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Keith Crocker, William Elliott Chaired Professor of Insurance and Risk Management at Penn State’s Smeal College of Business, writes about healthcare insurance …
What is causing health care costs to skyrocket?
- In terms of health care, the reason costs seem to be out of control is the incentive system we currently have in place, which gives consumers absolutely no incentive to economize on what they consume.
- As far as they see it, it’s a free good as soon as they walk into the doctor’s office.
- At the end of the day, that’s the problem.
What are some ways to reduce health care costs?
- The only way to reduce health care expenditures is to reduce the utilization of services, and to do that, there are two options:
- We can either get people to voluntarily choose less
- or we can put a structure in place that withholds treatment using rationing, administrative rules, or something like that.
- I think that the best option is to seriously think about how we can incentivize consumers.
Would a government insurance plan dismantle employer coverage, as the insurance industry claims?
- Medicare is hemorrhaging money in terms of its future liabilities.
- In an attempt to reduce. these future liabilities, Medicare is reducing the reimbursements rates that it pays to hospitals and doctors for providing services.
- The problem with this approach is that a big chunk of health care expenses are fixed costs, and if Medicare, or this new public insurance option, chisels down what it’s going to pay doctors, somebody else has to pay those costs.
- forced under-reimbursements from the public option will cause health care providers to look for remuneration elsewhere, forcing them to charge higher rates to private insurance companies, and ultimately driving these private insurers out of the market.
- That’s the fear, and given what’s happened with Medicare reimbursements over the last decade or so, it is a legitimate one.
- If there’s a government plan that doesn’t have to break even, it’s going to ultimately torpedo private insurance coverage.
read the entire article at … http://research.smeal.psu.edu/news/the-great-health-care-debate
LMW COMMENT …
We hear over and over again (from Republicans and Democrats alike) that health care costs are exploding, and that this threatens to bankrupt our government and make our business non-competitive.
What we don’t hear is the fact that the primary reason costs are expanding is not because doctors or hospitals or drug companies are charging more (although there is surely some of that), but because consumers of healthcare are consuming more expensive services, procedures and drugs.
Those of us who are insured, with minimal or zero co-pay policies, have no incentive to reduce the amount of healthcare services we consume. Somebody else pays, so we take all we can get. On a one-by-one basis, these are totally rational decisions.
Adding to the complexity, even the most informed among us are not able to evaluate the costs of medical services. We don’t know how much it costs, or how much it should cost. We are totally blind consumers, interested only in getting everything we can for ourselves and our loved ones.
We don’t care how much it costs, since someone else is paying. But the someone else is really us. And it’s about time we recognize that fact.
I agree with Keith Crocker (above) that the answer to this dilemma must include some way of forcing or incentivizing people to consume less medical services. However, all of the means to accomplish such reduction are painful and politically dangerous to those who propose them, such as …
- rationing of services, i.e., only so many operations or diagnostic procedures per year;
- but who then would decide which patients get services and which do not?
- lower incomes for doctors and hospitals, and lower prices for medical equipment and drugs;
- but how to decide? in some market driven manner? by government fiat?
- and, if lower profits are mandated, how will we continue to receive the quality of services and research and development of new procedures and drugs that we have come to expect?
- reduction of end-of-life medical services, which account for a huge percentage of total medical costs;
- but who should decide when such services are a waste of money for patients who will die anyway and when they are essential to preserve life?
We can blame the insurance companies or the doctors or the drug companies all we want, but transferring the blame away from the real cause of exploding healthcare costs will not solve the problem. In the end, we can either accept the exploding costs with all the negative consequences that will bring, or we can honestly say that we are consuming more health services than we can afford and consider means to reduce such consumption.
Out-of-control healthcare costs is just one of many issues (consider future supplies of food, water and energy, global warming, fragile financial markets, global economic competition, the ambitions of other countries like Russia and China and of Islamic terrorists to achieve their own greatness …) in our changing and uncertain world that frightens many Americans and others around the globe as well.
But debating non-issues is just blather, and will accomplish nothing except make us angry with each other and stoke the escalating possibilities of political violence. Some Americans apparently look to resolve their frustrations over such problems by taking loaded automatic weapons to presidential events.
We should get to the real issues before it is too late.
I believe Barack Obama understands our dilemma. Whether he is capable of mobilizing the forces needed to address these issues is still an open question. Perhaps this is why the President has more patience than most of us with the truculent non-partisan behavior of most Republicans and many Democrats in the Congress and throughout the country.
Hard work and hard decisions lie ahead. Or, we can continue to delude ourselves by blaming someone else until the problem can no longer be solved.
David Axelrod
