The Entreblog!

I read an interesting post by John Aravosis the other day.  He makes a number of assertions that I think have become common misconceptions in the general public and/or mainstream media.  His account concerns one hospital in France, but I’ll generalize the misconceptions.
 
Foreign countries spend less on healthcare than the US
Okay, this may or may not be a misconception but the underlying reasoning is flawed.  Foreign countries may very well spend less on healthcare than the US (although how they define healthcare spending may differ from how we define it) but in most cases it’s because of price controls.  Japan, for instance has a huge book that lists allowed prices for every possible medical procedure.  These price controls limit the amount of money doctors can pay for equipment, medicine, etc. because they simply can’t afford to pay more, due to limited revenue.
 
This means US companies have to sell to these countries at a lower price.  Guess who pays the difference?  That’s right, countries without price controls.  This makes their system look artificially cheaper and ours artificially more expensive.
 
Why doesn’t the US implement price controls?  Good question.  Nixon thought the same thing and actually did implement price controls on certain things in the 60s.  What we learned is that price controls are like capping a volcano.  The inflationary pressure doesn’t go away but builds up until it explodes.  Enter the 1970s and stagflation.
 
In the healthcare arena, price controls would lead to similar inflationary pressure and/or to a disincentive to innovate and invent.  If Company A knows it will spend $75 million inventing a new device for which they’ll only be able to charge $1,000, the incentive to invent this device (or even sell it once it’s invented) will disappear.  This will affect the healthcare of the entire world, not just the US.
 
Additionally, Mr. Aravosis paid very little for his procedure because of the subsidies from the government.  All he knows is he paid X francs.  He doesn’t realize that, as a non-taxpayer, he’s just increased the tax burden of every French citizen.  As we laud this socialized medicine, let’s stop and think.  Who do you think has more tourists visiting the hospital, the US or France?  If you think illegal immigrants are burdening the healthcare system, what do you think tourists will do?
 
Foreign countries get better health outcomes than the US
Again, not true.  One of the most oft-cited statistics is infant mortality.  The US ranks fairly low in this metric.  However, the reason is definitional.  In the US, infant mortality is defined as any infant that is born and subsequently dies before being discharged.  In Hong Kong, a country that ranks higher than the US in this metric, any infant that is born and dies within 24 hours is considered a stillbirth or miscarriage.  Because of those definitions, the US appears to have many more infants die than Hong Kong and other nations when, in reality, it’s impossible to compare.
 
You can be assured that anybody who is quoting this statistic without that caveat has not done their homework.
 
Insurance companies are responsible for healthcare costs in the US
Mr. Aravosis doesn’t explicitly say this but he keeps talking about his experience with CareFirst so I thought I’d comment.  Insurance companies do nothing more than pay claims within the scope of their member contract.  The price they pay is determined by their contracts with the hospital.  They have entire divisions dedicated to bringing the negotiated prices of services down.  Typically, they get discounts of 50% or more.
 
Once you get insurance, the insurance company has every incentive to drive down the cost of each service you consume.  They are obligated to cover the services in their member contracts, so they fight like dogs to make those services as cheap as possible.
 
Even after all that fighting, insurance companies pay between 82% and 87% of their total revenue in claims costs.  Most insurance companies profit about 2%-3%.
 
Also note that without insurance, you pay the full cost, which is usually astronomical.  Hospitals charge high costs to those without insurance to cover the risk of not being paid and to make up for extremely low Medicare/Medicaid reimbursements.  Even still, hospitals make between 6% and 12% profit.  At least twice as much as most health insurers.
 
As you’re thinking about the healthcare proposals out there, think about this: are the proposals meant to reduce costs or are they meant to change who’s paying?  I think you’ll find that both the Senate and House versions do nothing more than change who’s paying, while adding over $1 trillion to the deficit.
 
If this seems like a bad idea to you, please call your state and federal elected officials and tell them.  They seem to be deluded into thinking they’re helping.