> What has caused American medical prices to be driven so obscenely high?
There's been a ton of research on this, and there are at least five big drivers: Waste, Price Insensitivity,
Technology, Market Pressures, and Regulation.
Something like 30% of our health spending is pure waste. Well, worse than pure waste because of the
risk of negative outcomes (hospital-acquired infections, death, etc). This can be from all kinds of things,
from outright fraud to doctors and systems simply covering their butts, to doctors agreeing to treatments
that patients asked for so they don't lose their future business.
If you understand supply/demand models, I hope that you know a bit about price sensitivity.
There is an assumption of a downward sloping demand for healthcare services with respect to price
paid (higher cost -> less demand for it). The trouble is that the payor is not the same as the
recipient of the service, and neither is the one who makes the recommendation. Here, the one that
recommends the treatment is often the one who gets paid for doing things (the doc), the one who
pays often just gets a bill for what has been done (the insurer), and the one who receives the
service (the patient) just pays their copay - a cost that has little to do with the total price of the service.
A huge driver of costs is the "arms race" of the latest technology. This has all kinds of drivers
that are worth diving into - like our current patent and approvals process ... The consequence is
that doctors and health system spend a massive amount of money on new technology that patients demand
that has little (if any) positive effect on outcomes.
In terms of market structure, there is massive fragmentation among providers. And they are the ones who
have to buy supplies. Since there isn't one big purchaser of supplies (including meds, devices, durable
medical supplies, etc) and there are just a few major players for specialized (and patented) supplies,
the providers have little bargaining power to keep costs of supplies down. The higher costs from less market
power get passed on to customers. Additionally, consumers - patients - don't have any real power,
except through their insurers, to keep costs down. (But if there exists a patients' union, let me know!)
Finally, regulation. It costs a lot of money to comply with all of the regulations. This goes from staffing
(doctor training is massively expensive and heavily regulated), to job designation (there is generally a
very well-defined scope where an individual can practice), to required emergency care (see EMTALA) driving
up the cost of bad debts, and even to requirements related to safety. These all cost a lot of money,
and those costs all get factored in when the providers set their prices. With the general price insensitivity,
and lack of customer power, these costs generally go straight through to increase the cost of care.
It's messy, but those are the top 5 IMO.
> How is hip replacement in Spain instead of USA
> so much cheaper there?
It's not exactly
labor costs or profit margins, but it's primarily those two rolled into one.
The labor overhead of an American hospital is substantially higher. A single-payer health system costs
significantly less administratively. The private insurance system takes a legion of specially-trained
medical coding and billing specialists trying their level best to extract the highest negotiated prices
from insurance companies, and the insurance companies respond by having departments literally devoted
to finding excuses to refuse claims. Then the hospital will send the bill for the aggressively and
expensively classified service to the patient first, because all they saw was "claim denied", and no one
is about to admit wrongdoing or confusion by the whole cumbersome thing that's way worse than you think.
This makes the patient unhappy, and the patient is a customer, and the US believes in customer service
in a way you won't find anywhere else. Now you have the patient advocacy departments, both in the hospitals
and the insurance companies. All of these people are expensive. None of them are minimum-wage laborers.
None of them add actual value to your healthcare. They exist to extort or save money in a corporate arms race.
Also, in true American fashion, the business is business, and business is good. The executives of healthcare anything
whether it's hospitals, insurance companies, or healthcare-related manufacturers, they get paid orders of magnitude
more than their European counterparts. In the US, no one says, "Wait, they're not the specially trained experts, they're just businessmen,
why do they make so much more than doctors?" They say, "Of course managers make more than their employees,
and the directors make more than managers, and the VPs make more than the directors, and the presidents make
more than the VPs, and the C*Os make more than them. How else would we get people to do the job?"
Depending on who you ask, you could drop healthcare costs in the US by 10-40% just in labor reductions by switching
to a single-payer system. (I think the honest reality is that, since we have a legion of medical coders
at the ready and no one would let a good corporate weapon go to waste, so you'll see the fight move
to hospitals v government, and the low end of that scale is correct.)
