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Why market competition has not brought down health care costs
- egwynn 9y agoIs that first graph acting super funky for anyone else? I can't really read past it because it seems to keep growing vertically forever (on my iPhone)
- dibujante 9y agoHas anyone considered that perhaps the cost of treating Americans is going up, too? Notwithstanding existing understood market failures, etc., the growth in medicaid/medicare spending tracks the growth in obesity very well.
- epmaybe 9y agoI don't think anyone disagrees with that. Americans are pretty unhealthy.
- Avshalom 9y agoWeird how being unable to afford healthcare correlates with a population being unhealthy.
- Avshalom 9y agoWell I mean being unable to afford to get your broken ankle re-set when it heals weird the first or spending a life in chronic pain or never getting treatment for sleep apnea etc... all seem like good ways to make obesity grow as a result of in ability to pay for medical care and a good way to eventually find your way to being on disability, poor and in poor health and then on medicaid/medicare. So you know maybe it's a vicious fucking cycle. Oh wait actually we know for a damn fact it is and has nothing to do with obesity: preventative care just keeps shit way cheaper that's half the point of the ACA forcing insurance companies to cover at least some of it (the other half being a basic belief in human dignity).
- strictnein 9y agoThe US isn't obese because we all have broken ankles.
- jopsen 9y agoLike so many things that are broken in America, it's not one thing that's to blame - it's multiple: People lives longer; more illness we can treat; growing administration; new expensive technology; few doctors; price gouging; anti-competitive behavior; malpractice lawsuits; lack of preventative care; uninsured bumping in and out of emergency rooms; and so on... Some of these are successfully solved by most western countries. Some of them are quite plausibly not solvable. As we have more technology and treatments to keep people alive, cost will necessarily go up.
- smallnamespace 9y agoKenneth Arrow's seminal 1963 paper[1] is what started this line of argument. It's not very long, and most of the technical details are left to the appendix. [1] https://web.stanford.edu/~jay/health_class/Readings/Lecture01/arrow.pdf https://web.stanford.edu/~jay/health_class/Readings/Lecture0... Classical economics mostly assumes that all participants in the market have access to relevant information to make the right decisions. Arrow's work on signaling theory really started economics on thinking about what happens when that assumption is broken. As anyone who's worked with large distributed systems knows, putting information where it's needed is key to making it work. The economy happens to be a large distributed system.
- matt_wulfeck 9y agoWhy isn't that information from other countries, which does publish it, enough to alter prices here?
- smallnamespace 9y agoThere is a burgeoning medical tourism industry (e.g. fly to India to do your surgery for a fraction of the price), but since the cost of airfare, lodging, food, etc. is at least a few thousand, there's competition with other countries only for well-understood procedures with large out-of-pocket expense. Otherwise, how is the information relevant? Let's say you know that some medicine in the US is $1000 per month , but only $20 per month in India. Well, if a patient is insured, then they don't care about the cost. If that drug is medically necessary, then the insurer has to pay for it even if they're getting gouged by the manufacturer. We're getting the worst of both worlds in a way -- regulations to protect patients make it very difficult for insurers to negotiate on price, but then we also don't generally allow the government to step in and force lower drug prices directly. So in the pharmaceutical market, the US just pays higher prices than everyone else days; American consumers basically subsidize drug research for the rest of the world, including other developed countries.
- acslater00 9y agoThis is definitely true, so far as it goes. For many types of medical care it is unreasonable to expect a patient to act in a price setting capacity on the demand side. However there are many types of medical care where that is very reasonable! LASIK and cosmetic surgery are classic examples because they elective and have historically not been covered by any insurance. You can see cosmetic surgery prices on ads in the NY city subway. Other kinds of care, such as dentistry, orthodontia, and vision services, also have very well-functioning markets, largely because insurance has historically not covered these things. Lots of non-urgent care (primary medicine, pediatrics, dermatology, psychiatrics, orthopedics, many surgeries) would probably have well-functioning markets if they were separated from the insurance system. Now, that's all the cheap stuff. The expensive stuff (hospitalizations, cancers, chronic disease) that makes up the bulk of the US health expenditure - yeah. You can't expect a patient to come in and argue with the doctor about whether they really need that saline drip. But in a properly functioning market, there is another entity that can and should (and does) act as a price-setter mechanism on the demand side, and that is the insurance company. The problems show up when 1. there is only one supplier in a market 2. the insurer is required by law to cover a certain thing 3. the supplier does not face a price control, and through (1) and (2) has unlimited pricing power This is very acute with prescription drugs. Even generic drugs sometimes only have one supplier because the process of getting FDA approval is so onerous. It is also very acute when you have hospital and physician consolidation within markets, so that medical suppliers can effectively act as a cartel. So - deal with the supply side problems. Stop the cartel behavior. Make it easier to sell prescription drugs and open hospitals. Allow consumers to act as consumers when it makes sense (by excluding basic medical services from the insurance system) and reserve insurance for the risky, expensive, hairy stuff. This is the path forward, and it all follows very neatly from basic supply and demand.
