Monday, February 25, 2013

Health care costs: a never-ending saga

There is a fascinating piece on health care costs in America that has been getting a lot of attention. There have been a lot of responses but I want to discuss one of the unhelpful ones.   In it, the argument is:

Writ large, this is how health care billing works.  Insurers won't let them charge for one thing--nursing care, say--so instead they bill you for the Tylenol at $20 per.  Or they bill someone else, someone who pays more.  Or they double what they charge uninsured patients in the expectation that the bill will, for most people, eventually be written down by some large percentage.

The web of cross-subsidies, underpayments, overpayments, and upcoding is opaque to everyone except the adminstrators.  And they are not, as Brill observes, eager to make any of it clearer.  In part because they genuinely feel, as does the middle manager in our story, that they are forced into these little subterfuges to recover legitimate costs that short-sighted bean-counters are refusing to cover.
I think this is a completely unhelpful perspective.  It basically argues that the issue in health care costs is over regulation, ironically by other private sector actors.  However, it ignores the general issues of lack of bargaining power in an emergency room and opaque information.  Generally, we do not see a ton of hidden costs and a high pressure sales environment to be idea in other industries.

This is even more clear when the alternative is rate setting, by some sort of regulatory agency.  This is the normal approach in high income countries and it seems to lack a massive downside.  Sure, it reduces spending on medicine which can reduce the incentive for innovation in some cases.  But it can also increase the incentives in others -- when you can't just shift the costs for poor process control to customers then you might improve the process. 

So price transparency would seem to be the minimum level of reform . . . 

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