Sensible Health-Care Reform (Part 4): Health-Care Costs Drivers, II

This is the third of a series of commentaries, written from a free market, individual-centered perspective, examining the serious deficiencies of our current health-care system, the underlying root causes of those problems, the looming government fiscal catastrophe secondary to health-care entitlement spending, the failure of the recently passed health-care “reform” to address the grave problems facing our nation related to health-care delivery, the harm the recently passed health-care “reform” will cause to our seriously ill economy; and a proposal for a framework to truly, effectively, and sustainably reform our health-care delivery system. This report continues the discussion on the underlying cost drivers of our health-care system.

The author feels obligated to disclose underlying bias: 1. this analysis reflects the author’s strong belief in the efficiencies and fairness of truly free markets as well in the individual’s right and responsibility of self-determination and of self-reliance. 2. I have 3 daughters, 3 nieces, and 9 nephews who deserve their opportunity to live the American Dream – a dream made possible by the protection of our unalienable rights endowed by our Creator.


Health-Care Costs Drivers – The 3rd Party Payer System

While the pursuit of progress in the medical field ultimately brings us significant benefits, other major drivers contribute to escalating health-care costs that add no such value. Of those, the third party payer system is the central critical driver of health-care costs. It is estimated that 5 out every 6 health-care dollars spent are paid by a 3rd party payer. The 3rd party system effectively disconnects the patient (consumer) who utilizes health-care from the cost of that care. For both private and government provided health-care insurance, the consumer of health-care services has little or no incentive to utilize health-care dollars wisely. We have all seen “The Scooter Store” commercials. “Attention Medicare beneficiaries, if we pre-qualify you for a scooter, you won’t have to pay one cent for your scooter.” Or another example commonly experienced in orthopaedic practice: a patient demanding an MRI be done to evaluate a problem even though the physician does not feel it is indicated.

It is natural to value little something that costs little. Further, to some extent, many consumers feel obligated to utilize as much of their health-care benefit as possible. Those with employer provided insurance understand that they have deferred significant direct compensation for their health-care and want to get their (deferred) money’s worth. Similarly, many of those with government funded insurance feel entitled to utilize that government benefit as much as desired. This arrangement creates an unlimited demand for health-care spending. The truth of this situation is evident in the legislation that requires certificates of need (CON) in many states for opening MRIs, surgical centers, and other costly health services. CONs control cost by limiting supply of those services. In the current health-care system, our “real world” experience has demonstrated the more capacity that exists for a particular health-care service, the more that service is utilized and the greater the expenditure on that service. In the rest of our economy where free market incentives do function, the greater the available supply of a particular service mainly results in lower costs and greater quality of that service.

This same uncoupling of the consumer of services from the cost of those services also discourages competitive pricing and transparency of pricing and as a result pricing for health-care service varies considerably. The most common response to inquiries regarding the cost of a particular service made to hospitals or providers is “What is your insurance?” Similarly, because the service costs little to the consumer of that service, there is little demand for accountability or transparency with regard to cost, quality or appropriateness of that service. Many times tests are repeated simply because no one has asked if the test has been done or because it is easier to repeat the test than to track down results done elsewhere. Additionally, the 3rd party payer system neither rewards higher quality care nor discourages lesser quality care and as a result quality of care varies more than we would like to admit. Further, the third party payer system, by effectively guaranteeing payment to hospitals and providers, encourages increased expenditure and does not promote competitive pricing for services.

Over the last few years, the spiraling upward costs for medical and surgical treatment in this country have spawned an out of the country nascent industry known as “medical tourism” . For individuals or companies that pay for all or most of their medical care, medical tourism offshore surgical programs provide a cost effective alternative for costly surgical procedures. These surgeries are performed by Western or Western-trained physicians in state-of the-art facilities. These programs operate on a consumer cash basis, provide equivalent or better surgical outcomes, and cost 25% to 80% less than the same surgeries performed in our country. Part of the savings results from elimination of insurance administration overhead, but consumer oriented market forces primarily spur the cost efficiencies, as well as the quality outcomes.

One final thought with regard to the driving of health-care costs by the 3rd party payer system – envision the cost of auto insurance if that insurance not only covered accidents but also routine maintenance, improvements, or even a new car. And further to put the magnitude of some of these costs in perspective – a recent review of an Explanation of Benefits insurance form for a lumbar decompression and fusion, an elective operation, indicated the private insurance company paid, (including preoperative evaluation and treatment, hospital services, and physician services), nearly $35,000. One could buy a top of the line Honda Accord for $30,000.

The next Dr Right installment will examine an additional significant health-care cost driver – government regulation restricting competition among health-care insurance companies.

Call to Action: Though passed by an appalling political process and with complete disregard of our Constitution, though containing ineffective and even harmful policy, though disregarding the inalienable rights given to us by our Creator, the passed health-care reform bill is not the end of the debate but rather a new beginning. It is an opportunity to contrast irresponsible policy with prudent policy, to contrast misconceived policy with thoughtful policy, and to contrast policy that places government in the center with policy that places the individual in the center. Get in the fight and stay in the fight. We have learned, the hard way, the consequences of leaving it up to the career politicians. Contact your legislators and demand they exercise the privilege the voters gave them to represent us to effectively address health-care delivery and the other problems facing our states and nation. Learn about the issues and talk to others about the issues. We must join and financially support conservative think tanks that promote traditional American economic principles, personal freedoms, and values; and that shine the light of accountability on irresponsible or faulty government action and policy. Those organizations include The Heritage Foundation, The State Policy Network, The Commonwealth Foundation and your state’s conservative think tank (see SPN for your state’s organization). We must join and support our local grass roots organizations like the York 9-12 Patriots, York County Action, York Campaign for Liberty, and others, so we can take back the political process that has become corrupt and ineffective. We must work to bring up, from the grass root level, candidates – principled persons (Republicans, Democrats, and Independents) who will actually solve problems, who will respect the Constitution of the United States, and who will honor the “consent of the governed” entrusted to them by the citizens of our counties, states, and country.

God Bless and God Bless America