- Gibbon1 9y agoI always post this in response to articles of this nature. https://web.stanford.edu/~jay/health_class/Readings/Lecture01/arrow.pdf https://web.stanford.edu/~jay/health_class/Readings/Lecture0... Which is we knew 50 years ago that markets for healthcare just don't work. And now we have 50 years of evidence they don't work.
- mc32 9y agoUnfortunately, this article is very light on details and makes some assertions and comparisons without any serious rigor. I wish someone would publish something that were rigorous and easy to understand for the average reader. instead we have either this, or very dry and incomprehensible reports. According to this article, the main culprit is keeping a for-profit health insurance system and addressing its shortcomings with ever increasing bureaucracy which adds more costs (bureaucratic complexity). I'm sure there is way more to it than that.
- arcbyte 9y agoThe argument seems to be that ever-increasing administration costs are to blame for overall health care costs and increases. Then it inexplicably turns into a bad appeal for single payer.
- noobermin 9y agoHow is a single-payer not simpler, given that it is exactly as is sounds, a single-payer for healthcare, which is the government.
- speedplane 9y agoI'm in favor of single-payer, but the main argument against it is that in a government run system, there is little incentive to correct inefficiencies. In a private system, if you become inefficient, you'll fail and cease to exist. Advocates of single-payer needs to at least recognize this issue and be able to account for it.
- tcbawo 9y agoThe coding system for insurance billing is insanely complex (and getting more so). For example, there are at least nine turtle related injury codes: https://loweringthebar.net/2011/09/injury-code-w5922xa-struck-by-turtle.html https://loweringthebar.net/2011/09/injury-code-w5922xa-struc...
- leereeves 9y agoHow much competition is there in health care, really? An oligopoly controls most of the insurance market, another oligopoly controls most of the hospitals, and medical schools openly collude (through the AAMC) to limit the number of doctors. All sanctioned by a government run by politicians funded by these organizations.
- ekianjo 9y agoExactly. That's not an exactly free market to operate in to begin with. Contrast that with the software/hardware markets, or even consumer goods markets, and the difference in terms of outcomes is pretty obvious. The problem with healthcare is that there is no direct "pay for service" system. It's all a mix of insurances, hidden costs, complex pricing systems (with little to no elasticity once fixed) defined by governments and third parties that have nothing to do with the end user.
- drewrv 9y agoAgreed that it's not exactly a free market right now, but pretending a truly free market would improve things is a little ridiculous. If you fall off a ladder are you going to be shopping around for a good price on an ambulance ride, calling ER's to get the best deal, etc? That assumes there is more than one hospital nearby, more than one ambulance company, etc. Much of the country only has one nearby ER. What happens in a "free" market when you absolutely have to purchase something from a monopoly?
- ekianjo 9y agoit would anyway benefit from being more Free than it is right now, no need to go into philosophical hypotheses of what fully free markets would look like. This is not my poInt at all.
- acslater00 9y agoOh look, another attempt to argue that market forces somehow don't apply to medical care. In this one, the author makes the argument that "competition" leads to a proliferation of firms, a proliferation of firms leads to administrative complexity, and administrative complexity leads to additional cost. Supposedly, removing this cost would save us enough money "to provide health care to all Americans." It is easy to attempt to verify this claim by looking at actual data. OECD: "Administration of the US health system alone accounts for about 7% share of total spending. This is on a par with other systems such as France and Germany which also have multipayer systems (even if in some of them there is no or little competition across payers). In comparison, Canada and Japan devote around 4% of health spending on administration." https://www.oecd.org/unitedstates/49084355.pdf https://www.oecd.org/unitedstates/49084355.pdf So, if we adopted a true single payer system, by this math, the total spend in the US healthcare system would drop by 3%. US healthcare costs have recently been growing by 6% per year, so this would bring our costs all the way down to where they were on election day, 2016. Next.
- addicted 9y agoWait what? Your math is completely off. The 3% drop in administrative costs is not directly deductible from the 6% growth because that 3% drop would mean the growth would also be lower (since it's a %age of the total costs).
- acslater00 9y agoOk Jun 2016: US spends $100 on health care ($7 on administration) Dec 2016: US spends $103 on health care ($7.21 on administration) Jun 2017: US spends $106 on health care ($7.42 on administration) --> US administration costs drops from 7% to 4%, saving $3.18 Now US spends ~$102.82 on health care I rounded
- nwah1 9y agoI also think that there's benefits that are harder to calculate. I switch health insurance often, and I always seem to have a bunch of healthcare bills to deal with. Even just calling all the billing companies to get my insurance applied is a huge hassle, and when it comes due it can take a number of hours out of my day. And occasionally, I'll get a bill from long ago that didn't have insurance applied, and it can be a big hassle all around. The hassle and aggravation is almost certainly worse than the IRS that people are always complaining about (and rightfully so).
