It has been almost nine years since Obamacare (the Affordable Care Act, or ACA) has passed. The scope of the ACA has not expanded, but the program has been prodded and poked, some key provisions have been fought against vociferously, and many people feel that the ACA has been the prime culprit in increasing health care premiums.
The problem is that Obamacare was not about health care; it was about spreading insurance risk over the entire population. The assumption was that insuring everyone would reduce the cost per individual/family. It did not. Costs just continued to rise.
Instead of reducing the cost per household, hospitals and physicians simply found new sources of income due to the influx of more people being insured. Economists refer to this as inelastic demand.
If only we just allowed the market to function, some say, the problem would be solved. They believe that the government could finance the very poor by providing Medicaid, or insuring that emergency rooms see all patients, but that fundamentally, people should pay for their own health care, and that the law of supply and demand would allow the healthcare market to “self-regulate.”
The problem is, of course, that health care is not a market good! When people enter the health-care system, they require the care, no matter their ability to pay or the quality of their health insurance. By attempting to enroll everyone, the ACA assumed that costs per person would be reduced. Instead, it created new sources of income for hospitals and doctors.
Why? Simply put, there is no market tension between the buyer (patient) and seller (physicians and hospitals) in health care. When we need it, we are willing to pay the price, because our physical well-being is critical to us. And it is often difficult, if not impossible, to determine the cost/benefit.
Consider the following:
• If Medicare (which is essentially national health insurance for the elderly) did not exist, what insurance company would insure those over 65? Likely none.
• More directly, would any insurance company insure an 85-year-old in the absence of Medicare or Medicaid coverage? Probably not!
• If Congress had not passed a law requiring hospital emergency rooms to see all patients, where would the medically indigent go?
• Emergency rooms provide critical services to the community, but the services are largely related to an incident (e.g. broken bones, heart attack and other acute conditions). They are not designed to take care of “episodes of care” such as cancer, heart conditions, and chronic conditions. Cancer care is not best performed in the emergency room. It requires specialists, significant amounts of testing, and very expensive drugs. Those protocols are not normally provided through the emergency room.
• If patients or their children are gravely ill and cannot get insurance, where do they go?
• Pharmaceutical companies, fueled by a law Congress passed to keep Medicare from negotiating prices, are finding many opportunities to increase drug prices and boost their bottom lines.
In health care, neither the buyer (patient) nor the seller (hospital/doctor) can easily walk away. In areas where people can understand costs (e.g. mammography, CT scans, MRI scans) costs can easily be shifted to other services, e.g. lab, X-ray, operating room, medical supplies, pharmaceuticals, etc. All hospitals engage in cost shifting.
Many hospitals typically have thousands of items in their chargemaster files, so it is a matter of practicality that patients cannot compare prices across hospitals for individual services, especially because the patient doesn’t choose the services, and because chargemasters and charging practices are not consistent among hospitals.
The solution? Unfortunately, there are few: among them are forced mediation on rates, rate/price controls, community pressure and single payer. The health-care system requires some mechanism to control pricing. Currently, there are none.
Many have been critical of Medicare, because it is a government program. According to Forbes and the Washington Post, Medicare administrative costs are 3 percent, compared to 12-15 percent for most insurance companies. Over the past 50 years, Medicare has been able to fine-tune its programs and reduce costs. Shifting the costs from employers to the federal government will certainly increase governmental expenditures, but those costs will be more than offset by the reduction in private expenditures.
Like most national issues we deal with, health care requires a reasoned, thorough approach. Understanding the economics behind health-care costs can help us establish a baseline to resolve our health-care dilemma.
Steve Swanson lives in Glenwood Springs and has a career in finance, including work in the health-care realm.