Hi’.
I already talked about Medicare for All costs. In that diary, as a foreigner, I talked about all the available studies and hard numbers at our disposal. I noted, when talking about how much the program would cost, that it was an equation between higher access to care and cost control.
Well the NYT decided to talk about the latter. And then again (yes I kept this diary as a draft for quite a while). I think this is the occasion to talk about cost control.
Apologies in advance for the lack of specifics I will offer, I am no expert and have no hard numbers to work with, other than what those articles provide.
On average, the government program pays hospitals about 87 cents for every dollar of their costs, compared with private insurers that pay $1.45.
The RAND study the NYT is talking about (in its newest article) is about prices in 25 hospitals paid by different insurers. The result is what we knew: private payments are higher. Way higher. Actually so high that employers and insurers are alarmed and preparing to renegotiate. For example (again, based on the NYT article), Anthem in Indiana will reject expensive hospitals and use Medicare rates as a basis for negotiations.
So the fact is, private insurers pay (some hospitals) double, quadruple and then some what Medicare would pay.
And the question is, how do you interpret that.
Let’s leave aside how 25 hospitals can hardly represent the entire nation, etc. The above quote, more moderately, represents the same fact (or same point, if you want to be finnicky) in a different way: private insurers pay more. By a lot. So again, how do we interpret that.
I see roughly two ways:
1. Medicare pays too little, MfA is doomed
Come on, you knew it, it was the first obvious reaction. Medicare rates are too low to be sustainable for most hospitals. Keeping them at their level would bankrupt those institutions, especially rural hospitals who are most vulnerable, etc. If you don’t raise those rates, you collapse the system.
Buuuut if you do raise those rates, then the eventual bill is inflated by that much and becomes unsustainable in itself. Too many people having access to too many procedures at a too decent rate is perfectly unacceptabruh. What is this, universal health coverage?
Joke aside, the first interpretation would be that while private insurers could pay a little less, Medicare would have to pay way more.
2. The current system is bloated like the military
This couldn’t be more wrong.
Again, if you look at the quoted figure, Medicare underpays by 13 cents. Yes. But the private sector overpays by 45 cents. You can significantly raise Medicare rates and still be a third cheaper than current insurances. From the former NYT article:
Over the years, as hospitals have merged, many have raised the prices they charge to private insurers.
“If you’re in a consolidated market, you are a monopolist and are setting the price,” said Mark Miller, a former executive director for the group that advises Congress on Medicare payments. He describes the prices paid by private insurers as “completely unjustified and out of control.”
Many hospitals have invested heavily in amenities like single rooms for patients and sophisticated medical equipment to attract privately insured patients.
The actual situation is hospitals becoming monopolies, and a monopoly means a lack of competition that prevents the free market from working. Divided private insurers are too weak to negotiate and prices soar. This is exactly what this new RAND study is actually showing.
Right now, hospitals are incentivized to pay for the hospital equivalent of expensive brand drugs versus generics: single rooms, sophisticated equipment, etc. That’s good, that drives up innovation and quality. But taken to its extreme, it rewards if not forces wasteful spending and everyone is paying for it, whether you want that single room or not. As less and less people can afford your care you seek to attract ever richer patients to ever pricier installations, is the gist of it.
And while that happens, those same incentives are killing small, rural hospitals and underpaying, overworking the “small staff” like nurses and so on because they are not as profitable.
In other words: while Medicare should pay a bit higher rates, the current system is completely wasteful:
“It explains some of the market behaviors we’ve seen,” said Robert J. Smith, executive director of the Colorado Business Group on Health, which represents employers. Although the hospitals in his state are only two-thirds full, they are building new facilities and buying physician practices.
Which brings me to this:
3. No health care reform is serious without cost control
The current Medicare for All proposal does it by using the negotiation power of a single 300+ millions titan. It won’t do miracles, but according to the PERI study (see my old diary) it would be more than enough to compensate for universal health coverage, including higher payment rates, by cutting a lot of that waste.
But it doesn’t matter what universal health coverage system tries to tackle it, and in how many transitional years.
All reforms, all systems would face the same argument of “you’re trying to kill the industry”. But truth is the industry — like military spending — is completely bloated and, just like you can close bases and end wasteful programs without harming national security and combat effectiveness, health care costs must be tackled, prices lowered and those hospitals who are wasteful pushed with new incentives towards cost-efficient care.
And talking about other universal health coverage system, a detail from Switzerland (link in French, sorry): the system devised to keep health care costs at 8% of a household’s budget actually soared since to 14% of that budget. Switzerland uses an ACA on steroids, with relative success. But while under control, the same wasteful incentives are in place, incentives that don’t exist under a single-payer plan.
But let’s forget this “what plan is best” infighting.
I want to focus on this, and insist: every single reform is doomed without cost control. Whether through price negotiation or regulations. And that means denouncing a system that pushes hospitals, whether in monopolies or to stay competitive, towards wasteful spending and unsustainability.
I would propose, and I know I have given little proof of it — I didn’t do my job, mostly because that’s not my job — but I would propose and hope you will agree, that it’s not “the private insurance could pay a little less, but Medicare would need to pay way more”; it’s “Medicare could pay a bit more, but the private insurance is burning money like a forest fire”. This, I hope, is how the debate should be framed.
Defend small hospitals and underpaid staff. But denounce wasteful practices and monopolies. Call for cost control, like you would gun reform, no matter what health insurance system you eventually prefer.
Let’s actually save hospitals from that vicious cycle.