- tjpnz 9y agoAs someone who has never lived in the US I'm curious as to why there's so little debate about moving towards a single payer or universal system. It seems that the only option ever on the table is tweaking the current system.
- mnm1 9y agoHow can you profit off of that?
- noobermin 9y agoYou don't, but society does. Also, companies can pay less for healthcare, if you need a connection to businesses.
- rocky1138 9y agoWhy do you need to?
- mnm1 9y agoTo make a few people rich at the expense of many others' health and lives. That clearly is the goal of not having a single payer system and the reason for the private health insurance industry existing in the first place.
- virmundi 9y agoMost of the argument centers around one's belief in the competency of the government. If you think they can do things well, you will probably argue for a single health payer system, or maybe a German model. If you think they are incompetent, bought, fools, then you argue against a single payer system. Humorously both sides point to Medicare and Medicaid as evidence of their views.
- rifung 9y agoI think that it's because it's too far to the left to be politically viable. That being said, there is some talk about it, even today for example: http://www.politico.com/story/2017/03/sanders-to-introduce-single-payer-health-care-plan-236516 http://www.politico.com/story/2017/03/sanders-to-introduce-s...
- deleted 9y ago[deleted]
- ghufran_syed 9y agoPerhaps we could compare costs for procedures paid for by private or government insurers, vs those that are not covered by insurance i.e. cosmetic procedures. Bottom line is that where there is no 3rd party payer, competition works. http://healthblog.ncpa.org/why-cant-the-market-for-medical-care-work-like-cosmetic-surgery/ http://healthblog.ncpa.org/why-cant-the-market-for-medical-c...
- tcbawo 9y agoThere is a large set of non-optional and emergency medical procedures where competition will remain nonexistent. Personally, I hope for AI to provide answers to cost-benefit analysis (treatment costs X, will reduce/improve chances by Y).
- speedplane 9y agoNot sure how AI is gonna help here. For many of these questions, we have committees of skilled humans with all of the information looking at the details, and they often cannot come to a consensus.
- tcbawo 9y agoBeing able to make data-driven healthcare decisions would help to improve the 'last mile' of health care delivery. Not everyone has a committee of experts at their disposal. I hope that we will rely on more on big data to deliver smarter and individualized healthcare. There should be a whole branch of quantitative analysis dedicated to improving outcomes and reducing costs (unnecessary medication, surgeries, tests, etc).
- yalogin 9y agoThis is right, the problem with healthcare has to be insurance. The biggest pocket of customers for health care companies don't pay out of pocket. They are covered by their employers. So they don't see money going out of their pocket and in a perverse way the higher the amount the insurance company pays the better the customer might feel thinking they got good service or a great treatment. So there is no incentive for the health care company to reduce costs at all. Since people don't care about the costs of procedures there is no set/prescribed cost for any procedure and everything just gets bloated every year. More so, these pocket of customers have no idea how the other pocket, that pays out of pocket, feels. They have never experienced it and will never know, so they have no incentive to fight for them. The health care lobby and republicans are putting a good spin that these out of pocket people are causing the costs to rise. IF the majority of the people actually pay out of pocket the costs will immediately come down for everything. Both hospitals, doctors and medicine. I have seen things in India where most of them pay out of pocket and the costs are very low. I heard, these days insurance is screwing things up there as well. Extending that logic, a single payer health care system where one party has the power to negotiate could actually help a lot in bringing the price down.
- BoiledCabbage 9y ago> Extending that logic, a single payer health care system where one party has the power to negotiate could actually help a lot in bringing the price down. Which was another big argument for single-payer. Medicare is know for negotiating the lowest prices, and practices prefer higher rate negotiated insurances than Medicare.
- Jabanga 9y agoMedicare does not have market forces guiding it. Consumers are a massive repository of localized knowledge. Once government takes them out of the picture, the industry's dynamism is severely limited.
- erentz 9y agoInsurers don't care. I recently got mono. It took three visits to a doctor, who just prescribe two back to back courses of antibiotics, a referral to see an ENT on the last visit (which did not seem right and would have taken three weeks to get an appointment for). And finally me deciding "fuck it" and making a trip to the ER to get to the bottom of it. At the ER I sat in a chair four or five hours. They took some blood and ran a simple test and it was done. Total cost to my insurer was something around $4000. I paid about $160 all up. I tried contacting my insurer and the provider to explain this was ridiculous cost to sit in a chair, give some blood, and have a test done. My insurer is Cigna. They literally have no online way of sending them email or a message. And their call center is useless. So I gave that effort half an hour and gave up.
