patrick.net

Here is my take on the root cause of Healthcare cost in USA. I am focusing on costs because focusing on redistributing the costs ( which is mainstream media focus) does not fix the problem.

Fact : Healthcare cost is rising significantly faster than inflation in USA.

Reason : Given that health care is not a new industry and such a broad industry, the only reason for this divergence can be that its not a "FREE MARKET". In any free market, a broad established industry's "long term" inflation is always inline with rest of the economy.

Analysis : My whole analysis will be to focus on why its not a "FREE MARKET"

Divergence from free market happens primarily because GOVT comes in between consumer and services/goods provider. Generally, once the GOVT gets involved, a third party will use its lobbying power to influence the industry ( through GOVT) to its own advantage .

1) Insurance (GOVT SUBSIDIES and MANDATES) :
PROBLEM : GOVT + INSURANCE LOBBY:
Govt subsidizes health insurance ( In 1954 Congress codified this practice into the tax code ). This forced people to go through the insurance system because subsidies slowly destroyed cash driven non insurance based payments. NON catastrophic insurance is a flawed system because it makes everybody price insensitive. Since insurance pays the costs and is a pool system, nobody cares what the health industry is charging them.
imagine if insurance pays for your grocery store purchases.We will buy excessively things we don't need and waste everything.The grocery store charges will be excessive as well. There are some market forces at play here though. if the wastage goes up, insurance premium goes up and we chooses an insurance which has less premium.This creates motivation for insurance company to control costs.
But this cost control mechanism is not as efficient as free market though. its akin to soviet style centralized system versus free market capitalist system to control costs. insurance itself is a in-efficient system and should only be used for protection against catastrophic events where it serves an important function.In a free market , hospitals strive to have good reputation and offer services for low prices to attract consumers. The latter part is definitely not happening because the consumer is not price sensitive

Cosmetic surgery does not have insurance system and you can see the difference between regular industry versus cosmetic industry. The advancements in cosmetic surgery are at par with other areas of medical fields but at reduced cost because market forces are at work.

SAME WITH LASIK which is not covered in insurance.

2) GOVT PROTECTED Licensing of doctors and nurses and PROTECTIONISM:
PROBLEM = GOVT + DOCTORS/NURSES/DRUG lobby :
Licensing Doctors means that doctors need the permission of govt to provide their services. This system was not a big issue long time back when there was no globalization. As globalization started, most of the goods and services started to get cheap. Goods got cheaper because of stuff getting manufactured in foreign countries and services got cheap due to immigrants filling lot of positions. Most of the farm jobs were taken by farm labor from mexico. Engineering jobs were primarily filled with immigrants as well. This phenomenon didn't happen in medical field but only happened in field where there is no licensing needed for services ( like farming, engineering , restaurants..etc). Licensing enables protectionism. Since most of the functions of medical field are licensed including doctors, nurses and hospitals, they are protected from globalization and competition from foreign doctors/nurses who want to practice in US. This disparity caused medical field to look more expensive RELATIVE to the other fields. In essence the US consumer is not getting the benefit of cheap international labor in medicine . This probably is not the complete story and i am guessing more components of the medical bill are protected from market forces like prescription drugs..etc.
Licensing also forces some arbitrary body to decide what kind of service providers the consumer needs.If it were a free market, the market will decide what kind of training the doctors need to satisfy the demand.The salaries will also be based on the market prices. If the society is not rich , it will decide to go for doctors who are trained cheaper ( like in India). ofcourse, the quality will be lower but that's what the society can afford and is most effective. people who can afford higher quality will choose a doctor with more training. Its a self correcting system. in car industry, some consumers buy honda civics and some consumers buy a Porsche.IF govt mandates that people only buy cars with standards of porshe, most consumers will have to take public transportation because they cannot buy civic and cannot afford Porshe. Current licensing system forces a over trained doctor down the throat of consumers. actually a third party licensing body would never be able to decide what training is most effective to consumers just like soviet style centralized planning could never decide what products are needed by citizens. Free market is the answer.
Certification is better than licensing as it informs the consumer of the choices but does not force a particular choice. Hospitals will always choose the doctors with the right certification for the right job without being dictated by a licensing body. this will drive down prices.hospitals will also vet the doctors to save hospitals reputation.

from wikipedia http://en.wikipedia.org/wiki/Health_care_in_the_United_States#Licensing_of_providers: "American Medical Association (AMA) has lobbied the government to highly limit physician education since 1910, currently at 100,000 doctors per year,[111] which has led to a shortage of doctors[112] and physicians' wages in the U.S. are double those in the Europe, which is a major reason for the more expensive health care.[113]"
113: http://reason.com/archives/2009/08/27/the-evil-mongering-of-the-amer

3) Mandating Emergency services (GOVT MANDATES) :
PROBLEM : GOVT + FREE LOADERS - Vote bank:
The day Govt mandated emergency services to general public , it created a huge sink hole in the system. Mandating hospitals to perform any services to general public irrespective of their ability to pay means in essence they are forcing some people to pay for other peoples expenses. When a hospital is performing a emergency service and the consumer does not pay it, the hospital passes on the expenses to other people. Anytime you create a system where the consumer does not have to pay himself , he becomes price insensitive and this creates lots of waste. Most countries don't have this kind of mandates. Also this creates incentive for too many people coming to emergency services instead of getting care early on which could have reduced the overall medical cost for the society.
In the absence of Govt mandate, new charity based hospitals ( partially funded by govt or private) will pop up ( like pre insurance period of 1930's) and give some form of cushion to the most needy.
MANDATING ONE PERSON TO PAY FOR ANOTHER PERSON'S EXPENSES IS NEVER A GOOD IDEA. Be it through insurance mandates, court system ( malpractice litigation expenses) or hospitals ( mandating emergency services)

4)Medical Malpractice insurance costs (GOVT forcing other people to pay a litigation winner -through malpractice insurance ):
PROBLEM : GOVT + LAWYERS LOBBY :
Giving Patients the option to Waive certain Rights to Sue for Medical Malpractice for certain services is important to address this issue. Since Medicine is not an exact science and involves considerable risk, GOVT cannot force everybody to pay for the costs of not being perfect. In essence the GOVT through their court system is forcing doctors to work overtime to make a service more risk free than its possible. after certain point there are diminishing returns in trying to reduce risk.I have heard stories that some doctors spend more time filling paperwork/unnecessary expensive tests than actually treating patients. There is some inherent risk in certain services and patients should have the option of allowing the doctors to take the risk so that the patient can get the service from doctor at reduced cost. of course driving a car involves risk but that does not mean we force all the car manufactures to design risk free cars. even if its designed, it will be unaffordable by many consumers. Another aspect of the medical malpractice is the money awarded by the courts.
The primary focus of the court system should be to create incentive for the hospitals to reduce recklessness and malpractice which can be accomplished by other punitive measures rather than awarding large sums of money to patients. example: you can suspend a doctor from practicing if he does some fraud/malpractice rather than award 1 million dollar to the patient ! The focus should be to reduce fraud not make the attorney's rich.ofcourse the money awarded should be reasonable so that attorneys are motivated to take the case but it should not be ridiculous amounts since we all have to bear the cost.

AT THE END OF THE DAY EVERYBODY IS RIPPING OFF HARDWORKING MIDDLECLASS-INSURANCE-PAYING AMERICANS.

SOLUTION WHICH WILL WORK : FREE MARKET PRIVATE HEALTH CARE SYSTEM for the majority and GOVT OR CHARITY RUN HOSPITALS FOR THE POOR AND NEEDY.