Healthcare: How We Got Here and How To Fix It

Crossing out problems and writing solutions on a blackboard.

The Journal Does It Again On Health Care

I understand The Wall Street Journal‘s generalized reaction to Time Magazine — I have it too, given that the mag has a leftward bias that stretches credulity on a more-or-less continual basis.

But this doesn’t excuse the sort of “well gee, you didn’t exactly explain it all, so I will use that as a claim that the problem doesn’t exist” sort of reaction from their editorial page either.

Without diminishing the epic scope of Steven Brill’s Time magazine piece about the U.S. health care system, he reiterates in lengthy detail perversities that are already well known, without offering a single useful insight on how it got that way, and even less on how to fix it.

If they’re well-known why aren’t you addressing it rather than bitching about someone else who wrote on the subject?

Since, however, you poked the question out there, I’ll take a crack at it, having also written on the TIME article itself.

We got this way because:

  • McCarran-Ferguson, 15 USC 1011-1015, specifically exempted insurance companies from anti-trust law so long as there is a state regulatory apparatus related to insurance is in place.  In other words anti-trust laws are severely limited as applied to insurance companies; unless there isno state regulatory code related to that firm the Sherman, Clayton and Federal Trade Commission Acts do not apply to these companies.  These acts prohibit acts that restrain trade, including collusive practices that fix prices — but they do not apply to insurance companies generally, as all states have some regulatory apparatus on insurance firms.
  • EMTALA, a 1980s era law signed by Ronald Reagan, forced the provision of care to people who had no ability to pay for it at the closest facility where it could be reasonably provided.  Prior to this law if you had a medical emergency you would be taken to a charity hospital for care.  This might not be close to you, however, and you might bypass several other facilities that only took patients who could pay in some form or fashion.  A few dozen high-profile incidents were someone was having a heart attack, stroke, or had suffered a traumatic injury and died led to the passage of this law.  There were over six hundred charity hospitals in the United States, many operated by the Catholic Church, prior to this law being passed.  Today there are effectively none.  The result is that the mandate of unfunded care was forced, by federal law, upon health care providers.
  • The pharmaceutical and medical device industries got federal laws and regulations passed to prohibit the transport of legally-owned drugs and devices across international borders and to restrain trade even within the United States.  This turned the concept of the ownership of property on its ear and by doing so the drug and device makers were able to charge grossly-disparate amounts of money for the same thing — often by a factor of 10 or more — simply based on where or to whom it was sold.  Absent these laws you could drive into Mexico and buy 100 doses of scorpion anti-venom for $100 each from the factory that made it and then return to the US and sell it for $200, a nice 100% profit.  You could do this because the current price in the United States at a hospital for that same anti-venom is $39,652 — each.  It’s even worse, of course, in that the hospital paid 1/10th of that amount; if you simply sold the dose directly to the stung individual the savings would be even greater.  This sort of pricing disparity exists only because of specific federal and state laws that make the operation of a free market and the opportunities that it affords impossible.
  • There are no basic consumer protection laws that operate to prevent price-gouging and intentional financial rape by everyone up and down the line in the medical field.  You can’t take your car in for service without being provided a written estimate, and you must provide approval before the charge can typically exceed 110% of that estimate — which you may decline without harm to yourself (e.g. without having your engine ripped into pieces on the floor of the shop with no way to reassemble it.)  There is no other field in the United States where you can get away with not quoting a price at all for a procedure, but it happens tens of thousands of times every single day in the medical world.  In fact, according to JAMAmore than one half of the top 20 hospitals for a given procedure they surveyed couldn’t provide a price at all for a routine surgical procedure after five separate attempts!
  • So-called health “insurance” is not actually insurance, and yet this fraud upon the public is neither stopped nor prosecuted. Insurance is a pooling of funds by a group against a statistically-unlikely event (or series of events) over a given period of time, with the pooled funds used to pay claims by those who are unfortunate enough to have the bad outcome occur. Health “insurance” violates every premise of an actual insurance contract because health care is not an “unlikely” event (especially routine and diagnostic health care) and in addition alleged “health insurance” requires that you keep paying even after the adverse event happens.  You don’t continue to pay a fire insurance policy on your house after the fire; the company pays you. Yet if you contract cancer while having health insurance (the adverse event) you must keep paying premiums, and in fact potentially pay ever-escalating amounts of premium, even though the adverse event already happened!

