You Know Your Health Care Market Is Broken When ...
New Hampshire Public Radio ran a story yesterday about Governor Lynch's request that hospitals in the state stop building new facilities. Normally, governors never miss an opportunity to encourage new business in their state, because in most markets, greater investment leads to better services or lower prices. Finally, policy makers understand that the normal rules don't apply in health care:
[T]hese facilities are driving up utilization and driving up health care costs. Those are costs that we all see in our ever-increasing health insurance premiums. To that, I say enough.
What is missing from the health care market that causes the rules to be different? There are a number of factors:
- Third party payment: The consumer doesn't pay the full cost of services at the margin. Part of this is inherent in the nature of insurance. But that doesn't mean that incentives for the consumer couldn't be better aligned.
- Poor cost controls by insurance companies: If the consumer isn't paying the full cost at the margin, the rest is being picked up by the insurance company. I am often amazed at how poorly the insurance company monitors costs. The usual procedure seems to be to just pay some portion of what the provider submits. Though I have never received government health insurance, my observations of family members and others suggest that these programs are also poor at cost control.
- Lack of competition among providers: Many regions have few hospitals to start with, so there is little reason to believe that there will be any competition at all. Even in places with lots of hospitals, competition is muted because individual providers within the hospital seldom compete against each other.
The combination of these is so pernicious that the consumer almost never sees the price that will be charged before the service is offered. Even an ambulance chasing lawyer let's you know what you will be paying before he takes your case (e.g. initial consultation is free, we don't collect unless you do). And the combination is such that the Governor is so convinced that unnecessary services will be provided by the new capacity that he would simply rather not have it in his state with direct access to his budget, despite the possibility that some of the additional care will be of value.
There are more factors than three
We do need medical malpractice reform, but I am not convinced it would make much difference. Imagine, for example, if everyone had easy access to coverage (government or private insurance does not matter for purposes of this discussion) and in return for the easy access to all, people had to give up their right to sue for malpractice in all cases. Instead, a national fund would be set up to compensate people once they were able to prove their case of malpractice. Doctors, hospitals and the rest of the medical industry would have to do their part as well. They would have to reduce their rates substantially.
I believe the American public would take this deal in a heartbeat. I do not believe doctors and the insurance companies would.
We also need more doctors. The AMA needs to make it easier to go to medical school and the medical schools need to stop being run as profit centers which burden their alumni with hundreds of thousands of dollars in loans (who in turn then refuse to lower their rates (see above) because they have loans to pay back).
DHMC and FAHC
Andrew, you are well-positioned to witness first-hand the interplay of rival medical/hospital providers and speculate as to their impact on cost. Separated by a ribbon of concrete 90 miles long, Dartmouth-Hitchcock Medical Center in Lebanon, NH, and Fletcher Allen Health Care in Burlington, Vermont, are both tertiary care hospitals and academic medical centers. For years, DHMC and FAHC have battled to associate with hospitals on the periphery of their bordering service areas. It would be interesting if someone studied the question of the economics of two such institutions only 90 miles apart in such a rural area. Perhaps it has been done, and if so, Andrew, you might be able to get your hands on it.
I do not intend to denigrate either institution, both have excellent services. Yet, having two such citadels of hospital and medical services in such a sparsely-populated area must have some impact on costs.
Also, competition in health care does not necessarily drive down costs. It can increase them as competing entities each must have the latest technology to draw patients. Former Gov. Dick Lamm, who spent some time at Dartmouth, gave an excellent presentation in Burlington back in the early '90's in which he described how, within a ten-block area in Denver, four different hospitals were all advertising their MRIs. He asked the question: Do they all need them?
Health Insurance
How about, heath insurers skim off 30% of health care dollars and provide absolutely nothing in return. I would like to see 2 questions answered in the health care debate. 1. What service does the hugely expensive private health insurance sector provide? 2. Why does every other advanced country provide the same or better level of service to all its citizens for half the price?
Until those questions are answered talking about misalignment of incentives totally missed the forest for the trees.
The 30% Myth
As health policy analyst,Jeanne Keller, points out in her blog Toward Evidence-Based Health Care Reform
"Sorry, but that’s just not true in Vermont. Act 49 of 2009 required BISHCA to report to the legislature on administrative (non-claims) costs of insurers in VT. The report was filed Dec 15, 2009. BISHCA concluded that administrative costs for the three carriers that provide over 90% of private insurance in the state are:
* BCBSVT 12%
* MVP 11.7%
* CIGNA 13%
The remaining 87%-89% of our premiums goes to pay claims (i.e. purchase of health care for subscribers)."
the 30%
What do we get for the 30%? Don't you know?
1. The freedom to have a medical bankruptcy!
2. The freedom to not be able to get care!
3. The freedom to die from a curable ailment due to bad luck in the genetic lottery!
4. Freedom! It's all about freedom.
Personally, this is a type of freedom that makes me considerably LESS free...
what about fee-for-service payment models
Your colleagues at the Dartmouth Atlas have written extensively about the relationship between supply and utilization in health care. It would be nice of you to cite them.
Also you left out the incentives inherent in fee-for-service payment policies.
It would be nice instead of having more articles on the vast majority of places that do not work to focus more on the health care providers who despite the incentives described above do in fact provide high quality care for lower costs. What is different about Intermountain health care, the mayo Clinic, the Cleveland Clinic, billings Clinic, etc... (I am thinking it must have something to do with having clinic at the end of their name.
Places that workl
Forget those places, how about every other advanced country that gets the same or better health care for half the price. What are they doing right?
Health Care Market
I think the whole problem begins with the phrase "health care market." The sooner we divest ourselves of the notion that health care is a marketable commodity, the sooner we will be on the way to solving our problem.
2. Medical Underwriting and lack of cost controls.
Underwriting is now the clearly most effective cost control technique for all disaster insurers (where lack of regulations allow it).
Underwriting provides an insane ratio of expense to savings. When you can pay some fly-by-night company $5K to find a way to renege on a $100,000 claim, why even consider pursuing any other cost-control method?
No matter what you think of Obamacare, it closes this loophole, and requires insurers to do what we expect: institute market efficiencies.
Typically the under-age 65
Typically the under-age 65 "individual & family plan market is a looser for the carriers. Even small employer plans under 20 lives. We'll start to see carriers moving out of states, and decreasing their national footprint. In a few years the guarantee-issue mandate is going to be another hit for the carriers. Small-group is allready "G-I" and most carriers can bring in a handsome profit margin of 2%-5%, but that is because of the large block of premium and the higher retention rates.
As mentioned in an earlier post; Medicare-for-all. Well just for our retirement aged folk and the flood which is starting now. Medicare is in trouble, and needs adjustments now, and that's for our current retirees. If we have Medicare for everyone, I don't even know where to begin. A mess times 5!