In his latest Washington Post column Robert Samuelson makes a provocative suggestion. If, indeed, it’s the prices, stupid as the late Uwe Reinhardt claimed was the reason for high health care costs in the U. S., why not impose price controls?
If higher American health spending reflects the growing market power of providers, then why not curb that power with some form of price controls? This is what most affluent societies do, notes Laugesen.
Writing in the liberal Washington Monthly magazine, Paul Hewitt and Phillip Longman recommend just that. Under their proposal, Congress would adopt the Medicare fee and reimbursement system for the entire country. If this were done, employer-paid premiums would drop sharply, and some savings — maybe all — would be passed along to workers. (Hewitt and Longman call their proposal the “single-price system,†as opposed to the “single-payer system,†which is universal coverage.)
Of course, this wouldn’t be done instantly. The sudden loss of so much income would doubtlessly bankrupt scores of hospitals and doctors’ practices, whose costs are tied to present premiums. But phased in over, say, a decade, some sort of new system might achieve significant savings without destroying the health-care infrastructure.
I see a number of risks in such a plan. The most obvious is that it might not decrease the number of bankruptcies in the health care sector as it would just spread them out. It might even increase their number.
Another possible risk is price controls in health care would have the same results as in any other sector: they would create a black market. I can see all sorts of ways that could happen.
The third is that it might not result in any savings at all. Medicare prices are determined by a committee and private insurance prices are usually determined, effectively, as a markup above Medicare prices. Our pricing problem is the entire system not merely the price differential between Medicare and private.
Also, isn’t it inevitable that the sort of price controls being proposed would result in private insurers leaving the market? That is, the only remaining forms of health insurance would be Medicare, Medicaid, and other public plans?
What do you think? Are price controls the solution to our high health care costs?
You will get the British National Health Service with its very poor quality medical care and severe rationing. Think Venezuela.
Bob- The Brits score the NHA more positively than we score ours. Most of the stories about rationing are not true. Their system costs about half of what ours does on a per person basis. Their outcomes are about the same as ours. I have read a fair amount of their data and if I can find it in my archives can show the results. Or, you just go google Commonwealth and look at the comparisons.
I dont know if price controls will work here since our political structure will fight against it. What I do know is that in some European countries they do this almost all with private insurance companies, look at Germany, and it works, so it doesn’t have to be all Medicare, etc. It also works fairly well in Japan where they set single prices for everything.
Last of all, I don’t think that private insurance companies necessarily set their prices off of Medicare. With all of the contracts we have negotiated over the years, I have never heard anyone reference Medicare. They just negotiate for the lowest price they think we will take. They know if they go too low we won’t accept. If we push for too high a price they decline.
Steve
Although I’m largely in agreement with your remarks here, steve, in fairness I think it should be mentioned that the British government has engaged in a relentless propaganda campaign of the sort that would be impossible here promoting NHS and it’s been ongoing for 60 years.
Consider the TV program Call the Midwife, the most popular drama in BBC history. It’s an advertisement for NHS.
I’ve come around to the view that Americans just don’t trust our government as much as the Europeans do theirs—and with good reason.
You’re going to have to take my word on this, steve. I’ve had insurance companies as clients for 35 years. The Medicare price starts as the basis for negotiation. They negotiate as high a price above the Medicare price as they can.
There’s no need to impose price controls. Just forcing all healthcare providers to publish their prices would be enough to keep the prices way down through good old free-market competition.
When prices are published, what price will be published?
There is the MSRP or Suggested Retail price, and then, there is the price each insurance company has negotiated. In some cases, an individual can negotiate a price reduction, but it is not advertised. (If you pay cash up front, you can get a better price, but you need to ask about it.)
We went many years without insurance for my wife, and I am well aware how the healthcare free-market works. Now, she has had Obamacare for a few years, and the insurance approach is not much better.
There is no free-market healthcare system. It is socialist (or fascist with a nice smile), and there is no way to have anything free-market within that system. The only solution is to dismantle the existing system, and in that case, the insurance companies need to provide insurance not health care.
Unsurprisingly, few of the pissers and moaners choose to get their health care from the free-market.
That is precisely correct and succinctly stated.
“There’s no need to impose price controls. Just forcing all healthcare providers to publish their prices would be enough to keep the prices way down through good old free-market competition.”
