It is interesting to draw a comparison with food. Practically speaking we can't go 24 hours without food, it is essential. Most people are totally dependent on others to provide their food; look at any city - the population density is too high for people to grow their own food. The food providers have no inherent incentive to make food cheap. It is totally against their interests. A shallow look at the situation suggests food providers should be able to squeeze people until all the money goes to farmers. But that isn't what happens, food is actually absurdly cheap and available given how important it is and how much needs to happen to produce it.
The situation with insurers is similar. If there was a real market that people could enter, competitive pressure would force them to be cheap. If the market was, hypothetically, choked by regulation then they'd be in a great position to charge absurd prices.
Market incentives are odd beasts. It is technically against the interests of the insurers to negotiate lower prices - unless they are competing with other insurers. Then it is in their interests to offer fair prices.
(if it isn't clear, I think I'm agreeing with you)
I think there are a couple of pitfalls in looking at healthcare as a free market.
* People often have to make uninformed decisions or have decisions made for them in an emergency. This naturally puts them at an economic disadvantage in the market place. We consider it unfair because it's the sick, injured that are disadvantaged.
* We have strict regulations about ensuring access to health care. People aren't turned away in an emergency. Sick people aren't treated differently for insurance. There are thousands of other regulations we do that shape the 'free' market.
* Food is far from a free market, although it might look that way from the consumer standpoint. The government helps in both ensuring a strong supply with farm bills and giving $114B/yr in SNAP on the consumption side.
I’ve never understood The concept of competition in insurance. Fundamentally it’s about pooling funds to average out risk. We had this nonsensical system where we socially subsidize the most expensive (Medicare) and privatize lower risk. It literally makes no sense. Alternatively is we simply pooled assets and introduced competition into care delivery, health maintenance, and care quality
I expect that the system would be more efficient and effective.
Alternatively is we simply pooled assets and introduced competition into care delivery, health maintenance, and care quality I expect that the system would be more efficient and effective.
That’s effectively what much of the rest of the wealthy world does via some form of socialized/nationalized system.
> That’s effectively what much of the rest of the wealthy world does via some form of socialized/nationalized system.
While these systems can be more efficient, the rest of the world isn't amazing either. Nationalized systems do much more central planning for healthcare delivery, so they have almost non-existent customer service culture.
You generally have no direct control over who your doctor or when procedures are scheduled. Furthermore, the concept of preventative care is nascent. Yearly physical? Nope. Routine Bloodwork? What is that? You only see the doctor when something is going wrong and you often wait weeks to months. (unless you pay for private health insurance). I literally know of someone with cancer treatment follow up that they needed to hammer the phone lines to get scheduled.
Finally, most international healthcare is effectively subsidized by the US healthcare consumer. Firstly, the majority of global research funding in healthcare comes from the US. Secondly, US consumer (forcibly) pays 5x to 100x what international systems pay for procedures, medicine, technology. As a result, almost every major technological innovation in med device or pharma is either produced in the US or delivered first to the US market by foreign companies.
Nationalized systems do much more central planning for healthcare delivery. This results in a byzantine bureaucratic nightmare where most innovation goes to die. International healthcare systems effectively delegate the implementation risk to the US and wait to see (sometimes decades).
Note: In my experience, the healthcare workers and administrators all are trying to do the right thing and working really hard, but the systems they operate in are generally broken.
Bottomline, there is no free lunch, everything sucks.
> We had this nonsensical system where we socially subsidize the most expensive (Medicare) and privatize lower risk. It literally makes no sense.
If older poor people had to pay the true market price for health insurance that takes age into account they couldn't afford it.
If insurers weren't allowed to take age into account then younger people wouldn't buy health insurance for that price.
> Alternatively is we simply pooled assets and introduced competition into care delivery, health maintenance, and care quality I expect that the system would be more efficient and effective.
What incentive is there for the patient to choose lower prices if the insurance is paying for everything? What incentive does the insurer have to prevent claims fraud or keep administrative overhead in check if they can just pass on the cost in premiums and no one has any other option?
