Economics Questions

Re: The driving force behind high healthcare costs

cporter — Mon, 07 Feb 2011 16:12:13 GMT

MarkJC:
Going back to what you said here, you mention that the insurance companies try to hold costs down. I can see how this could be effective in the case of HMOs, since with a specific network of doctors, carriers can negotiate on a large scale to try to minimize costs. Oddly, HMO premiums have gone up even faster than other healthcare plan premiums in the last few years, which seems counterintuitive. On the other hand, there seems to be some (limited) evidence that newer high deductible plans and plans with health savings accounts are proving effective at slowing the rate of increasing healthcare costs from the last few years.

It isn't counterintuitive, you just have incomplete information. HMOs are more highly regulated than PPOs and other plan types. They aren't afforded the agility to respond to market changes like everyone else. For example, many aren't allowed to shift additional costs onto the end user (higher co-pays, etc.). Since the consumer is the employer, not the end user (the employee), the shifted cost doesn't matter - the amount the business has to pay matters. This amount is higher with less cost shifted to the end user.

High deductible plans and plans with health savings accounts would of course show lower growth because the end user of medical services is now paying their own money. In addition to removing the effects of pooling for smaller things, something that is forced to be covered by an insurer may be worth going to the doctor for if you have a $20 copay, but not worth it if you have to pay $800 in tests and fees. People ration to save money. No surprise there.

MarkJC:
Basically what I'm getting at is this: politicians from either side of the aisle are going to pass -some- kind of healthcare legislation. Neither will be willing to maintain the status quo at this point. If those on this forum were forced to pass some sort of healthcare legislation, (maintaining status quo is not an option), what would it be?

Well that's easy:

Remove all regulation on insurance and remove all taxation on any sort of medical spending, research, and investment (consumer and producer side). Remove any government mandated medical practitioner licensing requirements.

Re: The driving force behind high healthcare costs

krazy kaju — Sat, 05 Feb 2011 17:56:30 GMT

No. The states have regulated health care and health insurance since the 50s, IIRC. There is no interstate commerce in health care or health insurance, with the exception of mail-order and online pharmacies.

Re: The driving force behind high healthcare costs

Prateek Sanjay — Sat, 05 Feb 2011 17:38:49 GMT

You mean it's not allowed?

Re: The driving force behind high healthcare costs

krazy kaju — Sat, 05 Feb 2011 17:30:16 GMT

The Republicans have come up with some good ideas (for once). See this: http://www.ncpa.org/healthcare/interstate-competition-in-the-individual-health-insurance-marketplace

Using its power to regulate (meaning, to make regular) interstate commerce, Congress could open up the health insurance market for interstate competition. Allowing the exact same cheap health insurance plans that are sold in Kentucky to be sold in Massachusetts would significantly lower insurance costs for most Americans.

Re: The driving force behind high healthcare costs

MarkJC — Sat, 05 Feb 2011 08:21:39 GMT

Pooling on its own is not likely the primary cause of the price increase. Insurance is a risk management product whereby the customer shifts risk to the insurance company in exchange for a fee. The insurance company, if they are good, can take on this risk because they insure lots of people, not all of whom will need to collect. So, while the customer may be insulated from price increases, the insurance company is not and so will work to hold price down or have to pass the increase on to the customer.

Going back to what you said here, you mention that the insurance companies try to hold costs down. I can see how this could be effective in the case of HMOs, since with a specific network of doctors, carriers can negotiate on a large scale to try to minimize costs. Oddly, HMO premiums have gone up even faster than other healthcare plan premiums in the last few years, which seems counterintuitive. On the other hand, there seems to be some (limited) evidence that newer high deductible plans and plans with health savings accounts are proving effective at slowing the rate of increasing healthcare costs from the last few years.

Basically what I'm getting at is this: politicians from either side of the aisle are going to pass -some- kind of healthcare legislation. Neither will be willing to maintain the status quo at this point. If those on this forum were forced to pass some sort of healthcare legislation, (maintaining status quo is not an option), what would it be?

Obamacare in its current state appears to be the most damaging because it increases pooling. Previously, I would have said that single payer could have potential, since the government would be similar to a giant HMO negotiating to minimize costs... but given the failure of HMOs to minimize cost, that doesn't seem like an attractive option either. Right now, the most effective piece of legislation that I can see would be eliminating insurance coverage for all but the most expensive healthcare services - services that really benefit from pooled risk. One option to accomplish that would be mandating extremely high deductible plans to shift the average healthcare payment back to being an out of pocket expense.

Re: The driving force behind high healthcare costs

krazy kaju — Fri, 04 Feb 2011 19:25:38 GMT

David Sherin:
I've been curious about this for some time. Do you know what law makes things like Doctor's visits covered under insurance?

