Friday, March 13, 2009

Doyle through the looking glass on health care cost

Governor Doyle occupied one of the featured blog post spots over at huffingtonpost yesterday in which he extolled the virtues of BadgerCare Plus and FamilyCare. I leave it to others to judge whether or not these programs are successful enough to serve as national role models, but this line was a real eye-catcher (emphasis mine):
More than 46 million Americans lack access to basic medical insurance, clogging our emergency rooms and driving up costs for those lucky enough to have coverage.
Doyle has this exactly backwards. Our system is one in which the uninsured subsidize the insured.

Insurance companies negotiate discount prices with health care providers (including prices for emergency room visits) which is a perfectly rational strategy for maintaining a profitable business.

Providers, knowing that they will have to negotiate their prices with insurance companies, have an incentive to set their initial prices high so that they have room to maneuver and still cover their costs (and make a profit if they are a for-profit entity).

This drives up the initial price for all health care that is ever paid for by insurance, but insured patients do not pay the initial price. If, however, you happen to be one of the unlucky 46 million without insurance, guess which price you pay. That's right, the higher initial price-without a discount. That is not to say one couldn't try to negotiate their own discount, but this is a hit and miss prospect at best.

Through this system of distorted prices then, it is those without insurance that pay the highest prices, subsidizing those that have insurance coverage.

Regardless of where you fall on the spectrum of ideas about what our health care system ought to look like. Whether you are an advocate of single-payer universal coverage or you think that we should just give everybody a leech, a band-aid, and wish them luck, confronting the distorted prices that are a major characteristic of the way we pay for healthcare will be absolutely necessary if we ever hope improve the system.

There is also a price distortion which results from Medicare and Medicaid reimbursement rates being less than provider costs. Providers then work to shift these costs on to those with private insurance and those that pay for medical care themselves (that is, the uninsured). This represents a hidden additional cost of Medicare and Medicaid. A cost that is above and beyond the payroll taxes which are collected to pay for these programs. See health care economist Uwe Reinhardt's comments on this episode of NPR's Fresh Air.


Dad said...

Your post is interesting and informative; I never thought about what uninsured people pay at the ER, for example. Are there any statistics about the number of people who can't/don't pay and the amount of money they have left unpaid. Who pays for them or what happens to the debt?

johnny said...

As it stands now, the US healthcare system is unsustainable. The US spends vastly more than any other nation on health and what do we have to show for it? Higher infant mortality than Cuba, shorter life expectancy than Bosnia. I'm not sure what the answer is but I'm pretty sure that being one of only two countries(also New Zealand) that allows television advertisements for prescription drugs says a lot about where politicians priorities are. Until a system that can allow both insurers and drug companies to keep their sky high profit margins is reconciled with, you know, a healthcare system that actually makes people healthier nothing is going to change. And thats not something thats going to happen anytime soon, if ever.