Why Is Health Care So Expensive? Let Us Count the Conspirators

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I wonder if anybody is talking about health care reform today. If they are, instead of grandstanding and bickering, perhaps it’s worthwhile to take a hard look at the factors leading to more expensive care for everyone, and to make a real effort at bringing those costs down to earth. Because while one of the noble goals to health care reform is providing insurance to more people, it’d be a whole lot easier to do that if health care didn’t cost so darn much to begin with.

An automotive technician gave one of the best quotes about health care I’ve heard:

“I am an automotive diagnostician. We look for the root cause of problems. If we treat the symptoms, the problem always comes back. With health care, we are not treating the root cause: Why does it cost so much?”

Here are some of the reasons … which all lead to more expensive health care for everyone:

Insurance companies are businesses. Their business mission is to make money, not to make people healthy. They make more money when they charge higher premiums and cover fewer health expenses—and over the years, they’ve regularly done both, as one “well-paid huckster” (a former CIGNA spokesman) said after an eye-opening flight aboard his company’s private jet. Those insurance company private jets and multi-million-dollar executive salaries are part of the reason for constantly rising rates (up 131% over the past decade) … which lead to more expensive health care for everyone.

No electronic records. People are freaked out by electronic health records, largely because they fear the records will be used to jack up their insurance rates or deny them coverage. As explained in books such as The Innovator’s Prescription, however, without electronic records, doctors do not know exactly how a customer has been diagnosed and treated in the past, and they’re likely to order repeat tests and write prescriptions for medications that have already been proven ineffective. What we have is a system routinely filled with inefficiencies and duplication of efforts … which leads to more expensive health care for everyone.

“Perverse incentives.” Doctors and hospitals get paid not for keeping their patients healthy, but for the specific, expense-able services they provide. They earn more money for each test, office visit, and treatment that occurs. With such an incentive system, the rational capitalist approach is to have more tests, more office visits, and more treatments. And that’s pretty much what happens. In this sort of system, a perfectly healthy patient brings the doctor and the hospital no income, whereas a chronically unhealthy patient is a much better customer. The incentives encourage more services while not encouraging overall health … which leads to more expensive health care for everyone.

Malpractice madness. As much as 10¢ of every dollar of your doctor’s bill goes to cover the doc’s malpractice insurance. There’s no ceiling on how much a doctor can be sued for, and the costs of rising malpractice rates are passed along to the patients … which leads to more expensive health care for everyone.

Malpractice madness #2. Doctors, ever fearful of being sued for doing too little, tend to go the other way and do too much. Facing the possibility of multi-million dollar lawsuits, they instinctively play it safe and order the extra test and prescribe the extra drug, even if they believe there’s little point to do so. The doctors are thereby protected from getting sued down the line, but at the cost of being overdoing things and being extremely wasteful … which leads to more expensive health care for everyone.

What do statistics mean anyway? Studies demonstrating that expensive surgeries yield no benefits to patients are sometimes disregarded by doctors. The WSJ cites one ground-breaking study on a particular heart surgery. The statistics showed that patients having the surgery fared no better than those who were simply given generic drugs. After the study made headlines in 2007, the number of these surgeries declined. But they have since returned to their levels before the study came out. Why? There seems to be no other reason than that doctors are paid for doing the surgery, and they’re not paid when they don’t do the surgery. So, study or no study, they do the surgery. They’re disregarding a treatment’s effectiveness and performing unnecessary surgeries … which leads to more expensive health care for everyone.

Premium pricing in the ER. Out of fear or panic, or simply because they feel they have no other place to turn, many people go to the ER even when their symptoms suggest simple illnesses such as urinary tract infections or sore throats. And at the ER, their treatments cost as much as six times that of a perfectly capable urgent care facility. This is sorta like bringing your car into the dealer when all you really need is some wiper fluid from the hardware store. Whether the patient uses insurance to cover his ER bills or the hospital absorbs the cost because the patient has no insurance nor money to pay for the visit (collectively, a $36 billion tab in 2008), the costs are passed along to the masses in one way or another … which leads to more expensive health care for everyone.

We’re fat. Obesity adds $147 billion per year to our health care bills. Perhaps some portion of that tab would be better spent fighting obesity—by making fresh fruits and vegetables readily available and less expensive everywhere, for instance—rather than simply using the money to treat overweight people after the fact. For now, we’re using a band-aid approach (XXXL ones, but band-aids nonetheless) to treat what amounts to internal bleeding. The approach only grows more expensive as more and more people become overweight … which leads to more expensive health care for everyone.

We take more pills, and the pills make us fatter. One of the side effects of the increased use of psychiatric drugs is serious weight gain. There are high costs for the drugs, and there are high costs for treating the obesity produced partly by the drugs … which leads to more expensive health care for everyone.

Antitrust exemption. For some reason, way back when someone thought it was a good idea to give the health insurance industry exemption from federal antitrust laws. The result, as a recent NY Times op-ed says, is that a small pool of insurers have been able to dominate the market, and customers have few other places to turn. WellPoint, which has drawn attention for 39% rate hikes in California, is the largest insurer in that state, and also controls 60% or more of the market in Maine, Missouri, and Indiana. The scene is one of very limited competition … which leads to more expensive health care for everyone.

No shopping across state lines. Customers aren’t allowed to buy their insurance from a company outside their state. It’s another way that competition is limited … which leads to more expensive health care for everyone.

What do I owe? That’s what you ask. “How much does it cost?” is a different question, and one that the average health care consumer cares little about. Because most Americans use insurance to pay for even the most routine doctor’s visits, and because employers or the government pay for a large portion of those insurance premiums, we have no idea whatsoever what’s a good price for an MRI, or a cast for a broken wrist, or an annual checkup. And we don’t care either. All we care about is how much the premiums and co-pays cost us at the time we pay them. Even if you did want to find out about the underlying costs—the true costs of such treatments—it’s all but impossible to do so. There is no marketplace, or at least none that the consumer can browse with any ease. Because we’re so insulated from all of the costs, we cannot make informed, cost-conscious decisions, and the way most health insurance policies work right now, we have little reason to do so anyway. If we did, it’s very likely that competition would kick in, and costs would come down, just like they have for treatments that aren’t covered by insurance like Lasik surgery and cosmetic surgery, which the patient must pay for entirely on his own. As it stands, consumers are pretty much removed from price considerations … which leads to, well, you know what it does.

Read more:
A Dozen Disturbing Health Care Statistics