Then you have the costs. Ye gods, the costs. Here's where you get the profit margins.
Prescription drugs are a big one. I'm all for drug patenting, but drug companies level absolutely insane costs for
drugs with no generics, and they'll go to great lengths to find new ways to patent the same drug. Just because
they're the worst doesn't mean that they're the only ones. High-end medical equipment has the same patenting
and cost issues. Then there's all the lab supplies and reagents, run-of-the-mill equipment, lubricants,
tubes, and assorted sundries meant for hospitals. Those manufacturers, they all get paid well.
Then there's the approach. If you have chronic high cholesterol, an American doctor will prescribe you a statin and
hand you a pamphlet on lifestyle changes you might consider making. A Spanish doctor will call you a fatty, put you
on a diet and send you jogging for a few months, and maybe if that doesn't work you'll get a prescription.
Then there's you, the average American healthcare consumer. You have no idea what dollar amounts are being thrown around
if you have an insurance with co-pay. You probably don't know that the anti-nausea medicine you're taking costs
almost $100 a pill, or the Advair that only helps your asthma a little costs fifty times more than the albuterol
that'll save your life in a pinch. You don't go price-shopping hospitals or refusing silly services that'll cost your
insurance company hundreds of dollars. You go, get care, leave, and let the rest of that happen behind the scenes.
There's no downward pressure on these prices, so they'll continue to inflate.
EDIT: I totally forgot about "preventative care", the newest fad in healthcare extortion. Outside the US, preventative
care means a nice sit-down with a dietitian and a daily stroll. In the US, this $2500 test can make a disease cost $6000 to
treat instead of $150,000! Great deal! So let's get fifteen million people to get this test every year to prevent two thousand cases
for a net savings of negative thirty-seven billion dollars
. In some cases (mammograms and colonoscopies are the most
visible examples here, but not the only), this results in over-intervention. Things that would resolve themselves
are instead treated aggressively.
Hi, Economist here (worked on healthcare costs for about 10 years starting in 2002): KINDA.
Single-payer IS better and cheaper. You present a pretty good summary, but you do get some things wrong.
There is, OF COURSE, downward pressure on prices ... from the insurance companies paying those prices.
"$100 a pill" is a meaningless (in most cases) "MSRP" number. It's what you might "pay" with no insurance
assuming you actually paid your medical debt at 100% of the billed value. It isn't what insurance companies pay.
Also, while over-screening is absolutely a problem in the US (mammograms are ludicrously over-utilized for screening
when they should likely be primarily a diagnostic tool), the stereotype of "let's eat right and exercise and see what happens"
from Euro docs and "let's take this pill, get this scan and cut that f**ker out" from US docs is greatly exaggerated.
It sounds great, but the reality is that European citizens also take lots of drugs, ignore docs advise and have adverse outcomes.
I worked a lot on cancer. You know who gets a lot of cancers per capita? France, Belgium, Denmark, Norway. All at a higher rate
than the US (where, incidentally, because of the over-screening previously mentioned, there is likely some rate-inflation
of "borderline" cancers that don't require much treatment.)
Some health outcomes are better in Europe or Canada, some aren't. The US is an amazingly demographically diverse place.
Health outcomes for wealthy people in the US are great. Health outcomes for poor people in the US are borderline catastrophic.
That's a problem, but the idea that it's all greed and profit motive causing the issue with the poor people is an empty
correlation for the most part. Single-payer healthcare would help with poor people's health outcomes,
but almost without question not as much as removing them from poverty would. Cheap good healthcare is great for health outcomes,
not living life under crushing stress is far better.
As I say, it's complicated.
There's a popular myth that the uninsured - in Texas, that's 25 percent of us - can always get medical care through emergency rooms.
... The myth is based on a 1986 federal law called the Emergency Medical Treatment and Labor Act (EMTALA),
which states that hospitals with emergency rooms have to accept and stabilize patients who are in labor
or who have an acute medical condition that threatens life or limb. That word "stabilize" is key: Hospital ERs
don't have to treat you. They just have to patch you up to the point where you're not actively dying.
