The commonality between the insatiable rise in both healthcare costs and college tuition, post 1965, should be obvious: Massive amounts of other people’s money in the form of government programs, payments, subsidies and loan guarantees; which economists call the 3rd-party payer effect.
As exposited in the FEE article below, the U.S. Higher Education Act introduced “incentives” into the market for higher education, encouraging both the supply side and the demand side to make decisions that they would not be as likely to make under “non-stimulated” market situations.
Similarly, the passage of Medicare in 1965 sent huge surge of money into the healthcare system. The predictable consequence of this massive revenue stream was an incentive for healthcare providers to enter the market and expand services at an unprecedented magnitude and rate. Essentially, demand was spurred by new source of financing. Amy Finkelstein, et.al have done excellent work in this area. Her work indicates that Medicare funding may have allowed hospital to spend 6-fold more than what individual levels of insurance would have predicted. And that the spread of 3rd party insurance from 1950 – 1990 may explain about 50% of the increase in real per capita spending over that time period. https://economics.mit.edu/files/788
“As Bernie Sanders tweeted last year, the cost of education, in nominal dollars, has increased by roughly 3,800 percent since the mid 1960s.
What Sanders didn’t mention was that this was when the US Higher Education Act was passed (1965), which directed taxpayer dollars to low-interest loans for students pursuing college. This increased accessibility to higher education, but the flood of federal money also caused a surge in demand and costs.
The problem isn’t unsolvable, but it will require significant changes to universities and the federal loan program. “Free” tuition and student debt forgiveness will only make the problem worse.
Instead, as University of Maryland economist Peter Morici recently argued, market discipline must be brought back to our institutions of higher learning as part of any debt forgiveness.
While policy wonks offer no shortage of proposals for tweaking the federal loan program to improve it, perhaps the best solution would be to get the federal government out of the loan business all together.”
I think it is good to be alert to any discussions that are “downstream of a flawed premise.” Let me explain.
When I hear, for instance, that the “flat tax” is preferable to the current income tax, I think to myself that this is a discussion of the knife versus the axe, a conversation far downstream of one addressing government spending or the very legitimacy of denying someone their earnings. After all, victims don’t generally care what the mugger does with their money. They just resent being mugged and no discussion about whether the mugger used a knife or a gun will likely provide any solace.
Similarly, I would argue that arguing for everyone to have health “coverage” is far downstream of the more original problem: the cost of healthcare. To provide “coverage” for everyone in the current climate of gross overcharging primarily serves the interests of those who employ the “what can I get away with” method of medical pricing.
The fierce push back against true price transparency by the cronies in the medical industry makes more sense in this context, as price honesty denies them access to everyone’s blank checkbook as the health cronies are well aware.
Supporters of government-guaranteed “coverage” object with the following arguments.
First, coverage is equated with healthcare. While millions of Canadians streaming across the border to secure their health needs could be used to refute the idea that coverage is synonymous with care, this disconnect has become more apparent in this country. Each passing day reveals Medicaid and Medicare “coverage” to be a “black mark,” an actual obstacle to obtaining care, as these government programs and their associated rationing through price controls and hassles are creating the lines the central planners intended. Physicians are either dropping out of these programs altogether or they are limiting their exposure to patients with this “coverage.”
Another objection points to the relief from financial devastation that having “coverage” represents. Keep in mind that not only are well over half of the bankruptcies in this country medically related, but almost three quarters of those filing for medical bankruptcy have insurance. This points powerfully to cost as the root cause of medical economic ills.
Acknowledging this is a slippery slope for the objector, however, for no economic system better provides for resource allocation than the market and the cronies and their government pals know this as well as anyone.
The market is the only source of price deflation with simultaneous improvement in quality. This powerful competitive mechanism has brought affordability to countless products and services in all industries and has begun to bring rationality to health care pricing as more physicians and facilities honestly post their prices for all to see.
Rather than focus on “coverage,” which allows the cronies to continue their financial feeding frenzy, we should remain unalterably focused on cost. The competition unleashed will result in a medical price deflation the likes of which will cause even the most skeptical objector to re-evaluate the role of “coverage” in the provision of payment for health care.
