These blog posts started months ago, with me questioning why exactly Universal Health Care was innately bad on Facebook and proceeding with me reading various analyses and articles on the issue. So the following blog posts are a summarization of my understanding of the issues at stake and an overview of the solutions that have made the most sense to me in my readings. I’m writing this for my benefit as well as anyone who would like a bigger picture view of the system and it’s flaws. I am organizing the posts so that I explore all the flaws first, and then some potential solutions that make sense to me, and I am trying to keep the posts to bite-sized chunks. I am of course, always open to discussion.
The Healthcare System
There are two main critiques of the healthcare system that we are supposed to be solving with whatever bill emerges. The first is that there are millions of uninsured people in America who either can’t obtain care because of “pre-existing conditions” or are unable to afford healthcare but don’t qualify for the existing government programs. Secondly, there is the issue of excess, fraud, and inflation in healthcare – estimates are that about 30% of all medical services provided are unneeded, but are still covered by insurance thus contributing to the rising costs. Because of these unneeded services, healthcare costs are rising faster than the GDP or the average American’s income.
It would seem that the two problems are directly linked – as healthcare costs rise yearly, insurers must be more careful about who they cover and what issues they cover, leaving millions of people uninsured with no hope for coverage that is reasonably priced.
This is the simple version though – and as I’ve read what I’ve had time to read and parsed the sometimes overwhelming amount of information, my frustration has risen at the amount of people who take this simplification at face value and assume that this is the totality of our problem and that’s why a simple solution is needed. This is the American way though – we boil something down so simple that it’s seemingly a straw man, and then we just fix the straw man. But the devil is in the details, and healthcare is all about the details so that is why I’m writing these posts.
The Complications
The Healthcare system as it stands now is not a free market system. Politically minded people want us to believe that the choice is between our free market status quo and Obama’s socialistic plan. This is not the case, and it is confusing a lot of people. Right now as a consumer of insurance, my best bet for obtaining coverage is through an employer based group plan. That plan is provided by a Insurer that can only operate in the state I live in, meaning that in every state in the US insurance works differently and has different main players. To provide coverage in each market, each insurer must negotiate with each Healthcare provider to decide on rates and coverage for each service provided – and the rates that the Healthcare provider and Insurer decide on in no way change the rates that another insurer might get with the same healthcare provider.
Because of these problems, we work in a very monopolistic market, where each state is dominated by two or three major insurers. Those insurers are the only choices employers have for providing insurance, and anyone who cannot join group coverage is faced with the exorbitant costs of premiums that come with individual coverage. They have no real choices because there are only two or three major providers and these insurers have any incentive to compete with each other on individual plans because their main consumers are businesses who obtain group coverage.
I should note – the laws right now do not allow insurers to provide coverage across state lines, this is a legal hindrance and not a choice on the part of insurers. Because of this, each state is a unique market in healthcare and prices fluctuate from state to state (and often city to city within states) because there is no actual open market that guides pricing.
Pricing in the healthcare industry is yet another confusing, non-free-market system. Every hospital sets the prices for what it thinks the services it offers are worth. This is probably not completely arbitrary, but it can vary a great deal within a city. No hospital is required to publish a price list and there is no free market pressure to reduce prices as each hospital usually is only competing for business from a few major players (the main insurers in that market). Consumers have no knowledge up front of the cost of their medical procedures and thus are unable to make economically-minded decisions about healthcare. That point will be revisited.
For an insurer to provide coverage at any specific healthcare provider, the insurance company has to actually go to that healthcare provider and negotiate rates for all the services they provide. If a hospital says that a certain test costs $1000, the insurance provider will negotiate how much they have to pay for all the people they cover if those people receive the test, and it will typically be a drastically reduced rate (like say, $300-400). But EVERY insurance provider has to do this negotiation, and all of them will get different rates. It used to be (until a decade or so ago) that hospitals were the losers in this battle, because they were the small dog at the negotiating table.
A decade or so ago, coinciding with the rise of the HMO’s, hospitals began banding together into networks, increasing their negotiating power with insurance providers. Because the insurers goal is to have as many choices for the people they cover, when hospitals banded together, insurers had more incentive to come to an agreeable deal with the hospital networks so that their insurees had more options. Before the hospitals banded together, the insurer always had the option of saying due to unreasonable rates, we will not provide coverage at your hospital to the thousands of people in your market. The hospitals banding together into large networks removed this threat because an insurer couldn’t risk not providing coverage for so many hospitals in a certain market.
This move on the hospital’s part, and the increased power on their part at the negotiation table meant that rates started rising – insurance providers could no longer lowball. But the combination of state line limits on insurance providers with the new hospital networks means that in each state the size of the insurance provider dictates the rates they receive – the hospital networks didn’t just even the scales, in many cases they tipped the scales in the hospital’s favor. If an insurer in a specific state doesn’t have a lot of clout (meaning a large amount of people that they cover in a given hospital network’s area), they cannot negotiate lower rates. This only increases the monopolistic market of insurance, as only the biggest insurers can negotiate lower rates with more healthcare providers so that their premiums don’t rise as fast. The smaller providers are stuck with higher rates that they must pass on to the consumer.
Tomorrow: “The Issues with Doctors”
Thanks for starting this blog. As a person who lives and breathes and uses healthcare, I find it informative and helpful!
Amen on the publishing of pricing. Give the power to the person spending the money to make good decisions based on what they can afford. I purposely have a high deductible insurance plan with a supplemental Health Savings Account (HSA). However, I don’t know what my costs will be for non-preventative care (one preventative care visit per year is covered). Not that everyone would make the best decision but more people would be able to plan on paying for care. I know it’s more complicated than that, as people might then put off going to the doctor knowing the price of a particular treatment or visit.