Noah Smith has entered the debate:
So the fundamental reason your health care costs so much is not that the health insurance companies are lining their pockets. And it’s not that insurers are an inefficient mess. It’s that the actual provision of America’s health care itself just costs way too much in the first place.
The actual people charging you an arm and a leg for your care, and putting you at risk of medical bankruptcy, are the providers themselves. The smiling doctor who writes you prescriptions and sends you to the MRI and refers you to a specialist without ever asking you for money knows full well that you’re going to end up having to wrangle with the insurance company for the cost of all those services. The gentle nurse who sets up your IV doesn’t tell you whether each dose of drugs through the IV could set you back hundreds of dollars, but they know. When the polite administrative assistants at the front desk send you back to treatment without telling you that their services are out of your network, it’s because they didn’t bother to check. The executives making millions at “nonprofit” hospitals, and the shareholders making billions on the profits of companies that supply and contract with those hospitals, are people you never see and probably don’t even think about.
Excessive prices charged by health care providers are overwhelmingly the reason why Americans’ health care costs so cripplingly much. But they’ve outsourced the actual collection of those fees to insurance companies, so that your experience in the medical system feels smooth and friendly and comfortable. The insurance companies are simply hired to play the bad guy — and they’re paid a relatively modest fee for that service. So you get to hate UnitedHealthcare and Cigna, while the real people taking away your life’s savings and putting you at risk of bankruptcy get to play Mother Theresa.
So the way to make our health care system affordable is not to browbeat insurers, in the hope that they will be able to reduce their profits and pay for us to have cheap health care. Insurance companies simply do not have the power to do that, even if you threaten to shoot them. What we need is to reduce costs within the actual medical system itself...
He jumps in to the comments to add:
They [providers] don't know the exact costs, but they have a general idea, they know the costs are very high, and they typically don't talk to patients about those costs when prescribing services to them. This is understandable, given that talking about costs would make patients less comfortable while receiving care, and one of doctors' main jobs is to make patients feel comfortable. But there's basically no point in the process of receiving care at which patients could make a decision based on cost.
Incentives matter, and patients aren't automata who are unable to follow incentives, as much as some doctors would like them to be. They can understand pricing concerns/risk, and they're coming from a wide variety of financial situations. A recent NYT op-ed admits as much:
One of my first lessons as a new attending physician in a hospital serving a working-class community was in insurance. I saw my colleagues prescribing suboptimal drugs and thought they weren’t practicing evidence-based medicine. In reality, they were doing something better — practicing patient-based medicine. When people said they couldn’t afford a medication that their insurance didn’t cover, they would prescribe an alternative, even if it wasn’t the best available option.
As a young doctor, I struggled with this. Studies show this drug is the most effective treatment, I would say. Of course, the insurer will cover it. My more seasoned colleague gently chided me that if I practiced this way, then my patients wouldn’t fill their prescriptions at all. And he was right.
Of course, the op-ed is doctor-apologia, working as hard as possible to finger point at insurance companies and only admitting a possible problem of lacking clear and reasonable pricing when it comes to drugs; after all, patients and their insurance companies pay pharmacists and drug companies for drugs, not doctors. They can't see that there could be a similar problem for their own services (insert Upton Sinclair quote). But they admit that patients can and do make decisions based on their understanding of prices and risk. Yet, when it comes to their own services, this is absurd to them. Surely they know better than the patient, and the patient should just do what they say; cost doesn't matter.
But as Noah points out, they "know", but they don't know. They "don't bother to check". They give every excuse imaginable to avoid the topic. And some of this is understandable! As Noah points out, they just want to focus on the medicine; they want to make the patient feel comfortable with the medicine; medicine is sacred and money is profane, so never the two shall meet. Doctors don't want to know. They're happy to sit back and say that they're prohibited by law to consider their costs in providing recommendations, but conveniently forget to be patient-based, not remembering that patients can and do make such decisions. But patients can only do this in a reasonable way when they're properly informed before making decisions. Without information, it's generally fear that rules the day, be it fear of medical issues or fear of medical expenses. Some doctors want to not know so much that they can't even identify the names of the relevant numbers in the billing/insurance process that might be involved in the decision-making process. This is perfectly fine, of course; they shouldn't have to spend all their time becoming intimately familiar with the details of how each of their patients' insurance works.
It's hard for me to come to any conclusion other than that providers shouldn't be bothered to know those details. Instead, there is an extremely simple solution that takes one small step toward what Noah wants - providers just need to inform patients of what they know about the pricing for suggested courses of actions before those courses of action are taken. We need to create a point in time where patients can have the relevant information with which to make a decision that takes their own understanding of their own finances into account. I have suggested that providers simply provide the price that they will be billing insurance and their negotiated rate. The negotiated rate gives the patient a good idea of what to expect if the procedure is covered. Sure, the provider doesn't know the rest of the details of the insurance policy (deductibles, co-insurance, out-of-pocket max, etc.), which are important for estimating things like out-of-pocket costs - again, they shouldn't. But the patient can know these things. The only information the patient is missing is the information that the providers refuse to give them. In addition to the negotiated rate, it would be nice to have the full bill amount, so the patient can consider the risk of an insurance denial (and perhaps have a conversation about this risk or gather more information). Then, they at least have some idea of how much they could be nominally on the hook for if there is an insurance snafu.