1. I suspect the vast majority of engagement (and, spending) with the medical industry is non-emergency care. At least not emergency care required in the next hour or so. There are edge cases, but even considering most of what I've seen going to the emergency room there has been time to choose which hospital to head for.
Basically I think this is over-weighting the importance of emergency care. I don't have any stats on hand, but people entering the hospital system at ultra-short-notice is quite rare in my experience compared to having a bit of time to think. Most healthcare engagement seems to be for planned consultation, planned surgeries, emergencies but with hours to spare and then urgent emergencies. In about that order of frequency, and heavily weighted towards the first few cases.
2. People are more than capable of figuring out which of two options are cheaper. The ability of consumers to reject goods over tiny price differentials is legendary.
3. If people aren't up for the challenge of figuring out what to do in an emergency, then in a fair market you'd probably find the insurer starts to step in and assist. If the insurer has to compete for business, they have a very strong incentive to make sure their customers get good and cost-effective care.
4. And on food markets; those are distortions to the market, not limits on it's freedom. A free market can be distorted with subsidies and it is still free. The important factors are whether new providers can enter the market and whether they are allowed to compete on price and service quality.
No one knows how much care costs. Insurance companies and providers hide the real Costa when predicting in the guise of "information security" which makes choosing a facility on price literally impossible.
Time isn't a factor, if you have insurance that covers it you rarely if ever know how much it will cost.
re 2) People will reject more expensive options if and only if they have the time and energy to reach the point where they know what the price differential is.
Almost no medical practices in the US will tell you what the price is until after you've had the service there, and that price might even vary across multiple trips depending on how your insurance processed the claim _that_ time. (Ask me how I know.)
So you would need to schedule appointments and have the entire medical procedure done multiple times to have any price visibility, and even then, there's lots of nonsense around things like doctors operating in hospitals but billing separately, which completely obfuscates the end cost to someone.
People can and will choose the cheaper option, but I personally, as someone who has limited time, cannot afford to go through totalling all the bills for having the same procedure done twice every time, with all the months of back and forth for setting up being a new patient, scheduling things, being lied to about the doctor being available for the consult, showing up and having the staff gaslighting everyone about how it's not a problem on their end, everyone angrily waiting in the waiting room clearly got their appointments wrong, even if you have the reminders written by the staff at your pre-actually-seeing-the-doctor visit in hand showing their system is wrong...
It's incredibly exhausting and involved to visit a new doctor for even the most trivial things. Most people cannot afford the time commitment to do that multiple times even if the procedure is something where it's not a one-off or urgent.
Yeah. It is a comment talking about treating healthcare as a free market. The US doesn't treat healthcare as a free market, so none of the predictions or observations in that comment apply to the US.
The US seems to have some sort of racket going on in healthcare. What I've heard about their regulation makes sense if interpreted as a fairly basic system built by lobbyists to extract money from people, using emotional blackmail to break up political opposition. Otherwise it seems a bit silly.
"Emergency care can't be a free market" is a reasonable statement provided the customer is the patient and not e.g. an insurer with a contractual obligation to meet a particular emergency response time, who could contract with different emergency services providers in any given area in advance and secure lower pricing by playing two providers who could each meet their emergency response requirements against each other or threatening to enter the market themselves.
"Joint replacements can't be a free market" is simply nonsense.
Health plans are now required to give comparison shopping tools to their plan members. Those can be difficult to use for patients who don't understand the system, but it is at least a step in the right direction.
> If the market was, hypothetically, choked by regulation then they'd be in a great position to charge absurd prices.
There are countries in Europe like the Netherlands and Switzerland where the healthcare systems are almost entirely private (much more so than in the US, since there are no Medicaid/Medicare equivalents). Yet their markets are chocked fully of regulation while being able to maintain low prices (compared to the US) and very good outcomes.
One of you is talking about the regulations where doctors who purposely poison people go to jail. The other is talking about the regulations where the incumbents in an industry get a veto on whether someone new can enter the market.
I don't know about Switzerland but Dutch insurers are all non-profits though (except one, that has never once paid out dividends). They have a strong incentive to keep costs down. Hospitals are all non-profits, too.