Also, hospitals charge for ER care, and usually send patients to collections when they cannot pay.
From Jeramiahh (worked in Medical billing and insurance for 5 years, plus Medicare.gov) on
Medicare is a national, publicly-funded medical insurance, divided into three parts: A, B, and D. While technically available
to purchase under the age of 65, the cost is unreasonable (if I recall, $400/mo per person, for each part), therefore,
the vast majority of people with Medicare are aged 65+, who have paid into it through their taxes, for a minimum of 10 years.
Part A is received for free, and covers Inpatient (ie; in-hospital) charges; stays, surgeries, etc. Part B is Outpatient,
such as visiting your doctor for checkups. Part D is pharmacy coverage. There is also Part C, called Medigap, offered
by commercial entities; for a premium, they cover things that Medicare does not. Medigap is designed for people with
fixed incomes (ie, retirees), as it smooths out the cost of medical care; they pay a large premium each month, but little
or nothing if they need medical services. Part A is offered for free, Part B costs $150/mo, per person, Part C varies
depending on coverage, but ranged from $50-150/mo, and Part D is often offered as part of Part C plans, also from commercial entities.
Medicaid, on the other hand, is medical coverage for those without the resources to afford more.
It is funded by the state, as opposed to by the nation, and its benefits will vary from state to state,
but in general, it is only available for those in severely disadvantaged circumstances; disabled, poverty,
orphaned children, etc. It has little, or often no, monthly premium, and offers extreme reductions in costs
of medical bills, often 90-95% or more.
For more details on how health insurance works, it's a little complicated, which is, honestly, intentional,
to confuse people. Health insurance is made up of several major components: The premium, or what you pay each month,
the Deductible, or what you pay before the insurance company does, the Copayment, or what you pay,
regardless of deductible, for a service, the Coinsurance, or what percentage of the service the insurance company pays,
and the Out Of Pocket Maximum, or how much you will pay, in a worst-case scenario, each year. Also note that insurance
companies negotiate with the doctor, and lower the costs of services.
The easiest ways to discuss these is to look at various types. For this example, I'll use a High Deductible plan,
a High Premium plan, Medicare, and Medicaid, to lay out the examples.
A High deductible plan might have a premium of $100/mo, a Deductible of $5000, a Copay of $20, a Coinsurance of 85%, and an OOP Max of $10,000
A High Premium plan might have a premium of $250/mo, a Deductible of $1500, a Copay of $10, a Coinsurance of 90%, and a OOP Max of $3000
Medicare (Part B) has a premium of $150/mo, a Deductible of $150, a Copayment of $0, and a Coinsurance of 80%, with no OOP Max.
Medicaid might have a premium of $0, a Deductible of $0, a Copayment of $2, a Coinsurance of 95%, and no OOP Max.
Finally, you have no insurance. It's free, but under the ACA, if you choose to not have any insurance, you pay a fine
of several hundred dollars. I don't know what it is offhand.
So, let's say you need to visit a doctor, for a regular checkup visit. The doctor charges $150 for this services.
Under the High Deductible plan, the doctor bills the $150. The insurance then negotiates it down to $110,
cutting that $40 off the top. You pay the Copay in the office, that day, of $20. The insurance determines
you haven't met your deductible, so they remove the remaining $90 from your deductible, leaving $4,910 for the year.
You then receive a bill for the remaining $90.
Under the High Premium plan, the doctor bills the $150. The insurance then negotiates it down to $100,
cutting that $50 off the top. You pay the Copay in the office, that day, of $10. The insurance determines
you haven't met your deductible, so they remove the remaining $90 from your deductible, leaving $1,910 for the year.
You then receive a bill for the remaining $90.
Under Medicare, the doctor bills the $150. Medicare negotiates it down to $75, cutting it in half.
You do not have a copay. Medicare then determines you have a $150 deductible, and removes the $75 from that,
leaving $75 for the year. You then receive a bill for the remaining $75.
