Coyote Blog

I have written on a number of occasions that the real problem in American health care is the insulation between the person who receives the services and the true cost of the services.  Other than a few folks like me with high deductible policies, there is no incentive to shop around and no incentive to eschew certain avoidable and high cost procedures.

Marc Cooper complained that he went to the hospital for a day and it ended up costing the insurance company over $100,000.  His take-away form this is that the government needs to step in.  My take-away was different:

Did he ask for a price estimate in advance? Did he ask, as most of
us do with all of our large purchases, for a written estimate or
quotation? Did he get such estimates from two or three competitors? Did
he shop around?

Of course not! Because in a system where someone else is paying the
bills, we have no incentive to shop around. So providers have no
incentive to compete on price or to worry about productivity and cost
control.

Sure, this looks like a rip-off.  But if you went in to buy a car,
concerned only with the quality of the
car, and never asked the price and then got a bill for $100,000 a few
weeks later, would you be surprised?  Would anyone give you sympathy if
you complained you paid $100,000 for the car but admitted you never
asked what the price was?

So I was very pleased to see this from John Stossel:

America's health-care problem is not that some people lack insurance, it is that 250 million Americans do have it.

You have to understand something right from the start. We Americans
got hooked on health insurance because the government did the insurance
companies a favor during World War II. Wartime wage controls prohibited
cash raises, so employers started giving noncash benefits like health
insurance to attract workers. The tax code helped this along by
treating employer-based health insurance more favorably than coverage
you buy yourself. And state governments have made things worse by
mandating coverage many people would never buy for themselves.

Competition also pushed companies to offer ever-more attractive
policies, such as first-dollar coverage for routine ailments like ear
infections and colds, and coverage for things that are not even
illnesses, like pregnancy. We came to expect insurance to cover
everything.

He concludes:

Imagine if your car
insurance covered oil changes and gasoline. You wouldn't care how much
gas you used, and you wouldn't care what it cost. Mechanics would sell
you $100 oil changes. Prices would skyrocket.

That's how it works in health care. Patients don't ask how much a
test or treatment will cost. They ask if their insurance covers it.
They don't compare prices from different doctors and hospitals. (Prices
do vary.) Why should they? They're not paying. (Although they do in
hidden, indirect ways.)

From Kevin Drum:

Marc Cooper spends 20 hours in the hospital and tells his story here.  Price of stay without insurance: $116, 749.  Price with insurance: $4,730.  Only in America, folks.

He's not very clear if this was an emergency situation -- like, did he have a heart attack and get rushed to the hospital in an ambulance -- or an important but non-emergency situation.  I will assume the latter by the tone of Marc Cooper's detailed post.

If so, then my first comment is, indeed only in America would he have gotten this procedure without waiting twelve weeks or without traveling to, say, America to get it done more expeditiously,

Second, I wonder:  Did he ask for a price estimate in advance? Did he ask, as most of
us do with all of our large purchases, for a written estimate or
quotation? Did he get such estimates from two or three competitors? Did
he shop around?

Of course not! Because in a system where someone else is paying the
bills, we have no incentive to shop around. So providers have no
incentive to compete on price or to worry about productivity and cost
control.

Sure, this looks like a rip-off.  But if you went in to buy a car, concerned only with the quality of the
car, and never asked the price and then got a bill for $100,000 a few
weeks later, would you be surprised?  Would anyone give you sympathy if you complained you paid $100,000 for the car but admitted you never asked what the price was?

So this is a dead-obvious outcome from the health care system we
have, where no one has the incentive to shop. By the way, I have a high-deductible policy which causes me to
shop around, because costs come out of my own pocket. I ask questions
like, is that extra CT scan really necessary?

It's incredible to me that given this situation, the solution for
this blog's author and most of his readers is not "we should find a way
to have individuals experience both the cost and benefits of care,
because only they can make these tradeoffs for themselves and shop
around for better options" but is instead "lets just turn it over to
the government, since they do such a good job with Iraq and the mail
and our schools."

Finally, I would point out that the author is making some wild assumptions about an insurance statement he probably does not understand (I say that with confidence since no one understands health insurance statements).  His assumption that the walk-in poor would have had to pay $100,000 for the procedure or would have been left to die are demonstrably untrue, since there is just not that much evidence that either outcome is occuring with any regularity.  That is why health care socialization supporters always talk about the number of people uninsured, which is almost irrelevant, instead of the number of people who don't get care, which is a much much smaller, almost vanishingly small number.