Fox News’ resident libertarian John Stossel recently announced that he has lung cancer. The good news is that the former consumer affairs reporter turned free market crusader reportedly will make a full recovery. The bad news is that even from his hospital bed, Stossel continued to peddle both his dangerous misdiagnosis of what ails the American health care system and his even more destructive prescription for a cure.
But like the proverbial broken clock that is right twice a day, John Stossel is right that the American health care system is not currently a free market. That said, his demand that it become one—complete with transparent pricing and customer reviews of doctors, hospitals, procedures, and drugs for consumers who foot the bill for their own care—is utterly wrong. Recent American history and decades of international experience show the tens of millions of people forgoing treatment, millions bankrupted, and thousands needlessly dying each year are the certain price of the invisible finger of the market.
Now as in 2007, 2009, and 2012, patient Stossel is complaining about a long list of symptoms, including horrible customer service, mysterious prices, and so much more:
I'm as happy as the next guy to have government or my insurance company pay, but the result is that there's practically no free market. Markets work when buyer and seller deal directly with each other. That doesn't happen in hospitals.
You may ask, "How could it? Patients don't know which treatments are needed or which seller is best. Medicine is too complex for consumers to negotiate."
But cars, computers and airplane flights are complex, too, and the market still incentivizes sellers to discount and compete on service. It happens in medicine, too, when you get plastic surgery or Lasik surgery. Those doctors give patients their personal email addresses and cell phone numbers. They compete to please patients.
What's different about those specialties? The patient pays the bill.
No, the difference is that Lasik and plastic surgery are completely optional—and one option the patient-as-buyer has in such elective surgery scenarios is just walking away. Give that a try the next time you go for chemotherapy, need kidney dialysis or, say, rupture your spleen. Rather than spending time doing the medical equivalent of window shopping, it would be better to remember the advice of Dr. Paul Krugman:
There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn't work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.
It's no mystery as to why.
U.S. costs are almost always higher because of what it doesn’t do: set rates.
Let's start with the conservative free-market nirvana, where buyer and seller each armed with perfect information come together in a voluntary transaction. But from the get go, the patient-as-consumer faces a knowledge asymmetry almost impossible to overcome. Americans' general deference to physicians isn't just a cultural trait—it simply reflects the expertise and training regarding diagnoses, possible treatments, and likely outcomes doctors possess and their patients do not. For some cases and for some conditions, the layman can narrow that yawning information gap. But WebMD or no, it can't be eliminated. "Health" is not a commodity. Those who believe that choosing a health care product or service is no different than buying a car, television, or cell phone might feel differently after, say, contracting Zika virus.
But even if the diagnoses, treatments, and cures for heart disease, diabetes, or depression could be purchased in a free market, in the United States the buyer simply doesn't—or can't—know what price he or she will pay. As Stephen Brill documented in March 2013 ("Bitter Pill: Why Medical Bills Are Killing Us"), hospital prices for drugs, supplies, and procedures are completely opaque. The answer from the so-called "charge master" about what anything costs depends on whether the patient is insured or uninsured (the latter often forced to pay multiple times more than the former) and who the insurer is. As it turns out, that mystery pricing is one of the hallmarks of the American model that spends $2.8 trillion a year (more than 17 percent of GDP) on health care, more than Japan, Germany, France, China, the U.K., Italy, Canada, Brazil, Spain, and Australia combined:
As we examine other bills, we'll see that like Medicare patients, the large portion of hospital patients who have private health insurance also get discounts off the listed chargemaster figures, assuming the hospital and insurance company have negotiated to include the hospital in the insurer's network of providers that its customers can use. The insurance discounts are not nearly as steep as the Medicare markdowns, which means that even the discounted insurance-company rates fuel profits at these officially nonprofit hospitals. Those profits are further boosted by payments from the tens of millions of patients who, like the unemployed Janice S., have no insurance or whose insurance does not apply because the patient has exceeded the coverage limits. These patients are asked to pay the chargemaster list prices.
If you are confused by the notion that those least able to pay are the ones singled out to pay the highest rates, welcome to the American medical marketplace.