Under Medicaid, the doctor bills the $150. Medicaid negotiates it down to $35, reducing it by $115.
You pay a $2 copay that day. Medicaid does not have a deductible, so they pay 90% of the remaining $33, or $30.
You receive a bill for $3 more.
You have no insurance. You pay $150.
Two months later, you go in for a series of tests, x-rays, and eventually outpatient surgery.
This is expensive, but does not require hospitalization. The doctor charges $4000 for these services.
Under the High Deductible plan, the doctor bills the $4000. The insurance then negotiates it down to $3300,
cutting that $700 off the top. You pay the Copay in the office, that day, of $20. The insurance determines
you haven't met your deductible, so they remove the remaining $3280 from your deductible, leaving $1630 for the year.
You then receive a bill for the remaining $3280.
Under the High Premium plan, the doctor bills the $4000. The insurance then negotiates it down to $3000,
cutting that $1000 off the top. You pay the Copay in the office, that day, of $10. The insurance determines
you have now met your deductible, so they remove the remaining $1,910 from your deductible, leaving $0 for the year.
They then pay 90% of what remains, or $981. You then receive a bill for the remaining $2019, which is the $1910 from
your deductible, and $109 left over from the coinsurance.
Under Medicare, the doctor bills the $4000. Medicare negotiates it down to $2700, reducing it by $1300.
You do not have a copay. Medicare then determines you have met the deductible, removing $75 to pay for it.
They then pay 80% of the remaining $1225, or $980. You then receive a bill for $320, which is the $75 deductible, plus the 20% of $245.
Under Medicaid, the doctor bills the $4000. Medicaid negotiates it down to $2000, reducing it by $2000.
You pay a $2 copay that day. Medicaid does not have a deductible, so they pay 90% of the remaining $1998,
or $1798.20. You receive a bill for $199.80 more.
With no insurance, you pay the $4000.
Several months later, you have a major surgery. It requires three weeks in the hospital, and is very expensive, costing $100,000.
Under the High Deductible plan, the doctor bills the $100,000. The insurance then negotiates it down to $70,000,
cutting that $30,000 off the top. You pay the Copay in the office, that day, of $20. The insurance determines
you haven't met your deductible, so they remove the remaining $1630 from your deductible, leaving $0 for the year.
They then pay at 85% of the remaining $68,350, or $58,097.50. You then receive a bill for only $6,630,
which is $10,252.50 plus $1630... but you met your Out of Pocket Maximum of $10,000 for the year,
so they put a hard cap on it, and paid the remaining $5,252.50 at 100%.
Under the High Premium plan, the doctor bills the $100,000. The insurance then negotiates it down to $80,000,
cutting that $20,000 off the top. You pay the Copay in the office, that day, of $10. The insurance determines
you've met your deductible, so they then pay at 90% of the remaining $79,990, or $71,991. You then receive a
bill for only $871, since you've now hit your $3000 Out of Pocket Maximum. Your insurance covers everything
remaining, which would have been over $7000.
Under Medicare, the doctor bills $100,000. Medicare negotiates it down to $72,000, cutting off $28,000.
It then pays 80%, since you have no copay, and met your deductible, or $57,600. You receive a bill for $14,400.
(As a side note, I did not work in Hospital billing, so this may be inaccurate for Part A, but it's a good example
nonetheless. I believe Part A and Part B have separate deductibles, but I'm nearing the post limit).
Under Medicaid, the doctor bills $100,000. Medicaid reduces it to $45,000, cutting off $55,000.
They pay 95% of it, or $42,750. You receive a bill for $2,250, and likely have to declare bankruptcy.
Under no insurance, you receive a bill for $100,000, and declare medical bankruptcy.
As a side note, if you have Medicare Part C, and a strong one, you likely would not receive a bill, at all, for any of the Medicare portions.
Total costs of premium + costs:
High Deductible: $11,200
High Premium: $6,000
No insurance: $104,150 + ACA fine
[Some of my numbers may be out of date, I'm writing all of this from memory.]