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 -
Apparently I was off, it's more like $36 billion (https://crsreports.congress.gov/product/pdf/IF/IF10336). It was much higher in 2021, but that was a temporary thing because of Covid. I can't find a definitive source for admin costs, but AI says $5.8 billion. It's not nothing, but it's still far, far smaller than what a UBI costs. I feel like that should be obvious from intuition? Of course a program that only covers a fraction of the population for a temporary period is going to cost less than one that covers everyone forever. It's like comparing the Rhode Island national guard to the US army.
What's your source for thinking that Administration drives costs up by a factor of 10? Doesn't that seem extreme?
Well, you know what they say about anecdotes and data. Germany spends about 12% of its GDP on healthcare, and that percent has steadily gone up over time. The US spends 17%, which is certainly higher but not massively so. It's roughly what I'd expect from a country that's wealthier, does more research, and lives more unhealthily than Germany. At the best, you could argue that adopting their system would save us 1/3 of health care costs, but certainly not 20x.
Of course our system isn't perfect and has many flaws... but so does every other system on Earth.
But comparing GPD is not the same as comparing prices.
Prices for medical procedures in Germany are regulated by the Gebührenordnung für Ärzte (GoÄ), which is publicly visible. For example, the typical cost of a duodenoscopy (optical inspection of the gastrointestinal tract just after the stomach) is ~ 200 EUR. This is the price that a person would pay if they decide to get this procedure out of their own pocket (I have friends who have done this).
I don't know a good source for prices in the US, but let me take this New York based thing as an example. They list an upper endoscopy at $975. That's a 4-5x price difference compared to the price in Germany!
In addition, in Germany, this price is almost always covered by insurance, which is mandatory for everybody. In Germany, it is unheard of for people to go bankrupt due to a health expense. In the US, that's very different — people regularly go broke due to medical costs and ask for monetary support online.
If your figures about GDP are correct, this implies that the US performs dramatically less procedures than Germany. This can be due to efficiency, which I doubt, or due to 4-5x reduced level of care.
I feel like you're still missing the key thing? The main reason that prices are lower in Germany is that German salaries are lower. That's true in almost every field, but especially true in the higher-end fields like medicine. Comparing random specific operations doesn't tell much of a story- you have to look at overall healthcare cost. Which is in the same ballpark, just higher in America because we're so much richer than those poor, beknighted Germans. OK that's sarcasm, but still... compare your salary (and take-home pay!) as an American software engineer to a German peer. When I did that, I was almost embarassed by how much more I made than my peers in Euroland.
No. Look, if you sit down and actually do the calculation, the combination of GDP, prices, salaries doesn't add up as you claim — and that's before asking the question of which quality of service you're getting.
EDIT: And the statement "salaries are higher, therefore prices must be higher" cannot even be a causation — if anything, it's the other way round: higher prices cause higher salaries (assuming that the workload stays the same). But why should prices for each specific medical procedure or diagnostic in the US be higher? Do they add magic sprinkles to it, so that the health outcome is phenomenally better than in Germany? Price and value are two fundamentally different things, and the question is whether the US offers a good price for the medicine stuff.
No, I don't believe that you have "sat down and done the calculation." It seems like your entire argument is based on a single anecdote of when you went to Germany and got a good deal on healthcare (which was paid for by the government there). You should read more about Baumol's cost disease.
You are the one who does not seem interested in such a calculation. You cite some GDP figures and rest on your preconception that you're right. I'm not gonna bother discussing data against such attitude towards truth. (EDIT) For example, you make an assumption about me making a trip to Germany, which is factually wrong.
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I was going to smugly point out that you forgot to account for EUR to USD conversion rates, but no, you didn't. Wow. It's been a bad decade for Europe...
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