The Smallest Minority

This is a long one.  As I’ve previously mentioned, I’m currently reading Kevin D. Williamson‘s new book, The End is Near and It’s Going to be Awesome:  How Going Broke Will Leave America Richer, Happier and More Secure.  I generally try to read one non-fiction and one fiction book at the same time.  No, not with one eyeball on each text.  I read the fiction book when I’m at home, I read the non-fiction generally during lunch breaks.  I’ve recently finished the novel I was reading and The End is Near is getting pretty interesting, so I spent some time today with it.

What follows is an excerpt from the chapter titled Health Care is a Pencil that makes up one of the better explanations of just why the American health care system is as expensive as everyone complains about:

The price of health care is high because there is no price for health care.

Some years ago, I found myself needing a medical procedure at the same time I was considering changing jobs.  It was a possibility that I might find myself without health insurance and paying for the procedure out of pocket.  In order to calculate how I should modify my plans, I began calling around to various medical practices and inquiring as to the price of the procedure.  It was nearly impossible to get an answer other than “Let’s see if your insurance covers it.”  I was quite insistent that I needed a price that I could rely upon in the event that I needed to pay out of pocket, a proposition that seemed to universally mystify every medical professional with whom I came in contact.  After dozens of phone calls to several medical practices—including some very prestigious ones—the answer was the same:  “Talk to the lady in insurance.”  When I finally succeeded in getting an estimate from one doctor, the possible price ranged from the low five figures to the low six figures, the higher end of the estimate being more than ten times the lower end.  Strange that I can get an exact price on an iPhone, a Honda Civic, or a pizza, but not on something as essential to my well-being as health care.

There are almost no consumer prices in health care.  Because there are no prices, there is no price discrimination by consumers, and therefore no pressure to keep prices down to where consumers can pay them.  It’s a chicken-and-egg problem:  One of the reasons that we rely on insurance or government programs to pay medical bills is that the bills are too high for ordinary consumers to pay; one of the reasons that the bills are too high for ordinary consumers to pay is that we rely on insurance and government programs to pay for them.

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American health care is great.  Health-care financing is a mess.

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Is there something inherent in the structure of the health-care market that means consumers cannot pay expenses out of pocket and negotiate prices the way they would on a television or a car?  In some cases, yes:  If you get hit by a bus and are wheeled unconscious into the emergency room, you are not in a very good negotiating position.  Likewise, if your daughter has a brain tumor, you probably are going to pay whatever it costs to have that tumor treated.  but most health-care decisions are not immediate life-and-death issues.  There is less reason to think that consumers cannot negotiate the price of an annual checkup or routine dental work, the inevitable cuts and scrapes in life, or preventative and diagnostic care.  True, most consumers do not have a great deal of medical knowledge; most of them aren’t telecommunications engineers either, but they manage to negotiate that market just fine.  But with no prices there can be no price discrimination and no negotiation—none of the iterative social learning that characterizes our most productive enterprises.

And here I will give a rare nod of appreciation to the Obama administration for at least giving a nod to this problem:

As part of the Obama administration’s work to make our health care system more affordable and accountable, data are being released that show significant variation across the country and within communities in what providers charge for common services. These data include information comparing the charges for the 100 most common inpatient services and 30 common outpatient services.  Providers determine what they will charge for items and services provided to patients and these charges are the amount the providers bills for an item or service.

But that’s not enough. Williamson elaborates:

The lack of consumer prices produces some truly odd consequences.  Chad Terhune of the Los Angeles Dog Trainer Times (Sorry.  Ed.) identified a clinic that charges $4,432 for a CAT scan.  The clinic has a relationship with Blue Shield, which pays a negotiated price of about $2,200 for the same procedure.  And the out-of-pocket price for a consumer paying cash?  Only $250.  But they do not advertise that price.

It’s gotten so bad that the market is finally beginning to respond:

Doctor stops accepting insurance, lowers prices and posts costs online

A family practice doctor in Maine is refusing all forms of health insurance, including Medicare, in order, he says, to provide better service to his patients.

Dr. Michael Ciampi told the Bangor Daily News that he wants to practice medicine without being dictated to by insurance companies.

On April 1, Ciampi lowered his prices and posted the costs online. For example, an office visit in which patients discuss “one issue of moderate complexity or 2-3 simple issues” costs $75. When Ciampi accepted insurance, the visit would run $160, according to the Bangor Daily News.

The fact that Ciampi lists the prices, he says, means no surprises for his patients.

Dr. Ciampi is not alone.

But seeing that health care expenditures in this country costs well in excess of 15% of GDP, and the passage of the “Patient Protection and Affordable Care Act” now puts the Federal government SQUARELY in the driver’s seat, I don’t see this effort gaining much traction. It takes power away from too many people firmly entrenched in both industry and government for either one to ever let it survive the nursery.