I completely agree, but even further: health insurance is itself a silly thing.
Insurance is for:
- costly things
- that happen rarely
- in an unpredictable way
These are characteristics of things that are well suited to insurance. Healthcare -- the type of routine healthcare that makes up the vast majority of spending -- exhibits literally none of these qualities.
Most healthcare expenditure is:
- not costly. An Advil is not costly. 30 mins of some stupid doctor's time is not inherently costly. An MRI is not costly. Medical office space is not costly.
- totally predictable (eye exams, checkups, scheduled visits, hell even big operations like a heart transplant or C-section are rarely done "in the moment." Usually you can see them coming. The hospital can definitely see them coming; they know exactly how long a gastric bypass or a c-section takes, how much equipment and staff they need, etc.
- not rare; most people visit a doctor at least yearly. That's on par with buying xmas gifts!
Only a small fraction of healthcare spending should happen through insurance -- insurance should be for things where you travel in an ambulance to the hospital and that's it.
PCPs should compete individual to individual on quality of service, price, etc.
Hospitals should compete hospital by hospital on quality of care, facilities, scheduling, bedside manner etc.
Rx should be decoupled completely from insurance. Why do I choose Humalog over Novolog? Not for any medical reason! It's because I need to have insurance to buy one or the other. Why do I need insurance to buy a pill? Because I need insurance to see the doc. Why do I need insurance to see a doc? No good f%@#$ reason. Drop it.
Insurance is for when I need surgery NOW for I have no idea what, and I cannot make any kind of choice about it. It should cost $100 a year for a healthy 20yo adult and $400 a year for a healthy 60yo adult.
None of this shit makes sense to have insurance mandated. None of it. I should be able to walk into any doc's office without insurance and pay a flat cash fee, posted on a big bulletin board outside that says $20 per 15 mins. If I don't like it, I should be able to LEAVE and go across the street!
> insurance should be for things where you travel in an ambulance to the hospital and that's it.
There is another major class of things you want to insure against, and it's the big one.
Chronic conditions. You get diagnosed with diabetes. It's costly and it happens rarely in an unpredictable way. You don't know if you're going to get diabetes, or cancer, or something else, so you insure against it instead of being bankrupted by the long-term treatment.
And then the insurance covers your annual checkup for free because they want to catch things early before they progress.
This is a good point, and one that's easily overlooked by the young and healthy.
The expenses for "common" chronic conditions can be MASSIVE. A condition like rheumatoid arthritis can EASILY exceed $30,000/year in medications alone. Add in frequent doctor visits and related medical issues and that runs up even higher. Without some form of insurance (private or socialized), we would be condemning these people to a life of pain and misery (at best) or death.
Yes! I have diabetes. Believe me I am aware of this.
A vial of my humalog approaches $300. A visit to the endo is $500 on the bill.
But there is no reason why these things are so expensive! Other than that I have to have insurance so I have to be "in network" and oh, my insurance helpfully consults with a pharmacy benefits manager to decide which medications are "covered."
At no point do I have any choice in any of this. I'm not talking about choosing to have diabetes or not, I'm talking about choosing treatments for my diabetes. Always, it is a conglomerate like UHC choosing which things I have to buy this month. How convenient for them that they choose how much it costs!
In theory the choice should be in which insurance company you use. One of the biggest mistakes in the US system is having tied that to your employment, and then it's not you choosing anymore.
"Health insurance" is the wrong name for what we're purchasing, but the product itself isn't silly.
"Health maintenance plan" is a more descriptive name for what we're discussing.
Even something as basic as an annual physical is ~$400 (cash price). A doctor visit for illness is $100-$150 before any bloodwork or imaging (which can add another $100+). Those are major expenses for many families. The ability to spread those cost across the year is a good thing.
It's expensive because I can't move doctors, and I and my employer have to buy a stupid financial product to even see a doc. How much of that $400 goes towards the doc anyway? Towards payments on the MRI machine? Towards the office space? No more than $100 all in.
For one billable minute of every doc's time, we are paying 5 billable minutes for various "healthcare administrators" all over the country to move numbers and billing codes around in a labyrinthine spreadsheet. For what?
