Alternate Reality

Imagine what the world would be like if all letters to the editor looked like these, instead of the usual rogues' gallery of economic idiocy we find in most newspapers.

[Apparently the Wall Street Journal doesn't let non-paying users read or link to the previous day's letters page, so I'll just copy and paste all the responses they printed below.]

A Dissection of Medical Insurance Costs, Benefits; Government's Role

Jonathan Kellerman is correct that it would be better for both parties if patients paid doctors without intermediation ("The Health Insurance Mafia," op-ed, April 14). U.S. physicians earn 10% of their income from patients. In 1950, this share was about 85%, and it was 40% as recently as 1980. Meanwhile, physicians' real income from the practice of medicine has declined.

He also lets government off the hook too easily. A hospital's $20 aspirin is not the consequence of "health insurance." It is the result of Medicare's centrally-directed price-fixing and Byzantine reimbursement policy. Of course, in their role as Medicare carriers, health insurers are a party to the government's racket, but they did not invent it.

John R. Graham
Director, Health Care Studies
Pacific Research Institute
San Francisco

At the metalevel, both providers and payers are systematically ensuring that the costs of health care continue to rise at rates far exceeding the rate of inflation. Both sides have a vested interest in ensuring that this process continues. Insurance companies take the same percentage of a larger pool of money.

The system itself is invested in keeping the consumer out of the loop and uninformed about the real cost of care. The system does not want individuals making cost-benefit decisions about procedures, tests, prescriptions, or other aspects of their care as they would if they had to pay for the services themselves. Involving the consumer is inefficient for providers and undermines the role of the health-care insurance industry. It is time consuming and distracting, and forces all parties to answer too many questions about their routine practices.

John K. Connors, M.Ed., LPC

Austin, Texas

The mafia profits in precisely those sectors that are prohibited or heavily regulated by government, namely murder, theft, gambling, loan-sharking, prostitution and narcotics. The nightmare results in health insurance described by Dr. Kellerman are also due to government actions, such as malpractice awards, medical licensure, tax and labor laws, FDA requirements, and so forth. Nobody expects presidential candidates to talk about fire or auto insurance, and that benign neglect is why those industries operate just fine.

Robert P. Murphy
Nashville, Tenn.

When we see providers accepting one-third to one-half of their "list" prices, we know that list prices are way out of line. And when we are caught "out of network," just try to negotiate a reasonable fee from those providers. Today, those least able to pay are the ones charged the highest prices in many cases.

Harlan Janes
Chocowinity, N.C.

The truth is, if we could pay our doctors and hospitals at the insurance companies negotiated rates and have just catastrophic coverage, most of us would see lower cost with little increase in risk. It means I would have to pay my doctor out-of-pocket next time I go in for an exam. But chances are, he won't charge me $40,000.

Rich Van Saders
Boonton, N.J.

The problem is a complete absence of competition between hospitals, and a total lack of choice for the patient -- i.e., the consumer of what he wants or needs to "purchase."

Health care systems all over Europe are in financial and organizational trouble, and an easy and painless solution is not in sight.

Walter M. Gerhold M.D.

Osprey, Fla.

Any attempt to organize independent practitioners against the insurance mafia would be swiftly met with threats of violations of federal antitrust laws.

Dr. Kellerman speaks of a Faustian bargain forged years ago between physicians and the insurance mafia. In reality, the agreement was between the American people and their government, the former demanding unlimited, high-quality medical services for which "someone else" would pay. Those looking for still more government solutions might at long last confront the reality that they have met the enemy -- and it is them.

Michael Stein, M.D.
Evanston, Ill.

The current arcane reimbursement system has become so draconian and complex that all competition on price has ceased. No one charges less than Medicare, Medicaid or the insurance companies pay. Everyone tries to maximize their reimbursement in this budget-neutral, fixed-payment system. The only ones consistently making a profit are the insurance companies which take their profit up front and then download their costs to the patient, providers and employers.

Bohn D. Allen, M.D.
Arlington, Texas

Except for catastrophic, high-deductible plans, health "insurance" is actually health maintenance. It covers everything from routine physicals to drugs and x-rays to major hospitalizations. An analogous situation would be insurance to put gas in our cars and mow our lawns as well as to cover collisions and major house damage.

A third party pays for 86% of the health care in this country. We will continue to have runaway costs and over-utilization until patients can control and be responsible for their own health-care expenditures.

Roger Stark, M.D.

Share this

Explaining Health Care Costs

Yes the WSJ does publish a lot of well thought-out letters from the conservative folks who read it.
On Brandon’s previous post about health care financing one of the commenters opined that the usual and customary fees are set so as to make the negotiating position of the provider better. Really I think it serves two purposes. One to allow the hospital to brag about how much charity care it is providing and the other purpose is to commit highway robbery on people who are uninsured but have assets. As one letter writer pointed out this amounts to less than 10% of doctor’s fees and probably much less of collectable hospital fees.
The American medical care system is an example of how long term unsound economic incentives morph over time into something no one intended. Financed as it is largely through government and employer payments, there is no incentive for consumers to shop around. The standard of care was relatively modest in the late sixties when Medicare was instituted by the Johnson administration. Most hospitalization consisted of bed rest and good nursing care plus surgery, a few medicines and a few x-rays and lab tests.
There has been explosive growth of technological means of care which are used both to good effect and also in many cases futilely. The omission of ordering a patient test possibly resulting in harm will result in a big risk of litigation.So as a defence doctors order more tests instead of using clinical judgement. The population of elders is exploding. Seventy percent of costs are due to chronic disease or terminal care (incurred in the last months of life.)
In 1982 TEFRA legislation phased in prospective payments rather than fee for service for hospitals providing Medicare. In other words hospital get paid a fixed rate for each disease group. Medicare payments for physicians are based on a complex mix of costs, and mandated reimbursement rates. As you know this resulted in massive increased paperwork, and regulations. As it has developed in a milieu devoid of market forces gigantic administrative expense have evolved. Additional follow-up legislation has come been passed trying to staunch costs that spiral upward uncontrollably. Employer based fees are tacitly based on Medicare reimbursement, setting the standards for negotiated hospital and physician fees.
Medicaid is finances through the states but with Federal subsidies, often at pitiful rates. This is to finance the care of the truly indigent and is subject to much political influence. For example due to the embarrassment of having a higher infant mortality rate for minorities, obstetrics pays pretty well. The poor get top rate care in many cases. Now pediatrics is being paid better Medicaid rates. It was so embarrassing that Cuba had as low a neonatal death rate as the US. If you are an adult on Medicaid you may not get the best doctors or hospitals. But this varies according to where you live.
The medical care system is a vast fat turkey that is covered with parasites. Crooks are always finding ways to bilk the system. This necessitates huge numbers of bureaucrats, administrators and enforcers in order to insure accountability. Then providers have to hire armies of similar people to navigate the ever-changing rules and regulations. Time and space permit only the mere mention of the biggest parasites of all, the insurance companies.
If the system had been privatized in the first place it would have been vastly more efficient and inexpensive but now with so many entrenched interest groups it is an unbelievable mess.