The requirements for what health insurance has to cover differs from state to state. You'd have to check your state laws. Now with the imposition of Obamacare, the federal government will be getting into the business of directly regulating what health insurance has to "insure."

Here is a detailed break-down of state-by-state health insurance mandates: http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2009.pdf. You can find your state, see which health insurance mandates it requires, and calculate how much those health insurance mandates increase costs.

Here is an easy solution Republicans could get behind: http://www.ncpa.org/healthcare/interstate-competition-in-the-individual-health-insurance-marketplace

Re: The driving force behind high healthcare costs

cporter — Fri, 04 Feb 2011 19:02:18 GMT

Davis Sherin:
I've been curious about this for some time. Do you know what law makes things like Doctor's visits covered under insurance

As far as I know regular doctor visits are not required to be covered by law. Proper insurance began its slow transformation into what it is today during FDR's reign where wage controls required an outlet for employers to differentiate their compensation. Thanks to tax benefits, that outlet was primarily benefits, of which health insurance was one. An insurance plan that covers doctor visits is more valuable than one that does not.

Also, it usually benefits the insurance company to cover cheap things like checkups that may keep you from developing a more serious (and, therefore, expensive) ailment that they otherwise cover. It's the same reason why I can get a chip in my windshield fixed for free from my auto insurance. They don't want to pay for the whole broken windshield next time I hit pothole or something.

Re: The driving force behind high healthcare costs

Prateek Sanjay — Fri, 04 Feb 2011 18:42:16 GMT

I don't know why people discuss rising monetary costs of medical care, as if they won't pay a cost that may come in the form of poorer quality, if hospitals cut operations costs as much as possible.

What a spoilt world. Lawsuits happen over one failed surgery, but when hospitals invest in expensive equipment and procedures just to make sure not one thing goes wrong, the problem now is rising medical care costs.

Which one is it?

Re: The driving force behind high healthcare costs

David Sherin — Fri, 04 Feb 2011 18:28:35 GMT

"So, in the case of health insurance, if you get a heart attack or stroke out of nowhere, the insurance pays. But right now, in the United States, we do not have insurance, we have a cost sharing scheme. Right now, abortions, viagra, birth control pills, and other procedures which are completely voluntary are "insured" (due to law)."

I've been curious about this for some time. Do you know what law makes things like Doctor's visits covered under insurance?

Re: The driving force behind high healthcare costs

cporter — Fri, 04 Feb 2011 16:51:07 GMT

MarkJC,

krazy kaju's explanation is spot on.

Some things are not insurable by definition. Insurance is a risk management product, not a cost management product. If there is no risk (for example, you know you are going to go buy your meds every month) it cannot be insured. You could take part in a cost sharing program where everyone pools their money and buys a bunch of meds for less, but you couldn't insure it.

Current health "insurance" is like someone selling you home fire insurance when your house is already on fire.

Re: The driving force behind high healthcare costs

krazy kaju — Fri, 04 Feb 2011 04:49:30 GMT

Epicurus ibn Kalhoun:
3% too much if you ask me.

Eliminating the profit and loss system would literally destroy our living standards.

Re: The driving force behind high healthcare costs

krazy kaju — Fri, 04 Feb 2011 04:46:45 GMT

Mark, I believe he's saying that modern health insurance companies do not actually provide insurance. Insurance is meant to insure you if an unlikely event occurs. So, in the case of health insurance, if you get a heart attack or stroke out of nowhere, the insurance pays. But right now, in the United States, we do not have insurance, we have a cost sharing scheme. Right now, abortions, viagra, birth control pills, and other procedures which are completely voluntary are "insured" (due to law). This drives up the cost of these procedures by increasing demand for them. It also drives up the cost of "insurance" by increasing what it has to cover.

So the point is that if we had real health insurance, costs would be much lower across the board.

Re: The driving force behind high healthcare costs

Laotzu del Zinn — Fri, 04 Feb 2011 00:43:18 GMT

3% too much if you ask me.

Re: The driving force behind high healthcare costs

MarkJC — Fri, 04 Feb 2011 00:40:06 GMT

cporter:

Our health care system does still include risk pooling features, however decades of legeslation has used this base to construct a cost sharing scheme on top of it. The cost sharing scheme is what causes the increase you are targeting, not the underlying risk pooling of insurance.

Can you explain what you are referring to by cost sharing scheme?

Re: The driving force behind high healthcare costs

krazy kaju — Thu, 03 Feb 2011 04:59:50 GMT

You're right. But a more encompassing answer is "supply and demand." Taxes, laws, and regulations limit the supply of health care. Taxes, laws, subsidies, and regulation expand the demand for health care. The result is that health care prices are much higher in the United States than they would be with a system of free market health care. What you did was describe one factor which increases the demand for health care services - there are many others. Continue your search for the truth and you'll be surprised by what you find.