I don't disagree with any of that. I'd much prefer some form of nationalized/socialized health system (and would not prefer a "cash only" system, because there will be people who can't afford that even at half the current rates).
> hell even big operations like a heart transplant or C-section are rarely done "in the moment."
Agree on the plannability, but not on the predictability. Once you are on that table, and especially if you are under anesthesia, there are an untold number of ways that procedure can quickly turn into a secondary emergency procedure. It's a miracle of modern medicine that such invasive procedures are perceived as being trivial.
> Only a small fraction of healthcare spending should happen through insurance -- insurance should be for things where you travel in an ambulance to the hospital and that's it.
We already have that. It is called a high deductible health plan.
But health insurance companies do not just sell health insurance, they also sell price negotiation services, so you probably want to use them even before you hit your deductible/out of pocket maximum, otherwise you will end up paying more.
> If there was a real market that people could enter, competitive pressure would force them to be cheap. If the market was, hypothetically, choked by regulation then they'd be in a great position to charge absurd prices.
This is a fabrication - a free market with large capital investment requirement tends towards a monopoly. Economists call These places natural monopolies.
We had them in oil and in railways before regulation.
This doesn’t happen in food because anyone can grow a cucumber in their yard. But that’s not gonna cut it for surgeries.
And on top of that you get charlatans, snake oil salesmen, homeopathy, treating people with magnets.
Large capital investment? What large capital investment? Most of my doctor appointments are done by eye. Surgery needs more than a knife, but not that much more than a knife.
Even expensive machines in hospitals are probably not that expensive; they certainly aren't large. A lot of them would cost single digit millions; ie, be far too cheap to allow monopolies to form. I looked up MRI machines for reference and apparently they can be picked up for around a million dollars. We aren't talking about expensive kit here.
Surgery requires a sterilised filtered room, anaesthesia equipment, monitoring of all kinds, and in many cases specialised tools.
It costs >$100m to build a hospital, and then you have staffing, maintenance, IT, and other costs.
It's not at all a trivial cost of entry.
General practitioner offices are much cheaper, but typically you'll still find an ECG machine, IT systems with subscription access to industry databases and insurance applications, and possibly some on-prem blood testing.
All of that on top of property costs. And student fee payments.
The student fees and insurance access costs are largely profiteering and could be eliminated or hugely reduced. The property costs are the result of poor macro policy, but doctors are still on the hook for that.
Very little of that even starts to justify expecting monopolies to form in the healthcare industry. None of it is persuasive.
> Surgery requires a sterilised filtered room, anaesthesia equipment, monitoring of all kinds, and in many cases specialised tools.
But none of that, you'll notice, is a large capital expense. Those are what we would call "small, routine capital expenses". And sterilising the room isn't even a capital expense at all, it is an operating expense. That matters for monopolies, it isn't an up-front cost (except for literally the first patient). It is unreasonable to suggest that a business's operating costs create natural monopolies. The ease of competing with businesses with high operating costs is the big driver of market competition and exactly what people should want in the healthcare industry.
> It costs >$100m to build a hospital, and then you have staffing, maintenance, IT, and other costs.
Superficially that makes sense, but if we get into it a bit there are a bunch of reasons that won't promote monopoly conditions:
1) CBDs are full of buildings that cost >100MM, ie, skyscrapers. None of the businesses in them are monopolies, or even paying high capital costs - because they rent space. And most cities manage to organise their CBDs so that owning a skyscraper doesn't give monopoly power.
2) You don't need a 100MM hospital. I've seen small hospitals that would cost single digit millions, which is an approachable fee even for just a single wealthy family let alone a small group of people trying to sort something out.
3) You don't even need a hospital. I've had surgery done in some dude's office. You can start with a room and build up organically if the local demand is there. That is how most other businesses expand. Walmart didn't start with a global empire.
There just isn't a need for large capital accumulations to get started in healthcare. It isn't that demanding. There are a lot of edge cases that need a hospital, but that isn't where new businesses will start. They can grow in to it.
