ESPN's TMQ's take on the mess

[Dr T Non-Fan]

Link for whole article
http://sports.espn.go.com/espn/page2...7&sportCat=nfl

Below is the health-care portion of the football week in review:

Why Not Standard Pricing? I don't really understand what's in the congressional health care plan at the moment -- and since it changes daily, I bet most members of the House and Senate don't really understand either. Health care is only the single largest segment of the U.S. economy, so surely there is no risk in passing a 1,000-page health care bill no one understands! Universal access to health insurance is a moral imperative. But huge cost increases are likely to be triggered: Extending coverage will create more demand for services, and rising demand means rising price.


[+] Enlarge AP Photo/Carolyn KasterDoes anyone -- backers or opponents -- actually understand what's in the bill?


If reform eliminates the dreaded "pre-existing condition" basis for denial of coverage -- which makes sense for individual insurers and is nonsensical for society as a whole -- that will be significant. Denying coverage to people with medical conditions is not only unjust, it causes insurers to waste money engaging in wars with their own customers. If health insurers must sell to anyone who wishes to buy, then their resources can be better invested in providing care. There needs to be a standard-price rule imposed, too, so insurers can't effectively bar pre-existing conditions by saying, "Sure we will insure you, the price is $100,000 per year." My impression is that so much lobbying attention has focused on the handouts, giveaways and interest-group demands for a gigantic new civil-service bureaucracy that not enough attention has gone to a simple change that would remove much of the injustice from health insurance -- standard rates with no denials for existing conditions. This is the key to the successful health care system of the Netherlands.


So far as I know, health care proposals now in the Senate are so utterly fixated on handouts and giveaways that they don't even address a core problem -- the inability of individuals to buy at insurer's prices. This is the PPO problem, and is serious. Most health insurance now operates through some variation on the Preferred Provider Organization. Physicians and clinics sign up with some insurers but not others; they agree to discount their list prices; if the patient goes to someone within the PPO, the provider gets business while the patient and insurer pay less. Sensible? The system is full of crazy disincentives.


Recently, a family member needed an MRI. The clinic had a list price of $1,500 for the scan but was in the insurer's PPO, and so discounted ("adjusted") the price to $690, of which we paid 10 percent and the insurer paid the rest. Clearly, that $690 price allows the MRI clinic to do business, pay its technicians and radiologists, etc., or else the clinic would not participate in the PPO. Yet if I'd walked in off the street and said, "I will buy this MRI myself," the price would have been $1,500. Meanwhile, if the clinic had not been a member of my PPO, the insurer would have paid the same $621 it pays within the PPO, and I would have been on the hook for the rest, $879. The benefits sections of insurance manuals make it appear that if you use a PPO you pay 10 percent and if you go outside the PPO you pay 20 or 30 percent. Not mentioned, or stated in legalese, is that outside the PPO, the insurer only pays its "adjusted" amount -- you pay 20 or 30 percent plus the balance of the list price.


The distinction between list prices and "adjusted" prices prevents health care services from functioning as a rational marketplace. It's not just that many physicians refuse to speak about dollar figures. ("We don't discuss prices over the phone," a doctor's office told me a few months ago when I had the gall to ask what something would cost, adding, "after the doctor has seen you, then we will tell you what the visit cost.") It's not just that many physicians' offices and clinics do not have anyone authorized to discuss prices: They have minimum-wage receptionists and Mercedes-driving docs who expect the max under all conditions, but no one who will talk price with patients. The larger issue is that the system prevents the consumer from seeking the best price. If an MRI makes money for the clinic at $690, any customer should be able to buy at that price. The theory of the PPO from the provider's prospective is that the provider grants a discount in order to get business: The self-pay customer represents business, just like the PPO customer. But the self-pay customer can't get the PPO price, and the PPO price is the true price of the service. This prevents the bargaining-for-a-good-deal seen in the parts of the free-market system that function smoothly and hold down prices.


That the typical person cannot get the best price for health services is the big obstacle to transitioning away from the pass-along mentality that dominates health care. Right now Americans gripe about health insurance costs, but as this fascinating article by Ron Haskins shows, don't directly pay most of the cost -- most is paid by employers or government (which, in the latter case, means billed to the young via deficit spending). If you're not directly paying most of the costs, you have little incentive to make smart consumer decisions. And if you can't buy at the best price, you can't make smart consumer decisions.


[+] Enlarge AP Photo/Jason Reed"My fellow Americans, if health care reform passes, I promise to personally review your claims."


