Why American Health Care Costs so Much
- Posted by: Zach Frechette
- on November 3, 2009 at 10:28 am
Ezra Klein sat down with an insurance industry CEO to try and better understand what’s going on with our health care system. The most interesting part of the conversation (to hear him tell it) was seeing charts that actually assign costs—in dollars—to different units of care (like pills, doctor visits, and lab tests), and then compare those costs to the same units in different countries. He describes the United States column in all the bar charts like “a New York skyscraper that got lost in downtown Des Moines” in comparison to all the other countries. And, looking at the charts, it’s hard not to agree. The takeaway: our health care costs more because we let insurance companies and care providers charge more. In other countries, governments set the rates for different treatments and drugs.
DISCUSSION: 3 Comments
Just one correction, the insurance companies don’t actually charge anyone for medical services. The problem is we do let care providers, and especially the drug manufacturers, charge more than other countries do. The insurance companies are the payer for a majority of the charges and their rates or premiums are reflective of the cost of the services. The true debate is not about the cost of health insurance, its about the cost of health care. Reduce the cost of health care and you will see health insurance costs reduce. Most states have minimum loss ratio laws which mandate that health insurance has to pay out the majority of its premiums in claims, typically to the tune of 75% to 90% or more.If one were to argue that it is then the insurance companies obligation to reduce costs by renegotiating fees and stop paying the inflated medical charges, then you would experience networks of Drs and health care professionals simply refusing to take that particular insurance company or existing the HMO or PPO organizations they participate in. It happens now when you have Emergency room doctors that don’t participate in an HMO and the patient finds out that they owe a substantial sum because the doctors didn’t like the fee schedule from the HMO and decided to not participate, and the patient is left with a huge bill not covered by the insurance, or only partially covered since the doctors charge so much more over the normal discounted fee. This can happen with other groups of doctors such as anesthesologist, etc.
Wow, that’s a stunning finding – that we’re paying more for each individual item, not just doing too many procedures and taking too many drugs.On the other hand, aren’t US customers paying the lion’s share of the R&D costs? If a pharma co. can either charge $40 in the UK or not sell their drug at all in the UK, I think they’d be happy to get $40, because manufacturing isn’t the expensive part – R&D is. They offset this low fee by charging US customers whatever they can get away with – and since we don’t have the same strict limits on how much we’ll pay, we’re the breadbasket of the world when it comes to collecting money for R&D.I’d think the same would be true for many innovations in health science, such as CT machines and MRIs. The cost-per-unit is a reflection of all the R&D costs that went into inventing and developing the innovation. That’s not to say we shouldn’t impose price limits. We should. But when we do, the cost to other countries will likely need to go up, since they’ll have to start bearing a more equal share of the R&D costs.
Hmm, might be nice if there was an explanation above the comment box that line breaks aren’t preserved on this site.<br /><br /> My previous comment is hard to read when it’s all one big paragraph.