I am generally anti-regulation, but the good doctors here at TheMotte have convinced me that there is no way that we are going to persuade them on this point with reason, so I am reluctantly throwing in my support for as minimally-scoped regulation as we can come up with, just as much as it takes to cast off the excuses and actually get numbers in front of patients at a point in time where they can use those numbers to make decisions. Hopefully, someone can get this idea to people like Noah, so they can consider advocating for something like this rather than tired ideas he gave like having the gov't "play hardball" to negotiate prices. He seems open to ideas:
There are probably other ways to foster competition and increase efficiency in the medical care system.
Indeed, there is, and it's right in front of your eyes. It's the natural conclusion of your request in the comments for what NYT would call "patient-based medicine".
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Notes -
It can be pretty easy to go over lifetime limits - if you are a sick kid you burn through all of your insurance you can ever get by age 8, and what...nothing after that? Not even if you stay healthy for 60 years?
Certainly you can consider rationing for some things, but if you do all the right stuff, have good genetics, stay healthy, you can still get hit by a car and then be unable to get any care ever again?
This is magnified by the way that charges are inflated as part of the dance of getting insurance reimbursement since those numbers are basically made up and have minimal relationship with actually cost.
Something that costs 1 dollar might be billed as 30 dollars so the insurance pays 1 dollar five cents. But if they can they'll charge 30 dollars against your lifetime limit.
Rationing is exceedingly unpopular and hard to implement in a way which doesn't immediately run afoul of some angry interest group, and all it takes is one photogenic person who would have survived or not gone bankrupt...
If you got healthy enough that your expected future expenses exceed the premiums you can afford, you buy a new insurance policy. Possibly from the same insurer. You'll want to buy one, because individual marginal utility is strongly sublinear in dollars and so you can lose dollars while gaining in utility, and they'll want to sell you one, because dollars are linear in dollars and so they'll have more of them.
If you didn't get that healthy, then you can't freely buy a new insurance policy. Practically by definition: when we freely buy things it's because the transaction increases the expected utility of both sides, and the expected utility of an insurer who is going to lose money on your transaction is not increased by it. If it gets made to happen anyway, that's not a sale, it's forced charity. If we admit that it's charity, and we want it anyway and can't get enough of it without force, then we can pretty quickly recognize that the most efficient way to implement forced charity is to explicitly progressively tax everyone and spend some of the revenues on charity recipients, not implicitly add costs and constraints to one specific market. The dead-weight loss of taxation is quadratic; if we can divide a hit over 100% of GDP rather than 17% then you the total damage gets smaller even before we consider unintended consequences.
I do see why we want to lie to ourselves instead. Charitable program costs appear on a budget where they can be criticized by everyone who wants your legislative seat, whereas lost opportunities just get a handful of weirdo Bastiat fans mad at you. But when we run a charitable program ourselves, high costs can thereby be both minimized (the only unseen costs are that dead-weight loss) and controlled (you can see exactly what is incurring all the rest of them), whereas when we try to merely mandate that someone else take over our charity against their own best interests the unintended consequences can run wild.
Using taxes to pay for disability accommodations in services gets us disability accommodations; merely mandating them sometimes loses the service for years. Using taxes to pay for an endangered species' habitat gets us more habitat; merely mandating preservation of their habitat gets their potential-habitat destroyed. Charging higher gas taxes gets us more fuel-efficient cars; mandating more fuel-efficient car fleets gets them replaced by fuel-guzzler trucks.
See, this is the kind of thing we could start to fix without making any insurance illegal, with a mere truth-in-advertising law to define terms consistently, or with public quality-of-service metrics if we don't want to micromanage vocabulary. I love the idea of the "Bronze", "Silver", "Gold", "Platinum" Tier labels in the ACA. Does the "lifetime limit" in your contract's fine print actually apply to the fakey billed prices rather than the actual paid price? We'll call the catch-all bottom class "Sawdust Tier", and if you don't describe your plan that way your competitors can do it for you. (Of course, if the lifetime limit applies to the actual paid price in your fine print, but not in your accountant's office, that's the We're In Jail Now Tier.) There's still unintended consequences ready to crop up from mistakes even in attempts to inform rather than constrict markets, but retaining flexibility really limits the scale of the damage.
I'm not sure I really follow what you want to do based off of this. Obviously the whole thing doesn't function as a market and shouldn't really given the reality of population irrational decision making and the amount of money involved.
I'm very much down to make the system get better and avoid weird stuff like your trucks example, but most of the suggestions I see don't really seem to be likely to do that?
Related to lifetime limits is the issue of pre-existing conditions. Some pre-existing conditions increase costs. Some pre-existing conditions patients will successfully or unsuccessfully lie about. Some pre-existing conditions are in in essence resolved but insurance companies would use them as excuses to deny things...
Are there any other industries that you think satisfy these conditions? Are there any "near misses"? I.e., some industry where there is enough money, but consumers need to be just a liiiittle bit more stupid... or some industry where the consumers are stupid enough, but there needs to be just a liiiitle bit more money involved... and if there was that little bit more, we'd want to declare that it shouldn't be a market? Do you have any objective metrics for these conditions, or are they just sort of gut feel?
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