  • Should you arrive in a hospital under emergency circumstances you will be forced to pay in whole or part for those who cannot cover their medical expenses in the same hospital, provided you are either able to pay privately or through your alleged “insurance.”  If you have assets and refuse to pay you will be relentlessly pursued and sued for that payment, a large part of which — in fact the majority of which — is not paid foryour treatment.  (Hospitals collect as little as 18% of what they bill.  So, in fact, when they come after you for the full amount only about one dollar in six is for your treatment!)  There is no other area of commerce in which you can be compelled to pay someone else’s bill that is in arrears with no ability to refuse.

Notice that exactly none of these circumstances arose due to natural market forces.  Every one of them occurred because of special privileges granted to firms in the medical field by government.  Many of these “privileges” are outright and literal theft of your funds to pay someone else’s bill.

In fact most of these distortions and circumstances exist because of explicit federal laws that criminalize free-market behavior that would instantaneously collapse these pricing structures.  If you could load up your car with scorpion anti-venom for $100/dose in Mexico and drive across the border with it unmolested nobody could charge in excess of $30,000 for the same thing and get away with it.  If you could not be compelled to pay for Juanita the illegal Mexican invader’s NICU bill then your hospital room would not cost $1,791 a night.

The lack of consumer protections is equally-galling.  If you had to be provided a price quote before service was rendered nobody in their right mind would opt for the $125,000 hip replacement over the $14,000 one when both are performed by a top-20 hospital.

You cannot charge $5/gallon for gasoline instead of $4 when there’s a hurricane coming in this state.  If you try it you’ll wind up in prison.  Yet if you’re a hospital you can charge a heart attack victim with exactly the same ability to negotiate as a citizen fleeing a hurricane with an empty gas tank $100,000 instead of $10,000 and the government not only endorses that but lets the hospital use the courts to sue you when you refuse to pay!

And finally, if restraint of trade mattered in the medical business all of the hospitals buying up medical practices and “independent” diagnostic centers, then jacking up the price of procedures by 2, 3, 4 or 5x would instantly face federal racketeering charges and people would go to prison.  Ditto for those medical boards and practices, not to mention explicit state “CON” (Certificate of Need) laws, that very-effectively block the opening (and closing!) of medical centers by people who see a market opportunity and wish to exploit it, such as opening an MRI center that will do scans for $200 instead of $2,000.

The reality of the situation is this: There is no actual problem with people being able to afford their medical care, in the general sense.  There is amanufactured crisis that is intended to extort the American public to both (1) buy health “insurance” that really isn’t insurance lest they be bankrupted due to all the cost-shifting and price-fixing and (2) force-feed something like “Obamacare” down everyone’s throat.

As to how to fix it, that’s simple: Cut that crap identified up above out.

If you did, the following would happen:

  • Prices would fall dramatically in the United States.  They would rise somewhat in other parts of the world.  Net-net you’d pay $200 for that scorpion anti-venom instead of $30,000.
  • Insurance would be actual insurance.  You could buy it for truly catastrophic things with various levels of coverage for those things, ranging from “mainstream” coverage to “gold-plated” that covered experimental and very-high-cost alternatives and treatments.  If you contracted a covered condition you would not have to pay another dime against that condition, just as you don’t have to continue to pay premiums on fire insurance against a destroyed-by-fire house!
  • Nearly everyone could afford even serious but ordinary medical incidents.  Yes, even things like hip replacement.  What percentage of Seniors could not pay $10,000?  Most can, although they might not like the impact on their lifestyle to do so.  However, most cannot pay $100,000.  The difference here is obvious.  Yet we know that even today the surgery is available, even with the cost-shifting, for not much more than that $10,000 in a top-20 hospital!
  • You could choose to self-fund even serious medical conditions, buy “major medical” as true insurance (see above) or you could choose to “go naked” and accept that you would have to beg for charity if something bad happened — and might die if you couldn’t get that care in time (or at all.)  This would be a powerful motivational tool.  While a heart attack might cost $20,000 to address (instead of the $100,000+ it costs today due to the cost-shifting and monopoly behavior) your decision to be 100lbs overweight not only would impact the likelihood of that heart attack but also would impact the cost of choosing to buy catastrophic insurance against it.  Nonetheless, the cost of that insurance would be far lower than it is today, because you would never be forced to pay someone else’s bill.