And in that "marketplace," prices vary widely from state to state, city to city, and even block to block. Data compiled by the Centers for Medicare and Medicaid Services (CMS) in May found that "hospitals charge Medicare wildly differing amounts—sometimes 10 to 20 times what Medicare typically reimburses—for the same procedure," with the 3,300 hospitals analyzed showing wide variation "not only regionally but among hospitals in the same area or city." Making matters worse, the accelerating trends of mergers and private equity investments in hospital chains have spawned the use of unnecessary procedures and "code-inflation" to extract greater profits from patients, insurers, and the federal government. And as the Washington Monthly and theWashington Post documented, the American Medical Association and its secret Specialty Society Relative Value Scale Update Committee (RUC) quietly set the prices Medicare and private insurers will pay physicians based on sometimes dubious assessments of how long a given procedure takes. So whether we're discussing colonoscopies, hip replacements, asthma inhalers, or ER visits, the only certainty is that the costs to Americans will be higher—sometimes orders of magnitude higher—than those faced by the citizens of Germany, Spain, Canada, Japan, or just about any other major national economy.
But even if our American patient-as-consumer had access to transparent pricing information and knew everything doctors know about his or her treatment, health care would still not constitute a free market for a simple reason. In most cases, the transaction between the patient/buyer and the provider/seller is coerced. That is, when you're sick, you can't simply walk out of the market. You have to buy care from someone—or else. (Prior to the implementation of Obamacare, studies put the number of uninsured Americans who needlessly die each year as high as 45,000.) Worse still, because you can never know in advance about a bank account-draining illness or accident or condition that could require regular or lifelong care, insurance is the only path forward.
The element of coercion—that patients in emergency situations or not usually have no choice but to purchase treatment—is why the rhetoric of John Stossel, Rand Paul, and their ilk is so cynical and dangerous.
Nevertheless, John Stossel offered this diagnosis from his room at New York-Presbyterian Hospital:
I get X-rays, EKG tests, echocardiograms, blood tests. Are all needed? I doubt it. But no one discusses that with me or mentions the cost. Why would they? The patient rarely pays directly. Government or insurance companies pay…
Patients will have a better experience only when more of us spend our own money for care. That's what makes markets work.
By now, it should be crystal clear that costs are opaque because every insurer (private or public) negotiates its own prices for hospital stays, medical tests, procedures, treatments, and pharmaceuticals. Recall, too, that most patients are paying for their care in the form of deductibles, co-payments and, in the case of employer-provided health care, wages lost in exchange for coverage. None of that would change if Stossel had his way by converting the United States to a system of individual health savings accounts (HSAs) and catastrophic care coverage. As he put it in 2007, three years before the passage of Obamacare:
But contrary to conventional wisdom, it's not those without health insurance who are the problem, but rather those with it. They make medical care more expensive for everyone.
We'd each be better off if we paid all but the biggest medical bills out of pocket and saved insurance for catastrophic events. Truly needy people would rely on charity, not government, because once government gets involved, unintended bad consequences abound.
As it turns out, it is precisely such consumer-driven health care (CDHC) that produces “unintended bad consequences.” Patients don’t just face much higher out of pocket costs—they end up skipping care altogether. As I noted 10 years ago:
A joint study by the Employee Benefit Research Institute and the Commonwealth Fund found much lower satisfaction, higher costs and more missed health care with CDHC plans than traditional employer health packages. Americans utilizing new high-deductible CDHC health plans such as health savings accounts (HSAs) and health reimbursement accounts (HRAs) experienced dramatically higher out-of-pocket costs, with over a third paying more than 5% of their income towards health-related expenses, versus just 12% of those in traditional plans. Worse still, CDHC participants, especially those making under $50,000 a year, were much more likely (35% versus 17%) to skip or defer needed health care. The key to the new wave of consumer-driven plans, it would seem, is to be healthy, wealthy and lucky.