Nope. Pretty good data on this. When consumers have access to the prices, it doesn’t change what they do very much. Our hospital experience strongly backs that up. We publish prices online for many of our tests and procedures. Our prices come in at about the same, sometimes higher and sometimes lower, as the infamous Oklahoma surgicenter that libertarians love. Response has been just OK. Better yet, go take with the people who do marketing for any hospital and ask them about increasing market share. Advertising prices doesn’t do it. Advertise pretty nurses with big boobs? Works for everything else right? Not so much in health care. Fancy new buildings with fountains and flat screen TVs? That helps.
Dave- Ok you lost me there. Maybe I am shellshocked from contract reading. Why would a health insurance company try to negotiate the highest possible fees with a provider that they possibly can? Take MY word for it. When we have asked for $60 per unit of work, I have never had them counter offer $100. If I am misunderstanding and you mean that that the provider starts at the Medicare rate and asks for higher, I can see that. Still not sure why the insurance companies would necessarily pay a lot more. They just have to pay enough to make sure providers will care for their patients. Enough to equal Medicare, plus the extra admin costs of dealign with private insurers over Medicare.
Steve
Not exactly. What I mean is that they offer the lowest fees they can above Medicare prices. They have to outbid Medicare so their insureds will be seen.
@steve
With insurance, the published price is worthless. When my wife was using the free-market healthcare system, she could go anywhere, and we could price shop. With her fancy Obamacare, we are limited to in-network, and price shopping is done to choose the least worthless policy.
Healthcare is a racket like the mattress business. For the uninitiated, each mattress store carries a specific version of the same model, and you can never find a lower price because no other store sells it.
Dave- So what do you think it means when the privates have to pay 20%-30% more to have their patients seen? Remember that cost shifting just doesn’t seem to be much of an issue. I am not sure but I think it mostly means that providers have figured out that it costs about that much more to make up for the hassles and costs of billing and admin costs for private patients.
Steve
I’m not sure I understand the question but I presume that the providers recognize that there is an expense associated with each insurer with which they’ll need to interface.
The providers must work with Medicare. It constitutes too much of the business not to. If reimbursement rates of private providers were the same as Medicare reimbursement rates, the providers could lower their administrative costs by only doing business with Medicare which from a demanded care standpoint is quite able to occupy all of their time and then some. It makes sense to deal with private insurers only when private insurers’ reimbursement rates are enough higher.
Price controls always work, but it inevitably comes with big negative side effects which often make the total result worse. I don’t know what they’d do in healthcare, but I’m skeptical. Number one question – who is going to set the prices? In our system of government 99% of the time, it will lobbyists.
As far as advertising prices, it’s useful for some people. A few examples from my own experience:
– Last year we were on a Tricare insurance plan that had a $3500 annual deductible, but you could see any provider you wanted. Since we were de facto paying out of pocket, we looked for lower-cost services when possible.
– In Florida there are lot of small family practice clinics that do very basic services. They advertise their prices prominently on their website and in their clinics. They cater to people without health insurance or those who need quick, reasonably-priced services. We used them several times for school and sports physicals as well as strep testing for our kids.
That said, I agree there is no real market in health care – it only exists in certain areas and under certain conditions.
There IS a market in health care, just not in the USSA. I got cataract surgery in Rio for half and it would have cost only 1/3 in Mexico. I can find prices on-line for a colonoscopy, for example, in places as different as Prague, Budapest, Costa Rica, Panama, Brazil and Mexico. And I don’t need a prescription for many pharmaceuticals in Brazil or Mexico. Intestinal parasites are well treated with Mebendazole, for example, which will cost you only a couple of dollars for over-the-counter meds. In Amerika, you would have to first pay a fortune to consult a doc for a prescription and then pay a premium for the same cheap pills.
As a rule of thumb, insurance adds some 25% to the cost of pills or procedures, else the insurers wouldn’t make a profit (and they’re making obscene profits).
You’d be a fool for not seeking your dental care in Mexico and dental care is usually not covered by insurance and is often elective. Imagine the savings for insured procedures that are urgent!
That medical tourism is growing is a testament to the fact that Amerikans are seeking rationality in pricing. One eagerly awaits the day the Chinese (or Cubans) arrive to fix our healthcare pricing, or maybe we should count on Amazon, Uber or Skype?
Schuler’s The providers must work with Medicare. It constitutes too much of the business not to. is silly. It’s the old canard “Sure I lose a little treating a Medicare patient, but I make it up in volume.”