Posted by Bill Sandweg on 05 December 2022.
If you follow this blog or read much about health care spending, you know that we in the United States spend twice as much per person on health care as any other nation on earth. We pay way more for medicines than anyone else. Our doctors and hospitals make more than doctors and hospitals anywhere else in the world. Why can’t we get the same deals as the rest of the world when it comes to health care spending? It turns out that everyone else uses our high prices to save themselves money. Without our sky high spending, health care in other countries would cost much more.
Here is an excellent piece that recently appeared in the Washington Post. The author, who makes his living dealing with health care spending, believes two factors in our system enable the rest of the world to leverage off our actions. In the first place, we have no price controls so everyone in the system can charge whatever the traffic will bear. This lack of price controls rewards the world with life saving drugs and fantastic innovations in health care at essentially no cost to them. We pay for it and they get to enjoy the benefits.
The second factor is the profit drive of doctors and hospitals. Since they are not competing on price, they compete through offering innovative treatments. This serves to drive medical advances but also makes our care more expensive since every hospital and doctor feels compelled to offer the latest new MRI machine or the newest form of therapy.
Every time there is a movement to put a lid on drug prices or to allow Medicare to negotiate prices with the drug companies, we are warned that to do so would risk the drug research and innovation that has made such a difference in the lives of so many. According to the author, that may be true. The reason is that the drug companies make almost all their money off the extremely high prices they charge in the United States and just take whatever scraps they can get from the rest of the world. If we stop supporting drug research funded by our high prices, there is no one else left to take up the slack.
The author believes that the only path truly open to us is to rearrange the system to encourage price competition. As matters stand now, consumers with some form of health insurance make up the bulk of those paying for health care. Insurance, to a certain extent, insulates consumers from the prices being charged by hospitals and doctors. Insurance companies pay the most of the health care bill. Consumers pay their deductible and perhaps a co-pay, which may be fixed. Most of the time, the consumer never knows how much the actual charge is. She or he is focused only on the part they have to pay. If, the theory goes, health insurance only covered unexpected and large health care bills and consumers had to pay for the routine care, competition would force prices down as it does in other areas of the economy. Doctors and hospitals would have a strong motivation to become more efficient and to compete on price. A win for consumers and the taxpayers who have to fund Medicare but a threat to the profits of doctors, hospitals and health insurers, all of whom would fight tooth and nail to maintain the current, inefficient system, which showers money on them.
Next time you are sizing up a candidate for political office, ask what her or his stance is on reforming health care spending. It can’t hurt to ask.