Why Health Care is So Expensive

Originally published at politicsunlocked.com on June 29, 2009

As the health care debate moves forward, the mess of issues surrounding why health care is so expensive is finally being fleshed out.

Private insurance and costs for health care make up great deal of our national economy. If we were all receiving excellent care and had few complaints about the system, the fact that it costs so much might not be a problem.

However, companies can ill-afford insurance costs when they offer insurance to employees and compete in a global economy. Some of our most successful corporations, those that have “adapted” to international competition such as Walmart, have dropped health care insurance for their employees. Others such as automobile manufacturers and airlines could not compete partly because of the growing costs of health care plans for current and retired workers. Bankruptcies have resulted and health care plans for retired workers have been trimmed or eliminated in the process.

About eighteen percent of the population is uninsured and are likely to avoid some care that would be important for good health and then pay for private care on their own or use expensive public resources without paying for care.

Even the insured have complaints about the system. The public often blames the insurance companies for skimping on coverage and profiting unfairly. While Americans who have employer-provided insurance are most often satisfied with their health care, those who have to obtain insurance privately have great concerns about exclusions of pre-existing illness and recession of contracts for insurance after they become ill.

A recent New Yorker article attempted to discover why the costs in different areas of the country differ dramatically. The article is a must-read for sorting out one aspect of health care: can costs be lowered while still providing excellent care? The writer, an M.D. himself, Atul Gawande, interviewed doctors in two Texas areas, where statistics show widely different costs per person for about the same health care outcomes for their patients. In one section of the article, Dr. Gawande recounts a conversation with doctors from the more expensive health care area:

Some were dubious when I told them that McAllen was the country’s most expensive place for health care. I gave them the spending data from Medicare. In 1992, in the McAllen market, the average cost per Medicare enrollee was $4,891, almost exactly the national average. But since then, year after year, McAllen’s health costs have grown faster than any other market in the country, ultimately soaring by more than ten thousand dollars per person.

“Maybe the service is better here,” the cardiologist suggested. People can be seen faster and get their tests more readily, he said.

Others were skeptical. “I don’t think that explains the costs he’s talking about,” the general surgeon said.

“It’s malpractice,” a family physician who had practiced here for thirty-three years said.

“McAllen is legal hell,” the cardiologist agreed. Doctors order unnecessary tests just to protect themselves, he said. Everyone thought the lawyers here were worse than elsewhere.

That explanation puzzled me. Several years ago, Texas passed a tough malpractice law that capped pain-and-suffering awards at two hundred and fifty thousand dollars. Didn’t lawsuits go down?

“Practically to zero,” the cardiologist admitted.

“Come on,” the general surgeon finally said. “We all know these arguments are bullshit. There is overutilization here, pure and simple.”  Doctors, he said, “were racking up charges with extra tests, services, and procedures.”

This does not demonstrate that the problems of health care costs are all related to decisions made by doctors. But research shows that the outcomes of care provided in lower-cost areas can be as good as that provided in high cost areas. If this is the case, insurers, the government and the public pay more than what is necessary through premiums, co-pays and taxes. A change in the care prescribed by doctors could save everyone a great deal of money without providing less care. In fact, patients would endure fewer tests, less and medical procedures than they are currently made to face.

Much of the current debate focuses on the politics of health care. People imagine a war between socialism and capitalism fought in the guise of health care reform. Good financial reform will be much more specifically tailored to deal with the problems in the current system and hopefully will give us more for less.