Mr. Moderate

The one thing which is most broken here in the United States is the health care system. I believe that the reason it is broken is rooted in the economics of health care. When it comes to individual doctors treating individual patients, I believe that the free market economy, as ruled by the law of supply and demand, ought to produce a good outcome for everybody. However, for almost a century now, there has not been a free market in health care.

If we look back a century and a half or more in America, all it took to become a doctor was enough learning from books to absorb the concepts of how the human body worked and what could be done (based upon what was known at the time) to repair whatever was deemed to be wrong. Many of my ancestral cousins in the old south were deemed to be “doctors” because they had enough learning from books to be able to treat slaves and assist mothers to give birth to babies. Of course, so little was known about “proper health care” in that day and age, that the concept of medical malpractice rarely entered the picture. Even today, it is difficult to find one “expert witness” doctor who will tell a jury that what another doctor did was absolutely wrong and caused injury to the plaintiff. In the distant past, juries were supposed to use common sense in deciding cases, and “expert witness” testimony was rarely used.

But my real point here is that the law of supply and demand is broken now when it comes to health care. All of the changes in how medicine is practiced have led to a situation where there isn’t any real free market in health care, and thus it is easy to understand why costs are out of control.

The first problem in the market is the incredible barriers to entry for somebody to become a doctor or other licensed supplier of health care services. There is a hugely expensive educational system that saddles its graduates with incredible debt before they can ever get to the point of treating their first patient. That debt has to be paid off over time, and that becomes a driving incentive for doctors to generate increasing amounts of revenue by raising prices or increasing the volume of services rendered, with little attention to the quality of health care being offered. And it is not like you could lower the barriers to declaring yourself to be “a doctor.” We know enough crooks and con artists who try that anyway without lowered barriers. We don’t want to encourage bad health practices by encouraging more con artists. So, we have to look for another way.

The second problem in the market is that people who pay for their own health care expenses are by-and-large priced out of the system entirely. The prices for services are set by negotiations between health insurance companies and groups of doctors without regard to the affordability concerns of individual patients. The health insurance companies insist on receiving massive discounts, so the doctors are forced to raise their prices much higher in order to sustain the revenue level they need to survive. Typically, an office visit might be priced at $80, but the actual payment to the doctor for treating a patient covered by a typical health insurance plan might be the receipt of the individual copay (typically $15 to $25) plus a very-small additional amount from the insurance company (typically $20 to $35). Thus, the doctor’s total revenue from an office visit with a nominal price of $80 is typically around $50. But the doctor is not allowed to charge a cash patient the $50 price. In order to comply with the terms of the insurance contract, cash customers must pay $80 for an office visit. Can you say “price fixing?” But the attorneys and politicians are all “in on the fix,” so nobody will dare to sue to break up this system under anti-trust laws!

The third problem results from the second problem, above, and from the incentives offered by medical malpractice insurance companies for doctors to practice “defensive medicine” (which has nothing at all to do with defending the patient; the defense is against possible future medical malpractice lawsuits). Both of these incentives operate to cause doctors to have “in house” labs to perform various tests on patients seeking routine care. (The “in house” lab might also be a contracted outside service that does kickbacks to the doctor in one way or another.) The patient is given lab tests during a routine office visit and the charge for any such test is added to the bill. This again hurts the cash patient, but it increases the revenue for the doctors and keeps the malpractice lawyers at bay (a bit).

Now, the right wing has demonized malpractice lawsuits as the major component of health care costs. That is quite simply not the case. Removing medical malpractice as a cause of action would not eliminate the extra testing that doctors perform since they are still under pressure from student loan debts and plain greed to generate increasing amounts of revenue from those tests. And the cost of medical malpractice insurance, while high in absolute terms (on the order of $15,000 to $20,000 per year), is not tremendously large in terms of the typical revenue that a doctor is expected to generate (on the order of $250,000 to $500,000 per year). And the insurance premium is a deductible cost of doing business, just like renting a doctor’s office or hiring a nurse. In 2004, the total cost of medical malpractice insurance and claims was just under $30 billion (HERE). And frankly, the huge rise in those costs parallels the huge rise in medical costs, and is probably driven by that rise in medical cost as the primary component of medical malpractice payouts is an amount designed to cover the “future medical costs” of the injured party. So, the more overall health care costs rise, the larger will be that component of medical malpractice payouts. And absolutely nobody is proposing to limit those “economic damages” in any way. The only proposed limits are for “non-economic damages,” which are the amounts paid to the victim for “pain and suffering.” And frankly, those limits are plainly unfair. Is a lifetime of “pain and suffering,” coupled with a total inability to live “a normal life” only worth at most (something like) $250,000? If you are injured at age 20, you could be looking at 60 years of remaining life, and $250,000 dollars of “present value” only compensates you a few thousand dollars every year for a lifetime of “pain and suffering.” So, if caps are to be enacted (and I’m not absolutely against them), I believe the cap should be on a sliding scale that takes into account the actuarial expected lifetime of the victim, plus a base amount. So, for somebody who is permanently 100% disabled, the cap would be something more like $25,000 to $50,000 per year for “pain and suffering.” But, once again, we are not really dealing with something that will effect an overall reduction in cost.

I have outlined my proposal elsewhere. In brief, it lowers prices by creating competition. It lowers costs by having lower-paid nurses and physicians’ assistants perform triage and most routine care. It lowers costs by providing food and housing for young resident doctors as part of the deal, thereby eliminating the need to pay doctors to live in high cost areas (like New York City, for instance). You can read the entire rationale HERE.

But if there is one thing certain other than death and taxes, it is that doctors and lawyers each have powerful lobbying groups who will seek to kill any proposal that might lower their income levels. It has happened every time in the past, and you can bet it will happen again. The real question is whether the American people will let them get away with it once again. Or are we finally fed-up enough to insist that our representatives actually represent [b]OUR[/b] interests for a change?