Why hasn’t any of this been done and why isn’t it on the table?

That’s simple: One man’s fraud, waste, abuse, scam and theft is another man’s paycheck, and all of the above are GDP.

The reason our government doesn’t stop this crap is that if it did 80% — or more — of what we spend on health care we wouldn’t spend on health care any more.

In 1970, before all but McCarren-Ferguson, the Federal Government spent $12.1 billion on all health care combined.  The CPI in that year, in December, stood at 38.8.  Note that in 1970 all of the current programs (Medicare, Medicaid, etc) existed.

Today the CPI stands at 230.28, 5.94x higher.  In a market economy, which most of the rest of the CPI measures, the government should therefore be spending about $72 billion a year on health care.  

It instead spent over $850 billion in 2011, or more than 10x as much, and that’s with the claim by medical firms that the government doesn’t actually pay “what it costs” to provide the care!

In short you are paying more than 10x what you should for good, decent medical care and so is everyone else.  

And that, my friends, is a fact.

Were we to cut this crap out 90% of the $2.8 trillion currently spent on health care would not be spent.  That’s a $2.52 trillion reduction in GDP, or about 17%!

The jaw-dropping reaction you get when suggesting that this nonsense be stopped comes from this reality and the fact that lawmakers know damn well exactly what would happen to those industries that exist today in their present size and scope only because of the special privileges given by governments to them that enable you to be robbed blind with the worst abuses coming when you’re unable to meaningfully participate in negotiation or decision-making.

But were we not to spend that money on overpriced health care our nation’s employees would be dramatically more competitive and so would our businesses.  Our consumers would spend their money not on overpriced cancer treatments of questionable efficacy and $30,000 scorpion anti-venom shots but rather on cars, airplane rides, cruises, homes, educations and other things of value.  The immediate hit to our economy from putting a stop to this outrageous theft, fraud and abuse would be dramatic and inescapable, but the benefits would begin to accrue immediately as well and within a short period of time we would be far better off as a nation than we are today as the economy re-aligned toward productive purpose.

More to the point, however, is that what we’re doing now — that is, enabling and permitting this outrageous level of theft, fraud and abuse to take place — cannot continue.

These costs are rising at a 9% compounded growth rate from 1980 to 2011 and in fact the insurance cost increase listed in the latest CPI was very close to that — approaching 9% — over the last year.

This means that spending doubles every 8 years.

At this rate the entire economy today will be consumed by health care spending in 20 years.  If you are 50 today and live to 85, the Federal Government will attempt to spend $17 trillion, or more than four times the entire current federal budget, per year on health care by the time you die.

Neither of those outcomes is possible, and for every day that we fail to act and stop this crap the damage we must accept in the economy increases.  If we continue down this road too far we will reach the point where our economy, government or both are doomed to inevitable collapse.

I repeat: None of this is due to market forces.

All of it is due to the force exerted by government and special protections granted by it that prohibit the market from addressing these problems on its own, as would occur otherwise.

And incidentally, if we fix this the budget deficit falls immediately to about $300 billion.  Even if the entire $3 trillion comes out of GDP and never comes back we wind up with a deficit that’s 2.5% of GDP — which means we’re within shooting distance of a permanent fix to the Federal Budget problem.

We either do it or we don’t do it, but nobody can claim from this day forward that it can’t be done and nobody can claim that they weren’t both warned of the consequences and given a way to avoid disaster.

I just showed you how to fix what ails our nation from a fiscal perspective.

Time’s up folks on the BS and game-playing.

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