> an ECG machine, IT systems with subscription access to industry databases and insurance applications, and possibly some on-prem blood testing
Again, you're listing a couple of operating expenses (subscriptions and insurance). High operating expenses have nothing to do with monopolies; they are paid for on an ongoing basis and by customers bear the cost.
ECGs and blood testing aren't expensive enough to be interesting. A watch can be an ECG machine; and a good ECG machine is only a few thousand dollars. That'd be like saying a restaurant is a natural monopoly because it needs a special fridge ore one of those big fancy stoves.
> All of that on top of property costs. And student fee payments.
Rent then. And the limit on the number of students is generally legislative not financial. There is no tendency towards monopoly here in a free market.
> And sterilising the room isn't even a capital expense at all, it is an operating expense.
No, it’s both. Autoclave machines aren’t rented, they’re purchased. Then ongoing usage is opex. sterilization equipment is pretty well the core of the hospital (even called the core in some)
> 3) You don't even need a hospital. I've had surgery done in some dude's office. You can start with a room and build up organically if the local demand is there. That is how most other businesses expand. Walmart didn't start with a global empire.
Maybe for a vasectomy it can be done in office, now tell me how a liver transplant can be done. Also if you wait for demand to fit out a hospital, that means people are dying and you’re waiting until enough of them die to decide to expand your hospital.
Also a watch can be an EKG machine? If my Dr pulled out any cheap piece of equipment to use on me I’d get off the table and leave immediately.
> No, it’s both. Autoclave machines aren’t rented, they’re purchased.
Eh, ok. We're talking order of magnitude single digit thousands again. I, personally and literally, can lend a friend in the medical profession that sort of money if they needed it. It isn't even close to being in the range of capital costs that would cause a monopoly to form.
2.
> Livers
I'm no expert here and you haven't explained why you think this is a natural monopoly. But looking at a random article [0] it is clear that no hospital is required. You need a few doctors and I'm guessing 2-4 rooms worth of equipment. There isn't much of a hospital.
If you want to add in rooms for patients to stay in that would be a hospital, but the room requirements for that aren't especially demanding and can be scaled over time, reducing the up front capital cost.
The equipment costs would range depending on the surgeon but even a conservative estimate of a few million dollars won't get into natural monopoly territory.
3.
> Also if you wait for demand to fit out a hospital...
Demand forecasting is a thing. Capitalists have solved that problem. We don't have to wait for an obvious future to materialise, people act preemptively. And it still isn't suggesting there are natural monopolies present.
In fact, this "waiting until enough of them die to decide to expand your hospital" problems is one that comes with public healthcare systems, they systemically under-call demand in my view. The queue in the emergency department is typically hours long in Australia and the hospitals chronically under provide beds. We only seem to seriously expand them when people start dying and/or a major sandal occurs.
One of the reasons I so like the idea of private healthcare is I'm confident that if I need care right now I will pay for it, then get it. That is not a guarantee the public system can make. Adjusting to demand is a point in favour of private healthcare; they make more money if they meet demand.
4.
> Also a watch can be an EKG machine? If my Dr pulled out any cheap piece of equipment to use on me I’d get off the table and leave immediately.
If you insist that your health care is expensive, that can be arranged. Good luck to you. Please also support the people who want cheap options.
However it is still not evidence of a natural monopoly forming. And I'm not sure what your complaint is - an ECG machine is obviously not that difficult to organise given that it can be done for a couple of hundred dollars and also you get a watch thrown in. This is not a cost that will cripple a new doctor's clinic.
If you want a fancier machine, sure. But the cost still isn't going to be that high. In industries where new business cost millions to start we still get competition entering the market, none of these borderline trivial costs like an ECG machine will stop new doctors starting practices.
The situation with insurers is similar. If there was a real market that people could enter, competitive pressure would force them to be cheap. If the market was, hypothetically, choked by regulation then they'd be in a great position to charge absurd prices.
Market incentives are odd beasts. It is technically against the interests of the insurers to negotiate lower prices - unless they are competing with other insurers. Then it is in their interests to offer fair prices.
(if it isn't clear, I think I'm agreeing with you)