- Jabanga 9y agoThe reason market competition has not brought down health care costs is that the government actively eliminates market competition in health care: http://healthblog.ncpa.org/why-cant-the-market-for-medical-care-work-like-cosmetic-surgery/ http://healthblog.ncpa.org/why-cant-the-market-for-medical-c...
- lend000 9y agoMarket competition? As if the US healthcare market was free recently? Nowadays, many educated people believe that without the ACA, the US healthcare market is a laissez faire system, which is why it has so many problems. This could not be further from reality. We have more government distortions in our healthcare market than countries with completely socialized healthcare. For example: Medicare: socialized medicare for the elderly, which alone creates more distortion than a universal program would cause, by inflating demand/prices for non-qualifying citizens. Medicaid: socialized healthcare for specially qualifying poor people, which creates the same distortion as Medicare. An oppressive FDA: which, coupled with overly-powered IP laws, grants de-facto monopolies in the medical product industry. We have an incredibly expensive and subjective medical equipment pre-approval process (as compared to a less-terrible FDA that would just be in charge of labeling, preventing fraud, and maintaining accountability in the event of incidents). Then there's the length and flexibility of patent protections in our current system (maybe we could cut those protection times in half, and patent trolling would not be a lucrative industry). Oppressive occupational licensing: It's way too hard to become a doctor of any kind, even the kinds that don't manually put things into your heart. This will be a major battle as AI comes to the point where it can better diagnose conditions and largely replace generic/non-specialized pediatrics. Of course, the government will not make this easy. Plus a slew of more minor things like malpractice regulation, and now the ACA (which is not so minor, and which will apparently be replaced with something similar and even messier). If we cleaned up/removed all of the problems in the above and replaced it with single payer, it would be OK and we would have something similar to Canada/other countries with long wait times, not as much access to specialists, slow innovation, and a system where a government bureaucrat gets to decide who gets the last liver transplant and who dies. That would be a less distorted market than we have today, but ONLY if accompanied by fixing the aforementioned problems. OR we could try going the free-ish market approach and try to find a much freer balance with the FDA/USDA/occupational-licensing/scrap Medicare/Medicaid,etc., which we do not currently have AT ALL. And maybe even declare health insurance fraudulent and pay everything out of pocket (accident insurance makes more sense as a hedge against risk, which is what insurance is supposed to be, whereas all people are expected to develop health problems at some point, with a probability approaching one).
- untangle 9y agoIt seems to me that our US HC system is operating in a manner that optimizes the wrong thing. It currently maximizes jobs and an odd form of wealth redistribution. It should be minimizing costs subject to "good" HC (or "adequate"?) for the target recipients (all citizens?). Let's name our HC goals (the objective function) and then tackle the strategies. The methods are wrong too, and spin off unfair side effects. For example, corporations by the (insurance) product, not consumers. This gives companies leverage in employment activities. Edit-> Some form of tort reform (e.g., limitations of liabilities) would help as well. I don't have a current number, but layers of malpractice insurance drive substantial costs.
- pimmen 9y agoI like the free market. However, when something has completely inelastic demand and the people most in need of your product is not your target group (as in, sick people often have problems making ends meet, since they're sick and all) and the economy as a whole is far better off if everyone got the benefits of the system, I think it's super bad to use the free market. In the US, you spend 17% of your GDP on healthcare, in Sweden we spend 11%. The US has a lower life expectancy, lower survival rate for most heart diseases and types of cancer and has healthcare bills as the leading cause for bankruptcy. It could just be me, but it looks like universal healthcare systems in the Nordic model runs circles around the US system based on all the relevant metrics. http://www.scb.se/en/finding-statistics/statistics-by-subject-area/national-accounts/national-accounts/system-of-health-accounts-sha/pong/statistical-news/system-of-health-accounts-/ http://www.scb.se/en/finding-statistics/statistics-by-subjec... http://www.who.int/gho/mortality_burden_disease/en/ http://www.who.int/gho/mortality_burden_disease/en/
- throwaway47861 9y agoToo much vested interests, I don't see how that's not obvious.
- mcbobbington 9y agoThe healthcare market is not feee enterprise. In fact, it is a government sponsored Trust. Nobody can practice medicine unless the government says so, and no one can take medication unless the government says so. No one can give even medical advice without the governments permission. This is the exact opposite of a free market, and the reason it is so stinking king expensive. The regulations are passed through fearmongering, and only serve to raise prices unbearably. The government created the problem, now wants to "fix" it with universal healthcare. As with any monopoly, prices will be higher and quality lower than with the free alternative. The answer to the problem is to introduce the free market to medicine.