And that luck quickly runs out during recessions when employers lay off workers and states cut back on their own health care spending. By fall 2009, the deep recession that began two years earlier had a devastating impact on Americans’ health care. It’s not just that 50 million went without health insurance at some point during the year: Another 25 million were underinsured. Medical costs accounted for 62 percent of all personal bankruptcies. Americans were simply self-rationing their health care. One in five had postponed or delayed medical care, and more than half skipped at least one doctor’s appointment. And as the New York Times reported in August 2010, that impact was far worse in the USA than in countries where universal health care systems limit patients' out-of-pocket costs:
Among Americans responding to the survey, they said, 26.5 percent reported reducing their use of routine medical care since the start of the global economic crisis in 2007.
This proportion dwarfs the comparable numbers for other countries: 5.3 percent in Canada, 7.6 percent in Britain, 10.3 percent in Germany and 12 percent in France.
As Gary Pickens of the healthcare division of Thomson Reuters warned in April 2009, these kinds of numbers “have serious implications for public health officials, hospital administrators, and healthcare consumers.”
"We are seeing a positive correlation between Americans losing their access to employer-sponsored health insurance and deferral of healthcare. If this trend continues, it will ultimately have an impact on our collective well-being."
But those trends didn’t continue, no thanks to the likes of John Stossel. The Affordable Care Act signed into law by President Obama in March 2010 didn’t just reduce the ranks of the uninsured by well over 20 million people. By the beginning of 2015, the Commonwealth Fund found, Obamacare had reduced the percentage of Americans struggling to pay medical bills and “for the first time since 2003, there has been a decline in the number of people putting off health care because of the cost.” Just as important, new research shows that the expansion of Medicaid “has helped many poor Americans pay off the collection agent.”
But despite the substantial expansion of health insurance coverage and the dramatic slowdown in the growth of health care costs, medical bills still present a daunting financial challenge for too many Americans. The rapid increase in prescription costs—a 12 percent jump in 2015 retail prices alone—is forecast to bring total drug spending in the U.S. to $400 billion by 2020. But if John Stossel wants to keep costs down while making published prices known to all, the solution is not “shopping around.” Seventy years of experience from around the globe shows that transparent pricing and cost reductions occur only when the government sets the rates.
Just as important as the question of who pays, Matthew Yglesias has rightly pointed out, is the separate but related question of how much:
The thing about saving money by having a single health care payer squeeze providers on reimbursement rates is that adopting a single-payer structure is neither necessary nor sufficient to achieve the gains. In other words, if the American political system wanted to cut doctors' payments, we could do that without moving to a single-payer system. Conversely, adopting a single-payer system does not on its own lead to low reimbursement rates -- that's a separate decision that the political system would have to make.
The term for regulating the fees charged by doctors, hospitals, and others in a multi-payer setting is called all-payer rate setting, and it's a pretty good idea.
As Sarah Kliff explained, "France, Germany, Japan, the Netherlands, and Switzerland all use some version of all-payer rate setting." Even with hundreds or thousands of private insurance plans, since 1980 all five countries have experienced much slower growth in health care spending than the United States (see chart at top). All-payer rate setting is a powerful reason why:
In all-payer rate setting, all of the insurers negotiate jointly with all of the health care providers, and set on one specific price for each procedure...Single-payer health care systems save money in two ways: reducing administrative costs and increasing the bargaining power of health insurers. This is true of all-payer rate setting systems, too.
That overwhelming evidence comes from just about every other economic competitor of the United States. And regardless of how they manage their nation's own complex health ecosystem of insurers, pharmaceutical firms, device manufacturers, hospitals, and doctors, in one form or another each relies on the same mechanism: Rate setting.
To put it another way, countries as diverse as Germany, Japan, the UK, France, Switzerland, and Taiwan treat health care as a highly-regulated utility, not a free market. Like access to water, telephones, electricity, and education, America's partners and competitors have decided that health care simply will be part of the social contract for their citizens in the 21st century. (Such a notion couldn't be more alien to the likes of the Heritage Foundation, which recently lamented that many American poor enjoy such luxuries as television, air conditioning, and cell phones.) And to make it all work, government sets the prices that insurers, hospitals, drug companies, doctors, and pharmacies can charge.
