State Capitol of Iowa, ID’d by Sue Haskins
We’re going to need lots of sugar to take what this Congress is likely to shove down our national throats as they repeal and replace the Affordable Care Act—Obamacare. I likely will devote future, and better researched, posts to this topic but for now am going to share some insights and stories accumulated over an adult lifetime of thinking about medical costs and health insurance—well not my entire adult life, just since the late 70’s when I was immersed in teaching both Personal Finance and introductory Economics at Tulsa Junior College. Before that, through three employers, one wife, and two children, I didn’t give it much thought. I can tell you what we paid for rent in Philadelphia, for a pound of chicken livers (least expensive protein), for a gallon of gas, for a motel room, for our first mortgage, for our first car, and much more, but health insurance costs don’t register in my memory. I was a classroom teacher with Tulsa Public Schools when our second child was born and I don’t remember the cost of family coverage being significant back then. Today that cost is $1,734 per month with only $571.04 of that being paid by the employer in most school districts. If now was then I would remember that level of impact on our family’s budget. So getting national health care/insurance right is a big, big deal to American families.
As a famous American said recently “Nobody knew health care could be so complicated”. Well, after a little study back then, I did, and so did many others as rising health care costs, rising numbers of uninsured families, and rising numbers of deaths due to lack of insurance, have made health insurance and medical costs inflation major topics of national discussion for decades. In my 1970’s and 1980’s Personal Finance classes we learned that having good major medical insurance at all times is an essential risk management strategy for everyone since very few, such as billionaires, can rationally assume the entire risk of having a catastrophic loss of health with the attendant hospital costs and loss of earned income. We also learned that modern medicine, safe drinking water and sewage waste disposal have mostly eliminated what were prevalent causes of death for my parents’ and grandparents’ generations, like typhoid, diphtheria, measles, chicken pox, etc. Vaccines and sanitation have eliminated most causes of early death from contagious diseases and greatly increased life expectancies. We also learned that our leading causes of death now often result from our behaviors of choice, like eating too much, not exercising, smoking, shooting each other, and driving too fast or while impaired or distracted.
In introductory Economics we learned what economists had to say about the rising cost of medical services, namely that characteristics of American health care markets did not fit the model of competitive markets for other products and services, like restaurants, house construction, automobiles, lawn mowers, etc. In those markets prices are kept in check and quality improves due to many sellers trying to gain profits and market share while selling to many consumers who have lots of choices. By contrast in health care markets the greatest expenditures often occur when the “consumer” has a serious health condition and relies on, or is at the mercy of, health care professionals to recommend the medical care needed to improve health or even save life. In these “markets” consumer “choice” is a fantasy. Additionally, due both to the prevalence of health insurance and physician and hospital ethics, a “consumer”, the patient, is going to receive the treatment without the same regard for cost as would be the case if he or she were purchasing a television, a movie ticket or lawn service. In other words, most health care expenditures are made with the consumer relying on professionals to determine what will be purchased and relying on somebody else, i.e. their insurance company, to pay for it. Think what would happen to the price of automobiles if we all purchased based on a car dealer’s recommendation for the make, model and optional equipment, AND we had a trust fund, restricted for automobile purchases only, to pay for it.
Economists have long recognized that where health care services are involved we cannot rely on market competition alone to contain costs and improve outcomes; there is simply too much of a disconnect between the “consumers” and the “deciders”. Unfortunately, many engaged in the discussion are so wedded to the belief that competition cures all they lose touch with reality. For an example of this see what Mark J. Perry, one of the limited-thinkers at the Oklahoma Council of Public Affairs, posted June 1, 2015 “Competitive Health Care Markets Spur Price Deflation”. Apparently he believes the circumstances and choices faced by consumers (no quotation marks) of liposuction, breast augmentation, tummy tuck and Botox injection services, are similar enough to “consumers” facing diagnoses of advanced breast cancer, heart disease, renal failure, and other life-threatening health conditions, that there are important lessons to be learned. I’m sorry that his introductory Economics course didn’t include discussion of why markets are not always perfectly competitive and why some market outcomes require corrections for the betterment of society—or maybe he was nodding off after having discretionary brain surgery. More competition alone is not going to improve the health of the many Americans whose access to quality health care is limited today.
