Health Care, a Broken Market

The miracle of free markets has brought us the goods and services we need and desire at constantly decreasing cost (in real dollars) in nearly every private sector category EXCEPT health care.  Or at least that is how it appears.

The perception that health care has become unaffordable has led us to the brink of abandoning capitalism itself, so it would be good to step back and look at the reality of this perception and what can be done about it, from the perspective of a Libertarian who is actually involved in the business of providing health care.

So, that is what I will try to do in a series of articles on the true cost of health care, how we pay for it, how the current situation developed, and what we can do about it and remain a free people. I will be doing this in a series of articles while, at the same time, making a living providing health care, so it may take some time to complete the series, but for too long I have let the sheer size of this effort delay my addressing the issue.

In this first article, I will address the reality of that perception of unaffordability.

Is health care really that expensive? That depends on what health care you are talking about, today’s health care, or health care from the “good old days.”

Thirty years ago, the cost of health care was not a hot political issue.  But thirty years ago, if your child was diagnosed with Leukemia, your doctor’s advice would have been to start trying to have another child while you were still young enough.  Chemotherapy and bone marrow transplants cost a lot more than a pat on the shoulder and a supply of narcotics to keep your dying child’s screams down to a tolerable level, but is that really a cost increase or something new and better than what was previously available?

Similarly, if you don’t die cheaply at sixty-five of a heart attack, which was pretty much an average fate for men thirty years ago, you face the likelihood of a far more expensive death of cancer or neurological deterioration in your eighties or nineties today. What is the proper price for that extra twenty to thirty years of healthy retirement?

The point of which is that health care today, in part, costs more because it is worth more and we should not confuse that with ‘out of control cost increases’ as the advocates of socialized medicine would like us to believe.

The fact is that health care DELIVERY is actually pretty efficient and competitive, it is the hidden costs and, especially, the manner in which we pay for it that makes health care so difficult to afford.

Those hidden costs include, famously, the cost of malpractice litigation, and, more importantly, the practice of ‘defensive medicine’ to protect against that litigation.

It is true that physicians continue running tests and obtaining imagery long after they know, with 99% certainty, what is wrong with you and what to do about it, just to protect themselves in case you have a bad result and they must someday justify their decisions before a jury. These unneeded tests cost a lot and really do little good, as the delay in beginning treatment is generally more harmful to you than the small risk that you will initially be given the wrong treatment. Often, trial and error in diagnosis and treatment actually works better than waiting for absolute certainty.

For example, in treating dental infections, I could take cultures and order antibiotic sensitivity tests prior to starting treatment. Since nearly all dental infections are mixtures of several bacteria, with some being the active agents and others being opportunistic infections, those tests would cost thousands of dollars and take 5 t0 8 days to provide useful results. That’s a long time with a toothache. So, I haven’t ordered a culture and sensitivity panel in 30 years, instead giving patients a broad spectrum antibiotic to which they are not allergic, and being prepared to switch them to a different antibiotic in a couple of days if they do not improve. Without exception, I will have their infection under control in less time than the tests would have taken to give actionable results.

But if I were overly concerned with being sued, I might do the same thing but run the multi-thousand dollar tests anyway, just to provide me cover in case I needed to prove in court I left no stone unturned.

But a far larger reason for the high cost of health care is cost shifting.

In a sense, we already have universal health care in this country in that no one goes untreated when they really need it. That treatment often comes in the worst, and most costly, venue, the emergency room, but you can always get treated.  Under State and Federal laws, hospitals cannot refuse treatment for acute illness to a patient who is uninsured or does not have the capacity to pay. They can try to collect after the fact,  but they must provide treatment. Treatment received in this way in ER’s is not the equal of what you can receive from private physicians in their own facility,  and it will be extremely inconvenient, but it is really not much worse than what is the norm for countries with socialized medicine, and it must meet the same standard of care for legal purposes as the hospital gives paying patients.

Someone has to pay for the cost of that unpaid treatment, and that someone is you, either through your insurer or through taxes, if not directly. That cost shifting is by far the largest contributor to the overhead costs of providing your medical care.  Critics of private sector health care often point fingers at insurance company profits and “fraud and abuse” by hospitals and physicians as reasons for the cost of health care, but all of the other overhead and unnecessary costs attached to your actual  health care costs combined do not come close to cost shifting from patients who have neither the ability nor the intent to pay their own way in adding to your hospital bill. Further, Medicare and Medicaid pay only a portion of the cost of treatments provided under those programs, and the excess cost for those patients is also shifted to privately funded patients.

