Most Americans believe that our
healthcare system should provide care for all Americans, but we will be able do
that only if we are able to control the rapidly rising cost of healthcare.
If we cannot control healthcare’s cost, it
will not matter whether we choose “Medicare for All” or some other approach to
universal coverage because we will go broke trying to pay for it. Fortunately,
we can get control of the cost of healthcare if we can find the political will
to do so. Other countries have figured out how to control their costs by using
non-market methods, and they spend far less on healthcare than we do per capita.
Why do we not use such methods?
Part of the reason is cultural. We Americans
have a strong preference for free market competition as a way of controlling
costs. Free market competition works well most of the time, but in an earlier
post on this blog (“Why Does Healthcare Cost So Much in the United States?”), I
argued that it has not and will not work well in healthcare. I said,
… we must accept the need for
non-market methods to control costs. …
Every country with a successful system of universal healthcare has had
to use non-market methods for controlling costs, and there is no reason to
believe that we can be an exception.
What are non-market methods of cost control in health care? Some
of the possibilities are:
- ·
A
government agency can dictate the prices that will be paid. This is the
method currently used by Medicare for everything except drugs.
- ·
Health
insurers and health care providers can bargain over prices at the national
level. This is the approach used in several European countries.
- ·
We can require
the use of “bundled prices.” A “bundled price” is a single price for a
medical procedure. Today, if I have my gall bladder removed – for example – the
health care provider presents an invoice with a long list of the services that
were provided as parts of the procedure for removing my gall bladder. The use
of such “fee for service” billing has encouraged providers to pad their bills
with unnecessary services and to invent new services like facility fees for
which they can bill.
- ·
We can designate
someone in the healthcare system to act as a gatekeeper. This controls cost
by reducing the unnecessary use of the system’s expensive parts. In Britain,
the primary care physicians act as gatekeepers.
There are undoubtedly other
possibilities, as well. We do not need to use all of these methods, but we do
need to use some combination of some of them. We should choose the ones that
are most compatible with our values, as Merton Finkler has suggested in his
article “If the Question Relates to Efficient and Equitable Health Policy
Reform, Single Payer is Not the Answer.”
There are three main reasons why we
need non-market methods of cost control.
- ·
Market methods by themselves are incompatible with the goal of
providing health care for everyone.
- ·
Market methods that have been suggested
discourage people from making good use of primary care.
- ·
Market methods that have been suggested do
nothing to encourage people to choose healthy lifestyles.
The rest of this post explores
these reasons in detail.
Market Methods of
Cost Control are Incompatible with Providing Care for Everyone
A free market controls cost through
the discipline imposed by price competition among sellers. Sellers try to get
as much as they can for a good, and buyers try to buy it as cheaply as they
can. If the buyers demand more of a good than is supplied by the market, they bid
up the price to a point where sellers are willing to provide the additional
amount that is needed.
If sellers supply
too much of a good, the price falls to the point where the buyers are willing
to buy it. In the long run, the price settles at the point where the supply and
the demand balance each other, and the sellers must reduce their costs to the
point where they can make a profit at the market price.
However, “demand” is not “need.”
People may “need” something without being able to demand it in a market. In
order to demand a good, people must have the means to pay for it, and the free
market never guarantees that the price of a good will settle at a level where
everyone can afford to buy it. Indeed, the price of a good almost always
settles at a level where some people cannot afford it, and most of the time,
that is reasonable and just.
If the
price of a fine pair of men’s wool slacks is $300, we recognize that not
everyone can afford to spend so much for a pair of pants, but we do not feel
that the price is unjust.
On the other hand, we do feel that
if a school child cannot afford to buy a winter coat in Wisconsin’s cold
climate, that is unjust, and we go outside of the free market to find a remedy.
We donate the coats that our children have outgrown to Goodwill, or we raise
funds to pay for coats for children who cannot afford them. Healthcare is like
winter coats for school children. We believe that, just as every school child ought
to have a winter coat, so everyone in our country ought to have adequate
healthcare, and we know that many people are not wealthy enough to demand it in
a free market.