Think about a radically different way to attain health care -- in which most people carry only catastrophic-cost insurance, then pay other health costs themselves. No one can budget for a severe illness or injury; every family will always need insurance against catastrophic medical expense. Suppose insurance covered only catastrophes, and you paid the rest. You might think, "No way I am paying some doctor hundreds of dollars to set a broken arm." But today a typical family's health care policy that appears to cost the family $5,000 a year actually costs $15,000, it's just that much of the money is hidden as employer's costs -- and thus, as higher wages the employer can't pay. If you spent $5,000 a year for catastrophic coverage but earned an additional $10,000 a year, you could cover those strep-throat and broken-arm bills yourself, and probably come out ahead. Plus you'd have a keen incentive to comparison shop. Doctors could no longer loftily say, "We don't discuss prices."


Homeowner's insurance is catastrophe insurance. It pays if the house burns down -- the kind of thing no one can budget for. It doesn't cover all costs of maintaining a home; you pay most ownership costs and you comparison shop. If homeowner's insurance worked like American health insurance, it would not only pay for fires but also cover utility bills, replacing broken appliances, baseballs hit into the window and all the food, drink and paper towels that pass through the kitchen. Certainly, a company could offer an insurance product that covered absolutely every expense of living in a home. But such insurance would be phenomenally expensive and full of ultra-complex rules; the insurer would also acquire an incentive to dream up excuses to deny payment. Just like American health care insurance!


Gradually transitioning to a system in which most people carry catastrophic-cost medical insurance but pay the rest themselves could rationalize health care economics while restraining costs, because the wasteful paperwork aspect of the system would decline. The first step would be a standard-price rule -- specifying that providers must offer the same price to all comers, whether insured patients, self-pay or Medicare. And the standard price must be published to allow comparison shopping. Good physicians and hospitals could still distinguish themselves through quality of care; in most of the free market, prices are similar, and quality is the basis of sales appeal. Stipulating that health care providers offer standard, published prices would lay the groundwork for an informed free market in health care delivery -- and free markets control costs. They do it on their own, without layers of agencies and regulations. We've got to control health care costs or the future doesn't work. Yet the current health-care reform plan is to add more agencies and regulations.

A quick note: Offices with MRI scanners collect less from PPOs, because PPOs theoretically offer volume. So, does TMQ think that everyone should pay wholesale, or pay fleet rates for new automobiles, or get Costco prices at Whole Foods?

[Kool-Aid Man]

It's hard to make the retail analogy, when as he points out most doctors won't even tell you what things cost. Also, retail markup isn't usually over 100%. At least, on expensive services like MRIs.

[WellThen]

It's not just that many physicians refuse to speak about dollar figures. ("We don't discuss prices over the phone," a doctor's office told me a few months ago when I had the gall to ask what something would cost, adding, "after the doctor has seen you, then we will tell you what the visit cost.") It's not just that many physicians' offices and clinics do not have anyone authorized to discuss prices: They have minimum-wage receptionists and Mercedes-driving docs who expect the max under all conditions, but no one who will talk price with patients. The larger issue is that the system prevents the consumer from seeking the best price.

It's shameful that such a huge industry gets to operate in this manner with almost no criticism.

[Dr T Non-Fan]

Physician fee schedules agreed to via contract with insurers are often (if not always) confidential, to keep them out of competitors' reach.

[Dr T Non-Fan]

Originally Posted by WellThen

It's shameful that such a huge industry gets to operate in this manner with almost no criticism.

Should this be red? Seems TMQ is criticizing it.

[tommie frazier]

there aren't many services a person can get where the price remains a total mystery until after service is rendered. people can't shop around with any real info if the docs/phys groups won't tell you what things cost.

the total disconnect from cost is not a good part of the system.

[tommie frazier]

to add-the retail analogy fails bc those places have prices. a person can decide where the costs are better and pick.

[Dr T Non-Fan]

Originally Posted by tommie frazier

there aren't many services a person can get where the price remains a total mystery until after service is rendered. people can't shop around with any real info if the docs/phys groups won't tell you what things cost.

the total disconnect from cost is not a good part of the system.

I agree.
Especially when there are many people for whom cost is no object, as their insurance plan pays. If that is truly the problem (this disconnect), then it should be reformed. Not everything all at once.

[WellThen]

Originally Posted by Dr T Non-Fan

Should this be red? Seems TMQ is criticizing it.

No. I was referring to the health care industry.

[Dr T Non-Fan]

Originally Posted by WellThen

No. I was referring to the health care industry.

Hey, you want to live or not?