Why we don't get what we pay for

Before I take up the subject of this post, a note about commenting. I wish I could publish more comments but most of them are ridiculous or off topic. For example, I wrote a post about Kanye West. He was the subject of the post. It was about him. And I get a comment to the effect of Why won't I talk about Black antisemitism? WTF? I post about the high cost of health care in the U.S. and I get a comment about total federal revenues and the federal budget deficit. BTW, obviously federal revenues will generally increase over time because the economy and the population grow. Also you have to adjust for inflation. But that's all irrelevant, it isn't what we're talking about right now. You can see in the side bar that off topic comments will not be punished. I'm actually fairly liberal about that, but if you're deliberately being off topic just to be annoying it ain't gonna happen. Also, if you're banned, you're banned, so give it up.

To understand why we pay more for medical services than the rest of the world, and why we get less for it, we need to take both sides of the question separately. We pay more because of the way we finance the industry. Here are the major bullet points.

1.      Administrative costs: The U.S. healthcare system has a complex administrative structure, which adds to the overall cost of healthcare.

2.      Fee-for-service billing: The U.S. healthcare system often uses a fee-for-service billing model, which incentivizes healthcare providers to order more tests and procedures, thereby driving up the cost of care.

3.      Limited competition: In many parts of the U.S., there is limited competition among healthcare providers, which can lead to higher prices for services.

4.      Drug prices: The high cost of prescription drugs in the U.S. is a major factor driving up the cost of healthcare.

 

These moving parts work together. Health care in the U.S. is paid for by innumerable entities, mostly private insurance companies. (Even public funds -- Medicare and Medicaid -- are usually passed through private insurance companies that actually pay doctors and hospitals.) That means there are high administrative costs on both sides. The insurance companies pay profits to their shareholders, big salaries to their executives, and spend money on marketing. Traditional Medicare, in which the government reimburses providers directly, is much more efficient - only 2 or 3% in administrative costs, compared with 15% or more for private insurers. On the other side, providers need to spend a lot of money figuring out to bill many different payers, that have different rules about what they will pay for and pay different amounts. They also spend money figuring out how to game those systems and squeeze the most they can out of the various payers.  

 

Fee for service billing means that providers get paid to do things to you, not to get results. Since they're the experts, and you don't know what you really need, their bias is to just do more stuff, even if it's low value or even probably bad for you. But that also means they have to do the above, i.e. figure out who to bill and how to bill them for the most. And in many parts of the country, there just isn't a lot of choice of hospitals or providers, which means the payers don't have a lot of leverage. Drug prices are higher in the U.S. than in the rest of the world because the pharmaceutical industry is politically powerful and they have gotten politicians to create a regulatory system that restricts competition and let's them charge as much as they can get. If there's only one manufacturer, and you need the drug or you'll die, and they're charging a quarter of a million dollars for it, they're often gonna get that much.

None of this pertains in civilized countries. Next up: why we're healthy, why we're sick, why we live and why we die.