with this idea, of getting rid of the pre-paid health insurance problem, is that it still leaves some areas of the country vulnerable. One of the benefits of health insurance is that people in both poor and sparsely populated areas have their health care subsidized whether they have insurance or not (people without insurance are even more subsidized) by those who do have insurance. Hospitals and clinics in poor or low population areas will not have as many paying patients to churn out. Even if medical facilities bring down their prices through competition, these areas will not reap the benefits of the new paradigm shift in medical cost pushback.

So what’s the solution, then? How can we make it so those hospitals and clinics which serve the poor and low population areas of the country (which account for the majority of the continental U.S. land mass) can bring their prices down?

Price controls. That’s the only way that’s possible. That or subsidies for poverty stricken or low population areas.

But wait, isn’t there a way insurance companies can push down prices? Sure. It’s called Medicare. Medicare is the only insurance organization that actively forces prices down. That’s why doctors are so reluctant to accept Medicare: private insurance companies who find it easier to just drop people or raise premiums will pay for the higher medical service prices instead of haggling and forcing prices down–it’s easier for hospitals and clinics to just not care for Medicare patients. Why care for Medicare patients when they can just charge an arm and a leg to an insurance company?

If Medicare didn’t have to compete with the insurance companies (the useless proxy), the medical industry wouldn’t have that little bit of an out with the private insurance companies. Medicare would haggle the high cost out of the medical industry’s prices, creating cost controls.

One might ask: well, wouldn’t it be easier to just raise taxes to pay for higher Medicare costs instead of haggle medical prices down?

Sure, it might be easier if legislators want to start the next Taxopocalypse and another Tea Party revolution. Medicare has built-in laws to push down reimbursements to doctors. It’s easier to just push down prices.

Another might ask: well, Medicare costs an ass load of money right now, wouldn’t Medicare for everyone cost even more?

No. Medicare costs a lot right now because it cares for the most expensive people to care for: the elderly. Medicare is subsidizing the private health insurance industry by taking its most expensive and high risk customers and leaving the healthy, low risk jerks to the profit-loving insurance companies. The insurance industry loves the Medicare system because of this. If Medicare didn’t exist, private health insurance premiums would explode. That’s why the insurance industry never fights the existence of Medicare. They love that it’s there.

On the other end of the spectrum, if Medicare covered everyone, it could have the same effect as if there was just one private insurance company: it would have the monolithic power to push down prices, especially since Medicare would have the power of the law and government behind it to enforce the price push back.

This Medicare system is called a single-payer system. It’s called socialism. It’s called something that can actually fracking work.

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One thought on “My Case for Single-Payer

  1. Pingback: The Trends to Foster (Reply to Edwin Perello) « It Don't Mean Much, These Seats are Cheap.

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