With all the fussing and fuming about health care reform and the alleged millions who want insurance but can’t afford it, no one is discussing WHY the cost of health care has gone through the roof. It seems to me if the cause of the problem were brought out into the open and dealt with responsibly, it could be corrected. But as is always the case with government, finding a solution is not the goal. Propagating the problem for political gain is what it’s all about in Washington. Well, since I’m not a politician I can tell you the truth; there are two reasons for the skyrocketing price of health care.
First is the sacred cow of HMOs which artificially inflate prices by putting business executives in charge of health care decisions instead of doctors. HMOs have been around since the early 1900s, but were never all that popular until the federal government got involved via the Health Maintenance Organization Act of 1973. This law inserted government regulation into a system that had previously worked just fine under the self-regulation of free markets, introducing artificial influences that have led to where we are today.
This terrible piece of legislation which was championed by the odd-couple of Richard Nixon and Ted Kennedy mandated three things that proved to be detrimental: all members of an HMO had to be offered a federally approved list of benefits, all members were to be charged the same monthly premium regardless of circumstances, and all HMOs had to be structured as non-profit corporations. Any student of free market capitalism can easily deduce how HMOs under these regulations cause prices to rise. If you don’t understand, don’t worry. I’ll explain.
First of all, when an HMO is required to offer every member a pre-determined list of benefits it ends up providing coverage for unnecessary things. For instance, why does a post menopausal woman or a woman who’s had a hysterectomy need obstetrics and neonatal coverage? She obviously does not, but she’s forced to pay for it under an HMO which doesn’t take her age or physical condition into consideration.
Second, when the government dictates how a business sets its fee structure it always artificially inflates the price. In the case of health insurance, if an HMO is required to charge every member the same premium, they will by default structure that premium based on the worst case scenario. Where I live for example, we have a higher than average incidence of respiratory illness and certain kinds of cancers than the rest of the nation. That means our HMOs plan as though most people will develop asthma or cancer and set their rates accordingly. It is an artificial inflation of otherwise stable market conditions.
Third, requiring HMOs to be set up as non-profit corporations immediately removes all incentive to be responsible with the financial health of the company. If there is no profit motive the company can be run right to the edge without alienating stockholders; it can raise premiums arbitrarily without backlash from members who have no viable or competitive options; it can and does pay higher prices for goods and services which themselves are artificially inflated to make up for poor reimbursement rates the HMOs pay.
In addition to the three mandates of the HMO Act, the government interference also led to the establishment of the co-pay system; a system which takes the bill out of the hands of the consumer so he doesn’t know what the cost of his care really is. Put that bill back in the hands of the average consumer and you can bet he’ll shop around for the best deal. He has incentive.
Finally, the regulation of HMOs gave the insurance companies the power to regulate medical professionals through the manipulation of reimbursements. HMO organizations routinely set quotas for how many patients participating doctors must see in a day; they determine what tests and procedures are done for a particular set of symptoms; they take the medical decisions away from the doctors and force compliance by threatening to cut off or reduce compensation. All of this due to government regulation.
The other thing driving up the cost of health care costs is government waste. Medicare is the single largest customer of health care services due to the fact that its members are all senior citizens. As medical advances prolong the lives of individuals, the cost for keeping them healthy also increases. The problem is the costs are rising at a rate that well exceeds inflation and is unsustainable. Who’s to blame? Ask your Congressional representatives.
According to a recent Fox News report, government auditors admit to Medicare paying exorbitant prices for medical devices and equipment. Among the list of items is an oxygen concentrator which can be purchased for $600; Medicare rents it for $7,215. How about the $4,000 wheelchair that retails for $1,000? There’s also the $1,800 hospital bed, the $3,300 respiratory pump, and the $82 diabetic supply kit. The government routinely over pays for health care while Congress sits by and does nothing. And even when they do get involved, it’s often a case of Congress stonewalling legislation that would bring real reform.
Case in point: according to Fox News report, last year the Department of Health and Human Services attempted to revamp an old fixed-price fee schedule and introduce competitive bidding for new fees. HHS believed it could cut costs an average of 29% for most devices on the fee schedule, but two Congressman intervened to stop it, introducing legislation that would delay any action on the proposal for eighteen months. By deferring the HHS request, these two Congressman have effectively killed it forever.
When government pays inflated prices it causes those prices to continue to climb; producers will charge whatever the government is willing to pay. As Medicare pricing increases, so does retail. It is the unavoidable result of an artificially produced price ceiling. It works in health care the same as it does with rent control, utility costs, and so on.
The lesson here: whenever Washington gets involved they break things. The skyrocketing price of health care can be laid squarely at the feed of the federal government. Can they really be trusted to fix it this time? I don’t think so.
Health Maintenance Organization Act of 1973 – Wikipedia, the free encyclopedia – http://en.wikipedia.org/wiki/Health_Maintenance_Organization_Act_of_1973
Sicko: What Michael Moore Forgot to Tell You by Richard E. Ralston — Capitalism Magazine – http://www.capmag.com/article.asp?ID=5024
Tracking Your Taxes: Medicare Waste Goes Unchecked – Political News – FOXNews.com – http://www.foxnews.com/politics/2009/10/05/tracking-taxes-medicare-waste/