So, what can we do about cost shifting? Do we let patients die on the hospital steps for lack of an insurance card? Even for a Libertarian, that is a hard question, but ultimately, yes, that is exactly what we have to do. Otherwise, what is the incentive for people to defer other choices to pay for insurance? The alternatives would be a two tiered system, with a lower, third world  standard of care for “charity” patients, or compulsory health care insurance for all.

But what we cannot continue to do is to allow people to use our laws to compel others to pay for their treatment through cost shifting in addition to paying the rather reasonable costs of their own treatment.

But, if the real cost of health care is not unreasonable, then why do we have such a hard time affording it? That has more to do with how we pay for it than how much it costs, spread over our lifetimes, but that is another article.

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4 Responses to Health Care, a Broken Market

  1. Ernie Nilsen says:

    Much truth here, Dr. Tabor. May I just mention two of the more cutting edge treatments that have NOT increased in price-rather decreased. Lasik and other similar eye surgery and cosmetic surgery. Neither is covered by insurance, by and large, and they have both become more affordable as the market dictates the price and there is no cost shifting. Interesting, no?

  2. Len Rothman says:

    “Do we let patients die on the hospital steps for lack of an insurance card? Even for a Libertarian, that is a hard question, but ultimately, yes, that is exactly what we have to do.”

    I appreciate your approach to many issues of health care in the US, although I often disagree on solutions.

    Cost shifting is a major problem according to your research, and I agree. But your solution of letting patients die if they are not insured is, to me, a serious moral lapse.

    Certainly there are slackers who purposely game the system to avoid paying their fair share. But there are many poor people for whom health insurance is not even an option, particularly if they are laid off, have a serious problem or were rescinded by their insurance company for specious reasons.

    That they or their children should be denied emergency care after a serious accident or a life threatening disease does not reflect the values of most, if not all, citizens.

    Stray dogs, brought to a pound with serious ailments or injuries are at least euthanized humanely, even though that procedure incurs expense.

    With an uninsured population of about 47 million and a grossly underinsured population of about 25 million, that is potentially a lot of dead people on the steps.

    • Don Tabor says:

      Well, Len, there’s always charity.

      If you think it is morally unacceptable to allow people who choose to not provide for their own health care to do without, stroke them a check, out of the goodness of your heart. Or organize a group of like minded individuals to share the cost of health care for the irresponsible or unfortunate. And don’t forget, your charitable organization would get more bang for its buck, since health care would only cost about half as much with cost shifting eliminated.

      I would probably contribute to a fund for the unfortunate myself. The irresponsible are on their own.

      Of course, if you want to provide health care just because people need it, will you also provide other necessities like food and cable TV?

      Seriously, it is not an easy question, but when you use the force of government to compel the responsible to bear the costs of the irresponsible, the one thing you can be certain of is that you will see more irresponsible behavior.

  3. Len Rothman says:

    I hear what you are saying and, to your credit, you have been saying it for a long time.

    I think that you are overestimating the irresponsible population, and, perhaps, I am overestimating the unfortunate. I am not sure there will ever be a way of determining who is who.

    But I am of the “better to let a thousand criminals go free than to incarcerate one innocent man” line of thinking. And I am also an optimist who tends to give people the benefit of the doubt.

    I am sure that you have read about the school of behavioral economics that is now challenging Chicago’s dominance, particularly in the current administration.
    I think the health care application we are likely to see in the next few years will be mandated purchase of health care insurance, the “nudge” (or “shove”, I suppose) rather than let folks ride on our dime.

    If everyone had to buy in, whether private or not (or mixed), then the pre-existing conditions, rescissions (a scam if there ever was one) and the huge cost of up to 29% administration cost for private underwriting would be out of the insurance side of the issue. The group spread would be bigger than any large group from industry or trade association.

    Of course, the other side of the issue, cost of health care itself, is another problem. There lies the true effect of individual responsibility regarding lifestyle.

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