We also know that we cannot provide
healthcare for everyone by donating to Goodwill or by raising money through
local fund drives. So, we turn to third-party payment systems including health
insurance and government programs to help people to obtain the healthcare they
need. Unfortunately, third –party payment systems tend to drive up the cost of
healthcare because they bypass the cost control methods of the free market.
Third-party payment systems separate the decision to buy (made by the patient)
from the responsibility to pay (born by the insurance provider) and thereby
leave sellers free to raise their prices with few limits.
Thus, without non-market cost-control methods,
the effort to provide healthcare for everyone will drive up the cost of
healthcare to the point where we cannot afford it, and that is what is
happening in the United States. We have insurance and government programs to
provide care for people– and they include most of us – who could not afford it
without the insurance, but the cost has risen to the point where we spend far
more per capita on health care than any other country, and soon, we will not be
able to afford it.
In short, one reason
why we need non-market methods to control the cost of healthcare is that the
third-party payment systems that are needed to provide care for everyone render
free market cost control mechanisms ineffective. For this reason alone, we will
have to turn to non-market methods of cost control, but there are other
reasons, as well.
Market Methods of
Cost Control Discourage the Use of Primary Care
It has been argued that we can
solve the cost problem by giving at least a small part of the responsibility to
pay back to the customers (patients). If they have to pay deductibles or
co-payments, they will have some “skin in the game,” and they will think about
costs. They will avoid spending their scarce dollars unnecessarily, and therefore,
the free market will be able to control costs as it does with other goods. This
sounds reasonable, but, unfortunately, it is incompatible with other things
that we need to do to control the cost of the healthcare system as a whole.
One these is to reduce the over-use
of the most expensive parts of the healthcare system: emergency rooms and
hospitalization. We can do that by encouraging people to make good use of
primary care. If people are sick or in pain, we will save money if they go for
treatment to a primary care provider instead of waiting until they are so sick
that they need to be hospitalized or to visit an emergency room. We can save
even more money if they go to a primary care provider for things like check-ups
or immunizations and so avoid becoming ill.
However, co-pays and deductibles
raise the cost of primary care for the patients and thereby discourage them
from taking advantage of it. Many people avoid going to the doctor when they
can and seek care only when they absolutely must. They wait until they have medical
emergencies. The result is that they over-use our emergency rooms and
hospitals. They raise the cost of the healthcare system as a whole by making
use only of its most expensive components. Decisions that are rational for them
as individuals turn out to be counterproductive for the system as a whole.
Market Methods Do Not
Encourage Healthy Lifestyles
Co-pays and deductibles do nothing
to encourage people to live in healthy ways, even though encouraging people to
choose healthy lifestyles is one of the most effective ways to reduce the cost
of our healthcare system. Much of the cost of our healthcare system is due to
the need to care for people with chronic conditions like obesity and diabetes,
and we can reduce the number of people who suffer from such conditions by
encouraging them to choose healthy lifestyles.
Ways to encourage people to live
healthy lifestyles are not hard to find. In Britain, a primary care doctor is
paid a fixed annual capitation fee for each of her patients, which means that she
has no incentive to over-treat them and strong incentives to keep them healthy.
So, she provides the education that will lead
at least some of them to choose healthy lifestyles, and she makes sure that
they receive their immunizations.
Another
kind of example is provided by my Medicare supplement insurance. It pays for
membership in a gym on the theory that if I exercise regularly, I will be less
likely to need expensive hospitalization.
If we are serious about reducing
the cost of our healthcare system, we have to get our people to make good use
of primary care, and we have to encourage them to choose healthy ways of
living.
Co-pays and deductibles conflict
with both of these goals and therefore will not reduce the cost of our
healthcare system.
We will have to make
use of non-market methods of cost control.
For a fuller discussion of the
problem of cost in the American health care system, I recommend Elisabeth
Rosenthal’s book,
An American Sickness.
Dr. Rosenthal brings together her training as a physician and the knowledge she
has gained from hers years of working as a reporter for the
New York Times.
Sources
4.
Elisabeth Rosenthal, An American Sickness, Penguin Press, New York, 2017
5.
T.R. Reid, The
Healing of America, Penguin Books, London, 2009