I actually experimented a few years ago with this market competition approach to health care when my physician and wife, a colon cancer survivor, shamed me into getting my first colonoscopy. The first time I tried my insurance would pay part of the cost, but not all, so being a good econ, a rational decision-maker, or as my Italian daughter-in-law describes me, a pidocchioso (Italian slang for “stingy or cheapskate”), I wanted to know what the price/cost would be. I met with the referral doctor who, after he got my information and explained the procedure, asked me if I had any questions. I said yes and asked what the procedure would cost. He said he didn’t know, that I should ask his billing staff out front. While in private law practice this was a question I was always prepared for and always answered as definitively as I could, when asked by a client. “Out front” I was told to ask my insurance company and the facility/hospital where the procedure would take place. I called the facility/hospital which deferred to the other two and fared no better when I contacted my insurer. I happily used this pricing obfuscation to do what any good consumer should do—I declined to have the procedure.
Then a couple of years later, either due to my advanced age or change in preventive care coverages (may have been implementation of the Affordable Care Act), the procedure became “free”, at least to me as the consumer. So I dutifully went back to the same doctor, the same facility/hospital, and the same insurer, and, along the way, including the early morning of the procedure (my wife smiling all the time), asked each one to confirm that the procedure would be “free”, at no out of pocket cost to me, which they each did. So with no remaining excuse or reason to defer, I was wheeled into the staging area, where a nurse anesthetist introduced himself and asked me to count backwards, 10, 9, 8, 7, 6,…. then I’m waking up, told all looked good, and driven home none the worse for wear. Until several days later when I got a billing from the nurse anesthetist for charges not covered by my insurance because he was “out of network”. Oh what a stupid consumer I was and entirely my bad that while on the gurney in my backless white gown I didn’t, in my final minute of consciousness, ask if the needle-holder was “in network”. Where were Mr. Perry and the OCPA when I needed them.
My first substantive exposure to health care pricing in this country was in 1986 when, as the newly elected Commissioner of Finance and Revenue for the City of Tulsa, I became a member of the Emergency Medical Services Authority which then and now provided emergency ambulance services to Tulsans. Prior to serving on that authority I assumed that medical services pricing, like prices for barbers, exterminators, plumbers, dentists and other service providers, would be based mostly on the cost, i.e. the value of the labor of the service provider involved, adding in amounts for equipment and other costs involved. Indeed, such calculations were the starting point, including the wages of the emergency medical technicians, amortizing the cost of the ambulances, fuel and medical supplies costs, etc. There also were calculations about how to most efficiently schedule and position the ambulance crews so that they stayed fairly busy (more on Saturday nights for example) and, therefore, productive. All of that led to a dollar calculation of what the actual cost was for an ambulance run, much like the calculations that an auto wrecker service must make to determine its per-run pricing, and essentially total expenditures divided by the total number of runs. Let’s say it was $150 in 1986. In contrast to the wrecker service where that might be the beginning and the end of establishing a price of a run, for EMSA we were just getting started.
Unlike the wrecker service, a plumber or a dentist, EMSA is required by city ordinance to provide emergency services to anyone and everyone who is in need; it can’t ask about ability to pay. Whereas the wrecker service, plumber and dentist will each have a “bad debt” write-off as part of their calculation, it is nothing like the algebraic gymnastics for EMSA at that time. A sizeable portion of the runs were covered by Medicare, Medicaid or other health insurance, however Medicare and Medicaid for sure, and much of the employer and individually purchased insurance, negotiated a reduction from what EMSA charged for a run at the “retail” level, i.e. a cash-paying, non-insured person who was transported. Of course many of EMSA’s retail customers ended up being bad debts. When all these factors were fed into the algebraic gymnastics the result was a retail charge much greater than the actual cost, something like $275. So the reality was that a person able to pay, but without the benefit of any insurance related “discount”, was billed and expected to pay far more than the actual cost. I don’t remember the actual ratios and dollar amounts, but it was eye-popping and patently unfair, but also perfectly legal and what had become an expected part of our crazy-quilt way of pricing medical services.