This is no prediction. This is exactly what is happening here in Oklahoma where so many health professionals have embraced the same market discipline every other industry must endure. The reasonable prices and high quality of care, have had such a wide appeal that Oklahoma City has evolved into a medical tourist destination for many patients far from here, while simultaneously bringing savings in the millions of dollars to those who actually pay for healthcare, locally.
This is my answer to another objection from those who claim the inapplicability of market competition to health care. Whether the focus on “coverage” is a deliberate distraction by the crony propaganda machine or a well-meaning but misguided attempt to provide better access to care, we must keep our eyes on the “price transparency ball.” The Oklahoma market is already harshly judging those attempting to avoid this gaze and I believe this trend will continue as long as we identify, challenge and reject conclusions downstream of their flawed premises.
Master this how-to guide and you’ll be on your way.
“Hynden was shocked when he got the second CT scan in January, and the listed price was $8,897 — 33 times what he paid for the first test.
Gulf Coast Medical Center is part of his Cigna insurance plan’s approved network of providers. But even with Cigna’s negotiated discount, Hynden was on the hook for $3,394.49 for the scan. The additional ER costs added $261.76 more to that bill.
The higher price from Gulf Coast and its parent company could be a result of their enormous pricing power in Fort Myers, says Gerard Anderson, a professor of health policy and management at Johns Hopkins University.
Lee Health owns the four major hospitals in the Fort Myers area, as well as a children’s hospital and a rehabilitation hospital, according to its website. It also owns several physician practices in the area. When you drive around Fort Myers, the blue-green Lee Health logo appears on buildings everywhere.
“Anybody who’s in Fort Myers is going to want to get care at these hospitals. So by having a dominant position, they have great bargaining power,” Anderson says. “So they can raise their rates, and they still do OK.”
Anderson says his research shows hospital consolidation has been driving prices higher and higher in recent years. And because more and more people, like Hynden, have high-deductible insurance plans, they’re more likely to be on the hook for huge bills.
So Lee Health and other dominant hospital systems mark up most of their services on their master price lists — the list that prices a CT scan at Lee Health at $8,897. Anderson calls those lists “fairy-tale prices” because almost no one actually pays them.
“Everybody who’s taken a look at it agrees — including the CFO of the organization — that it’s a fairy-tale thing, but it does have relevance,” Anderson says.
The relevance is that insurance companies usually negotiate what they’ll pay at discounted rates from list prices.
So from the master price of $8,897, Cigna negotiated Hynden’s bill down to $5,516.14 — a discount of almost 40 percent. Then Cigna paid $2,864.08, leaving Hynden to pay the rest.”
“Medicare is not even close to sustainable in its present form, much less to be leveraged to cover the entire population.”
Saturday, October 5, 2019
“Because of the wealth transfer to early enrollees, as well as from ensuing expansions, Medicare provided many with a great deal. But that deal was the result of dumping an enormous bill on future generations (bigger than the unfunded liabilities for Social Security plus the national debt).
As a result, Medicare was a far worse deal than M4A salesmen and women admit, and it is now decaying at an increasing rate.
With that bill starting to arrive, Medicare is not even close to sustainable in its present form, much less to be leveraged to cover the entire population (although one can understand the vote-buying potential in promising massive new M4A generational transfers).”
The Healthcare industry, or medical-industrial complex, wears the armor of Government-sponsored protectionism; chinked together by pieces of the tax code, The McCarren-Ferguson Act, Certificate of Need laws, Medicare billing regulations, HIPAA, HITECH, and the ACA.
You would be hard pressed to find a more entrenched, impenetrable cartel.
Forum for Healthcare Freedom writes:
When central planners interfere with markets, as happened in 1965 and which continues to this day, the toxic distortions on pricing mechanisms weave their way extensively through the entire industry. The long term damage is insidious. It clouds our view of reality and tricks us into thinking the abnormal is normal; what is unjust is legal; what seems unfair is rationalized away.
So even when we try to undo the damage, even in a small way, the complexities of labyrinth often render us incapable of reversing course. When government gets too big & powerful, only the big & powerful (AHA) can manipulate it.
The judge in this case is probably correct from a technical/legal/legislative/regulatory standpoint, but alas, our problem of price disparities favor the status quo and continuation of a non-transparent billing protocol, which ironically has been codified by HHS/CMS…the same department that is now attempting payment reform. You can’t make this stuff up!