Semro column: There’s something wrong with the system
January 16, 2019
America has always benefitted from free markets. It would be wonderful if the private U.S. health care system worked like one. The problem is that it doesn't. It never has and likely never will.
The American health care system wasn't built according to some grand plan. It was cobbled together over decades. And unlike other markets, American health care has never really been subject to many of the normal market controls that incentivize competition, manage cost growth, protect consumers, promote efficiency and reduce waste. In the American health care system, those controls either don't exist or they don't function in the same way. And that's the primary reason why health care costs so much, why premiums are so high and why so many people have been priced out of a market that provides the most essential of services.
I'd also point out, that federal and state governments weren't the cause of this. The original intent of most government health care programs was to address lack of access, high costs and unaffordability. Those problems were often the result of an already flawed market, where cost management and consumer influence were minimal to non-existent.
The problem is foundational and far less political or regulatory.
To illustrate my point, what would another market look like if it operated in the same basic way as the private U.S. health care market?
Let's say you want to buy a TV. You go to 10 different stores and look at dozens of TVs. There are no price tags on any of them. You have no idea what they actually cost. And that ignores a fundamental free market principle.
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No one who works in the store can tell you how much they cost, either because they don't know or they can't tell you.
You also discover that you don't actually get to pick the TV that you're going to buy. The store picks it out for you based upon their assessment of what you need.
On top of all that, the price of a similar make and model can vary wildly depending on which store you buy it from. The price of a similar TV could cost two or three times more in the store down the block. But you don't know that, because there're no price tags on any of the TVs. And since there's no real price transparency there's no competition and no reason to charge less.
The only thing that you know in advance is that some of these TVs are so expensive they could cause real financial harm. In order to avoid that risk you can't pay for that TV out of pocket. You have to contract with and pay a third party company to buy it for you because they can get a volume discount that lowers prices. Even then, there's no guarantee that you'll be able to afford it.
The first time that you actually find out what that TV costs will be a month after it's delivered to your home, when you get the first of many bills. And anything that can be charged for will be a line item on those bills. That's called "fee-for-service".
To add insult to injury, if the delivery guy drops the TV and breaks it, If you plug it in and it doesn't work, there's no refund or return policy.
How does any of that resemble a functional free market? Bottom line, it doesn't.
In the above analogy you could choose not to buy a TV or avoid that market altogether. You don't have that luxury with health care.
Health care is an unavoidable and essential service, where consumers have limited or no control regarding their treatment, its cost, or where they receive it. New technologies continually increase the cost of care and the price of old technologies always seem to grow even though they offer nothing new. The wholesale price for old brand-name drugs rose by over 9 percent every year since 2008, even though those drugs haven't changed. Hospital consolidation often leads to higher rather than lower prices, despite greater economies of scale. And this market operates under a black box, fee-for-service system that turns prices into "trade secrets" and incentivizes providers to do more and charge more for it.
Health care costs have increased faster than the growth rate of the U.S. economy for 36 out of the last 45 years. In 2018, national health care expenditures reached 18.2 percent of GDP and national health care spending is projected to grow by an average of 5.5 percent per year, reaching $5.7 trillion by 2026.
That's unsustainable by any measure and the foundational structure of the American health care system is the problem. Unless the current system is fundamentally changed to address the ever rising cost of health care itself, no reform plan, Democrat or Republican, will ever succeed over the long term.
Bob Semro of Glenwood Springs is a former health policy analyst for the Bell Policy Center, and a legislative and senior advocate. His column appears monthly in the Post Independent and at postindependent.com
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