Health Care: Why is it so damn expensive?

My brother, Adam emailed me this morning about a whopping hospital bill he received for a recent visit to the ER…

“Eighteen-Hundred freaking dollars for an IV and a gurney???”

Absurd, isn’t it? We all know horror stories like this. A simple visit to the hospital because of a real emergency (like severe dehydration, in this case) can put you out thousands of dollars.

For those lucky folks who just sign the $50 insurance co-pay and walk out with your happy face sticker, congratulations. Unfortunately, I know a lot of people who don’t have insurance at all. Most of them are younger, and feel like they can go without, but others are in their 30’s and are taking a big risk.

They are not necessarily irresponsible, they simply can’t afford it. Employee health insurance is sometimes hard to come by in this job market, and for self-employed folks out there like myself, I have no choice but to provide my own insurance out of pocket.

I took advantage of one of those HSA (health savings accounts) that Bush signed into action in 2003. I have a massive deductible of $5000.00, but I can stash away that amount tax free in a special savings account. If I don’t get sick, that means I have sheltered 5k from Uncle Sam.

Not only am I a cheapskate who is taking a risk if my savings dwindles, but I avoid visiting the physician unless my leg is falling off, where I used to throw antibiotics at a papercut when I was covered on my parents plan.

Perhaps this illustrates a bigger problem in our culture of health care: costs are astronomical, yet people and physicians who dance the tango in the great hall of health insurance will spend thousands of dollars every year on the latest “breakthrough” treatments, even though what the patient needed all along was a decent exercise program and to stop eating fast food.

I know perfectly healthy individuals who are on 5-10 types of expensive, and often unecessary medication, especially the over prescribed legal amphetamines (adderall, ritalin), and happy pills (seratonin re-uptake inhibitors). There is nothing wrong with taking medications when you need them, but our culture is as pill-crazed as Elvis on a 76′ Vegas weekend.

Well, a brilliant study by a young economics professor at MIT has essentially determined that this fundamental phenomenon of waste is behind our collapsing public health care infrastructure. It’s not rocket science, folks, but the statistical analysis is there (and we’ll get to that in just a moment).

There are a lot of ‘solutions’ out there for ‘fixing’ healthcare. One camp wants to do what the rest of the civilized world does: create regulated, universal care. The other camp wants to get to the bottom of what is screwing up the natural market mechanisms that should allow everyone to afford some-kind of health care.

I’ll let you be the judge of which camp you’re in, but despite my former socialist leanings, I’m a lot more into the latter approach; if there is a demand for low-cost McDoctor’s Offices, then damnit, somebody is going to figure out a way to do it, because it is profitable!

The problem is that there aren’t ‘natural’ market forces at work in this country. Laws of supply and demand are astronomically exaggerated by health insurance.

Read on:

After studying data going back to the 60s, Amy N. Finkelstein of MIT has determined in an in-depth analysis that the real cause of rapidly rising costs is the massive expansion of medical insurance over the past 40 years.

Keep in mind, that the expenses of new technologies play a big role, but doctors, hospitals, and consumers adopt them so freely largely because insurance foots the bill.

If Finkelstein is right, her work could change the way people and the employers/insurers pay for your medical bills think about costs. For example, if individuals have to pay more for their care through high-deductible health plans, they may cut spending. Her theory could also spur the drive for evidence-based medicine, the effort of some reformers to encourage the use of only those treatments that have been proven to work.

Why is insurance such a big factor? Finkelstein thinks that consumers opt for more care if someone else pays for it. But the bigger demand-based factor is that insurance guarantees a steady source of cash for hospitals and doctors. So, they build new super-high-tech marble and granite cardiac-care centers and stock up on the latest high-tech equipment, knowing it will be paid for.

“If you produce expensive new things for medical care, people will buy them,” says Paul Ginsburg, president of the Center for the Study of Health System Change in Washington. He has found results similar to Finkelstein’s by looking at medical spending patterns in 12 U.S. cities (Business Week).

Another interesting find in the study was that hospital spending soared after the federal Medicare program began in 1966. In regions such as the South, where most seniors had no insurance, health spending soared after Medicare. But in New England, where many already had coverage, Medicare had much less impact on costs.

Of course, the upside in this is that medicine has progressed light years ahead of the state-of-the art in the 60’s. But what does it matter if only 30% of the population has access to it because costs are so out of control?

Why do we need a drug for every possible condition you can think of? Because insurance will foot the bill. The money is there, and medical companies are swimming in it.

I believe in incentives. Right now the incentives are such that it is still profitable for medical providers, and medical supply companies to charge absurd prices, because there are hospitals out there that will pay it. Furthermore, malpractice law is such that doctors have to pay out huge sums for insurance against it.

How do we correct these problems? The HSA plan I have is one approach (clearly a conservative one, politically). Employers and government agencies could start providing high-deductible plans that give employees an option to pay deductible expenses out of pocket, or perhaps take them out of their 401k, or even finance them through payroll.

I know it’s terrible, but employers are facing such absurd costs, that your lucky to get any freaking care at all!

When you have a $5k deductible like I do, you look at doctor visits a lot differently, and that fundamental shift in consumer attitude means you tend get back to the way it used to be: putting emphasis on taking care of yourself, and only going to the doctor when you really need it. This means that all those decisions made by doctors and patients about treatment options, will bring cost-effectiveness back into the picture.

Instead of 1 treatment you really need, 3 extra treatments you probably don’t need, and a round of antibiotics just in case of any chance of secondary infection — you just get that one treatment you REALLY need.

Of course, many people are so accustomed to having everything taken care of for them, that the side-effect would be deaths from un-treated ailments.

One last option that I haven’t covered much here is government intervention: a secondary health care system that is subsidized would certainly have a powerful impact on our markets. The canadian free system is not as good as the US, but it is “free.” Free is a very attractive offer, but it would be prone to the discusting mismanagement of tax dollars.

Remember the $100 screwdriver? The $210 toilet seat?

But since I despise taxes, like most blue-blood US citizens, rue the day that happens!

What do you think?

Socialized medicine?

Heavy regulation?

Kill the politicians?