That same year Congress passed the Emergency Medical Treatment and Active Labor Act (EMTALA) which requires every hospital that receives Medicare or Medicaid payments from the federal government and that provides emergency room services, to treat anyone and everyone who shows up at the emergency room, regardless of ability to pay. Translated we effectively have universal health care coverage and I doubt even the most limited-thinker at the OCPA would be mean-spirited enough to advocate repealing EMTALA—but they might surprise me. I just finished reading Trevor Noah’s autobiography of growing up in South Africa “Born a Crime” (black mother, white father, during apartheid). Spoiler alert for the rest of this paragraph now because it was a great read and I highly recommend it. When he was just a couple of years out of high school, his stepfather shot his mother in the back of the head and she was taken to the emergency room, dying. The staff informed Trevor when he arrived that she could not be treated there because she was uninsured (a devout Christian she believed Jesus was her insurance), meaning South Africa had no equivalent of EMTALA. Only because he provided a credit card and agreed to be financially responsible for what could have been an astronomical cost did the hospital give her the emergency treatment she needed. Miraculously the bullet that had exited cleanly through her nose missed all vital parts of her cranial cavity and she was treated and released within days. When Trevor later chided her saying her faith in Jesus didn’t give her health insurance when she needed it, she replied “But Jesus gave me you”.
After my EMSA experience I always thought hospitals were following a similar calculation process, just more complicated by all the hundreds, maybe thousands, of different procedures they perform. Apparently that is not the case. While collectively the charges grossly exceed the actual cost to account for the insurance negotiated discounts and the no-pay patients, the individual procedure charges are mostly unrelated to any rational measure of actual costs—at least that’s what author Steven Brill reported in his 2013 article “Bitter Pill–Why Medical Bills Are Killing Us“. It is a must read for anyone who thinks “Nobody knew health care could be so complicated.” It demonstrates the absolute folly of thinking analyses like that reported above by the OCPA are relevant, while showing how effective the market power of a single payer system, namely Medicare, can be in reducing costs, both medical and administrative services, compared to pricing through the private sector.
What is driving the financial struggles for Medicare is not that it is a government run program, which in fact is its strength, rather it is the reality of the rising expectations we collectively have for extending our individual lives, regardless of quality, at great costs. As one who is likely, as my friend Lloyd Snow would say, playing in my final quarter, I can say that we do need to have an honest national discussion about the amount of scarce resources we are devoting to end of life treatments. Call it “death panels” or say it like Dr. Ben Carson did recently to HUD employees when he honestly expressed his belief that his skills as a brain surgeon were more appropriately used to “operate 12, 18 or 20 hours on a young child and, if successful, you might be rewarded with 50, 60 or 80 years of life, whereas with an old geezer they die in five years or something else, I like to get a return on my investment.” Regardless of the blunt language (though maybe 6 months instead of five years), if we want to control health care costs, it is a genuine way to do so, unlike so-called “market” and “private competition” proposals that will exacerbate the lack of access to care for our younger and economically marginalized citizens.
One other thought, as important as dealing with end of life health care costs, is the role of having universal coverage in containing costs. Not only is it a great benefit for all of us and a societal advancement we can afford, it is also a smart play. Insurance works best when large numbers participate and no one is able to game the system. That is what happens when we don’t strive for universal coverage, but still honor EMTALA, namely the young and/or healthy can roll the dice, contributing nothing to the pot, knowing that they can always join later and have the emergency room guarantee in the meantime. For most it works, but for those it doesn’t we and they pay dearly. The resulting dynamic is the “death spiral” of more expensive insurance premiums driving more to roll the dice, which in turn raises the premiums further. You need look no further than the discrepancy in premiums for teachers’ health insurance, $571 per month where the premiums are paid for by their Flexible Benefit Allowance, and the $674 charged for spouses, all of which is entirely out-of-pocket. That higher cost for spouses drives more to find other options, like rolling the dice before the individual mandate of the Affordable Care Act, leaving an older and sicker group captive to a plan for which costs must inevitably rise. Whew!!! That’s way too much information—maybe you’d like for me to post the photo of my colon instead.
As always lunch on me for the first to ID the photo location.