The U.S. healthcare system is built on a third-party payer system, which is allowing healthcare spending to soar uncontrollably. Doug Mataconis explains it this way,
“when consumers are insulated from the cost of a good or service, they aren’t going to take the price of that good or service into account when deciding whether or not to purchase it, which means that the normal supply-demand price mechanism isn’t going to work. In the long run, this means prices will go up.”
When was the last time you knew the cost of a specific service you received at your local clinic or hospital? Your only concern (and rightly so) is what you have to pay the insurance company. The problem is, as a society, we don’t shop around to find the best price and make an informed decision based on price and quality of service.
The fact that we don’t know prices and essentially can’t shop around because the people who work at the clinic or hospital don’t know prices either, doesn’t allow for competition. Where no competition is found, prices go unchecked, and unchecked prices don’t go down — they almost always go up.
If we aren’t paying for something, we care much less about how much that something costs. It might be easier to understand if we apply this principle to another area of life.
Imagine you are looking for a new vehicle and you only have to pay $1,000 for your “co-pay” to get the vehicle. You may not need leather seats, an upgraded sound system, a custom paint job, and the limited edition. But what the heck! If you get the stock car or the limited edition, you only pay $1,000! So you, obviously, get the vehicle with the better package.
The problem from our perspective is that we are unknowingly playing into the problem. We don’t realize it, however, because we make small decisions to add tests or procedures (upgrade a few features of our vehicle) which causes someone else to pay for something that we likely didn’t need. It is “out of sight, out of mind” because we didn’t have to pay for it.
This kind of mentality leads to billions of dollars being spent unnecessarily. Why is that a problem? Well, because the whole system could fall apart. Insurance companies may not be able to make a profit. Hospitals may not be able to function.
Where Does the Money Come From?
This can be compared to free college tuition. Of course, free tuition sounds awesome to millions of college students and their parents. Everyone can imagine the profound benefits of not having to pay for their education. The issue isn’t if free tuition is a good idea or not. The issue is if it’s feasible or not. Someone must pay for the expenses acquired by the college. Otherwise, teachers, the university, and their administration won’t get paid.
In response to the excessive healthcare spending, insurance companies adjust their plans to account for the expenses. They raise their prices, which can make it unaffordable for many people (most notably the poor). To save on costs, insurance companies will reimburse less to hospitals. Hospitals need to make money to operate, so when insurance company reimbursements don’t cover the cost of the services, hospitals lose money. To make up for less reimbursement money, hospitals raise their prices.
This back and forth between insurance companies cutting reimbursement and healthcare facilities increasing the cost of services leads to increased healthcare costs for the same services. Keep in mind, this is all going on behind the scenes and the consumer of the services, as well as the physician ordering the services, are for the most part unaware.
The Downward Spiral
This perpetual cycle has been going on for decades. Now, it seems it could be getting to the point of collapse. The U.S. healthcare system cannot operate any longer on a third-party payer system in which patients are so dependent. Just like the automotive industry wouldn’t possibly see any value in a third-party payer system, the U.S. needs a more feasible solution for our healthcare.
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