Before I let it pass I wanted to take note of another passage in the WSJ editorial I just cited which took me up short:
Start with the reality that Medicare and Medicaid, two government programs, cover about 36% of Americans. Both pay doctors and hospitals below the cost of providing care.
They should know better. They’re subscribing to the “true value” theory of pricing. They should understand economics better than that.
About 1% of physicians have opted out of Medicare. About 93% of physicians accept Medicare. That doesn’t sound to me like something that’s “below the cost”. That sounds more like their bread-and-butter business.
Wife is a medical provider.
She has not opted out of Medicare. Not because it’s bread and butter, but because she is in the medical field to begin with because she wants to help people.
She also has to make a living – so she has to limit the percentage of her patients that are paid via Medicare.
I don’t think your conclusion reflects the true decision making process.
You may be right. I hope you’re right.
That still raises a key question: what is the market clearing price of healthcare? That was going to be the original title of this post.
A market-clearing price is the price at which the amount of a good or service supplied equals the amount demanded by buyers. That would be without subsidies (which affect willingness to pay i.e. raises demand) or restrictions like occupational licensing that limit supply.
It’s impossible to know that for sure but we have some hints, based on what was spent on healthcare before Medicare and Medicaid existed, what wages in healthcare were before Medicare or Medicaid existed, and what other countries spend to achieve comparable outcomes. As the economist Uwe Reinhardt, who studied the U. S. healthcare system extensively, put it it’s the prices, stupid. We’re paying more.
To answer the question I asked, the market clearing price of healthcare is lower than what we’re paying. That leaves another question, equally importanat: why is the cost of private insurance so high? I think it’s because private healthcare insurance is no longer really insurance (insurance requires premiums paid to be proportional to risk). A LOT of employer-provided or -assisted healthcare insurance is self-underwritten. Why are employers willing to pay so much? I don’t know. I don’t believe it’s because that’s the true price of healthcare.
Before Medicare and Medicaid existed medical care was pretty primitive. No ICU care, CAT scans, MRIs, Ultrasounds. Babies born a couple of weeks premature often died. I dont think that works so well as a metric. It’s kind of like saying that when you adjust for inflation a modern jumbo jet should cost the same as a 1918 airplane. Maybe the closest you get is the people offering concierge care or maybe plastic surgeons doing totally elective care, but they have special populations and they do very well financially.
The biggest drivers of costs are chronic care and expensive acute care like surgery or cancer care. The issue is that in every first world country the care even at their lower prices is still high enough that many/most people dont have the money on hand to pay for that care which is why people buy insurance. You can nibble around the edges and decide some stuff shouldn’t be covered by insurance but I dont see how you do away with insurance. In theory, insurance companies should be trying to provide the best product at the best price, market clearing, like every other product but I mostly agree with you that there are issues with that. I would note that Medicare pays about what is paid on average in EU countries where costs are much lower but care still good.
Steve
I’ve expressed my view before. We are a very large, rich country with low social cohesion and a de facto open land border with a country with a fraction of our per capita income. The incentives of our present system are completely out of whack. Patients want all of the health care they can get for free. Some politicians think that “Medicare for All” would be free. The opposite would be the case. That’s why no state has put such a system in place. Healthcare providers want higher incomes. Since there is little excess capacity, the only way that can happen is higher prices.
Insurance companies don’t have incentives to lower prices, either. Most are paid based on a percentage of the costs. We’ve learned pretty conclusively that Congress won’t control costs.
My opinion is that in the United States we cannot control costs within a fee for service system. Maybe you can in Denmark or Costa Rica but not in the United States.
I have multiple ideas for a system that would be stable, affordable, and more just than our present system. Patients and providers alike would hate any of them.
BTW ICU care was first provided in the U. S. in 1951. The use of incubators for premature infants began in the U. S. in the 1890s. That was the breakthrough. Increased medical spending after the passage of Medicare and Medicaid probably accelerated the pace of improvement but the relation is not what you are suggesting. It was improving all along.
The story you are telling of primitive healthcare until the passage of Medicare and Medicaid is false but I would accept that the pace of development accelerated after the passage of Medicare and Medicaid.
They had a lecture by the Critical care historian on the development of ICUs at a meeting 10-12 years ago (around the time of his death). Link is pretty consistent with his history. People may have been talking about the concept of an ICU but the first thing that a critical care would consider an ICU was developed in the early 60s by Max Harry Weil who is considered the father of modern ICU care in the US. (The first ICU in Europe, or what you might consider one, was devoted to polio and opened in 1953.
The first pediatric ICU is generally thought to be the one at DC Children’s, opening in 1965. Incubators were developed in Europe starting in the mid 1800s, but they were just a way to keep babies warm. There were some early attempts at developing special units with incubators to care for premies but they had very high mortality rates. You can get the same outcome by turning up the room temperature and as I am sure you are aware there is a fair amount of recent literature suggesting that direct skin to skin care by the mother is at least as good or better than an incubator for most premies. But, the incubator did not lead to the development of pediatric ICUs.
https://pmc.ncbi.nlm.nih.gov/articles/PMC4952830/
Steve
My point is that there is no straight line relationship between Medicare/Medicaid and ICUs or incubators as implied in your remark
or between Medicare/Medicaid and advancement in healthcare more generally. There is a straightline connection between the passage of Medicare and the escalation of spending on healthcare (as documented by Uwe Reinhardt, hardly a rightwing ideologue) and between the passage of time and developments in healthcare, i.e. like many other fields things improve over time in healthcare.