As Reid documented prior to the passage of Obamacare, our economic partners and competitors deliver health care that is fairer, cheaper and simpler, all while producing health care outcomes that are as good or better than those in the United States. Thanks to the absence of rate-setting here, America's 40 million asthma sufferers have to pay $150 for an Albuterol inhaler, compared to $20 in the UK. On average, a colonoscopy in the U.S. ($1,185) costs double the amount in Switzerland ($655). An MRI costs four times as much here as for the Dutch; an angiogram is almost 30 times more expensive for an American ($914) than a Canadian ($35). It's plain that the $7,700 hip replacement in Spain costs six times more here. But as the charts sprinkled throughout this piece show, Americans spend much more (double the OECD average) while actually using less health care (half the physician consultations) than their counterparts in other countries. Touted by Republican free marketeers as "the best health care system in the world," America's is the costliest and among the least efficient even as it fails to measure up to those of our trading partners and allies.
It doesn't have to be this way. Americans can ask doctors, hospitals, and insurers to share more of their pain. Whether directly or through a coalition of insurers, the federal government could leverage its buying power to negotiate drug prices. (The VA does this already to save money; even Donald Trump supports the idea ending the Bush-era ban on Medicare doing the same.) The federal government could go even further, following Germany, Italy, Spain, Australia, and other countries in establishing national drug formularies and "reference" pricing, approaches proven to reduce costs. Even without single payer government insurance, Uncle Sam could follow France, Germany, and Japan in establishing a single "rate card" across all insurers or even mandate non-profit basic plans, as in Switzerland. As Greg Sargent suggests, offering a "public option" for health insurance would be a good start—and even better leverage.
Ultimately, the United States, already spending $3 trillion a year, may have little choice given the trends now underway. The population is aging and over the next 25 years, the growth of Medicare is the largest problem area for the federal budget. Expensive drugs for Hepatitis C and other diseases, new cancer cures, and the development of individual genetic therapies are likely to present growing cost challenges in the future. Mergers among insurers and hospitals have increased at the same time that both have been busily acquiring physician practices. All the while, the erosion of employer-provided health insurance, cost-shifting to workers, and the rise of the so-called "Gig Economy"—the very factors that helped fuel the drive for Obamacare in the first place—mean families will still face the growing burden of health care costs themselves.
In response, Bernie Sanders and Hillary Clinton have offered two strikingly different approaches. Sanders' could be termed "Medicare-for-All Plus," a single payer government insurance system with fixed payment rates for providers which also eliminates deductibles and co-pays. Clinton's "Obamacare Plus" keeps the ACA framework in place while targeting high prescription prices and growing out-of-pocket costs with additional tax credits for consumers and tighter regulation of insurers and pharmaceutical firms. In addition, Clinton has also announced her intention to work with governors using existing flexibility under Obamacare "to empower states to establish a public option choice."
As for John Stossel’s complaints from New York Presbyterian, they have already been addressed—just not by free-market means and not in the United States. He says, “I fill out long medical history forms by hand and, in the next office, do it again. Same wording: name, address, insurance, etc.” Not so in France, where each citizen’s Carte Vitale already contains all of their patient records and information, thanks to the common electronic medical records format all insurers and providers must use. In Japan, everyone has health insurance and knows exactly what they’ll pay because “the Japanese Health Ministry tightly controls the price of health care down to the smallest detail. Every two years, the health care industry and the health ministry negotiate a fixed price for every procedure and every drug.” Despite Stossel’s protests that Veterans Administration “bureaucrats let veterans die,” the VHA with its government-controlled hospitals, doctors and drug plans like the UK’s NHS consistently outscores America’s other health care systems for customer satisfaction.
On the campaign trail, Republican Texas Sen. Ted Cruz says he wants to “repeal every word of Obamacare.” House Speaker Paul Ryan is calling for “patient-centered” health care—whatever that is—just as he did six years ago. Meanwhile from his hospital bed in New York, John Stossel laments:
Patients will have a better experience only when more of us spend our own money for care. That's what makes markets work.
No, American health care isn’t a free market and shouldn’t be. Patients will have a better experience only when their government plays a greater role in their care. So get well soon, John Stossel—and be thankful for the care your proposed medical malpractice would necessarily deny others.
