0081 Medical Economics

The original article: Medical Economics
(audio MP3 below)

Overview/Notes:

Some basic economic facts about health care in the US:

1. If an insurance company doesn’t put a cap on the amount they’re willing to pay for a product/service it will quickly go out of business because there is nothing to keep the product/service provider from charging into infinity.
2. If an insurance company doesn’t require the insured to pay some kind of co-pay or partial payment, it will slowly go out of business because there is no motive for the insured to conserve and use the product/services in moderation. The insured will be motivated to “get their money’s worth” and they will over use the product/service that the insurance company pays for.
3. The insurance company is motivated to make as much profit as possible.
4. The product/service provider (health care) is motivated to make as much profit as possible.
5. The insured (the patient) is motivated to get the most/best product/service possible for the least money spent.
6. The price the insurance company will charge for insurance will be the most it can get given the market in which it competes.
7. The product/service provider will charge the insurance company as much as the insurance company is willing to pay.
8. Above and beyond what the insurance company will pay, the product/service provider will charge the insured/patient as much as the insured/patient is willing to pay.
9. The portion of the insurance that the employer pays on behalf of the insured/patient is simply wages the employer would pay either way.
10. Ultimately, 100% of the money the insurance company handles and 100% of the money the product/service provider charges is paid by the insured/patient since the insured/patient is the only one injecting money into the formula and the only one consuming the product/service.

A set of conclusions:
1) The price of health care is far higher than the consumer can determine because the employer/insurance company relationship and the government hide a large portion of the price.
2) The cost of providing health care is far higher than it would otherwise be because of the abundance of personnel required by the employer, the insurance company, various government agencies, and the personnel the health care provider needs to deal with each of these players.
3) 100% of the price (both hidden and not hidden) of health care is paid by the consumer.
4) No matter any other factors listed above, the price of health care will not and can not exceed what the patient is willing to pay unless part of the price is hidden.

Real life examples (the math):

Mary is of an age that she must endure a particular health screening process. Her employer’s human relations representative tells her the procedure is covered under her insurance and she really needs to get it done.

Here is a breakdown of the complete price of the health care screening:
Two separate appointments requiring two half days missed from work – $200 (wages lost)
Co-pay and payments not covered by insurance – $350
Payment covered by the insurance company – $750
Payments made to the insurance company by Mary over the years (unseen) – indeterminable but vast
Cost of government intrusion into the health care market (unseen) – Far more than humanly imaginable
Total – indeterminable but possibly in the $10K to $100K range

Now lets look at the price as Mary sees it:
Two separate appointments requiring two half days missed from work – $200
Actual out of pocket – $350
Deductions from pay for insurance for one month – $100
Total – $650
That’s it! $650 would be the fair market price for the screening if not for the market distortions!

 

Now let’s look at Mary’s daughter Jane who had an involuntary minor outpatient surgery.

One and one half days of work missed for the screening and the procedure and a weekend spent at home recovering – $300
Co-pay and payments not covered by insurance – $950
Deductions from pay for insurance for one month (seen by Jane) – $100
Payment covered by the insurance company (unseen) – $4750
Payments made to the insurance company by Jane over the years (unseen) – indeterminable but vast
Cost of government intrusion into the health care market (unseen) – Far more than humanly imaginable
The fair market price for Jane’s procedure without market distortions: $1350

Summary:

In the long run, vast amounts of unseen money is taken from Jane and Mary and goes to support a bloated government bureaucracy, an entire insurance industry that exists purely because of government intervention in the market, and a wasteful inefficient health care industry that expends more money in legal defense and public image management than medical research or actual medical care giving.

The impressive facility where the real life Jane and Mary had their examinations and procedures includes a rotunda and a multi-story indoor atrium featuring a grand piano, a waterfall, and contemporary art throughout the building. The parking lot has attendants that prowl the lot in vehicles like you might see at an airport, offering rides up to the entrance where a doorman greets you and offers his services to get you to your appointment. As you pass the doorman, another attendant awaits with further offers of assistance. As you move through an architectural dream only slightly less opulent than the Palace of Versailles, gazing out through walls of glass at the manicured landscape, its hard not to wonder what a CT scan machine costs compared to the cost of keeping all those windows crystal clear.

Perhaps a free market would provide funding for such outlandish medical complexes, but I would be just as likely to believe that a free market would provide drive-up services for most doctor appointments and basic in-home nursing in 30-minutes or less with a simple phone call. And medical insurance would focus more on the big expenses and long term care and less on robbing you and your employer for year’s worth of payments.

0081 Medical Economics

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