Few issues have been more hotly debated over the past several years than healthcare.
With a final up or down Congressional vote scheduled for this weekend, the rhetoric is rising to a crescendo. As the Sunday showdown approaches, pro and con lobbyists are out in full force.
The offices of fence-sitting House members are swamped while the President is desperately putting a full-court press on undecided swing votes. It’s a dangerous political gambit for Mr. Obama. Failure to garner the necessary votes to pass this bill will not only kill the near-term chances of any healthcare reform, but undermine the potency of his Presidency.
Aside from the legitimate philosophical divide between the competing sides, it comes down to a question of economics. But here’s the problem with healthcare economics: There are none.
In the chaos that is American healthcare, there are no market-based solutions, because there is no genuine free market. Americans may be able to shop for healthcare coverage, but they are foreclosed from shopping for healthcare.
Bordering on Astonishing
The other day, my buddy Jim admitted himself to a local emergency room because of a painful persistent leg infection. Jim has insurance.
After the initial examination, the attending physician explained that to discern the problem, he would need an MRI of Jim’s leg. The MRI suite was on the opposite end of the hospital.
Instead of tossing Jim into a wheelchair under the capable care of an orderly, he was trundled into a waiting ambulance for the long journey around the corner to the adjacent attached hospital wing. When Jim asked why they were resorting to an ambulance instead of the more logical alternative; he was told “that’s our protocol.”
The bill for this Jim’s short jaunt from one side of the hospital to the other was $1,200.
While Jim’s experience may sound outlandish, it appears to be more of the rule than the exception.
Pricing on routine procedures, like MRI’s, is an example.
The average national price for a lumbar spine (lower back) MRI series is about $2,400. Insurance companies like Aetna frequently get a negotiated rate nearer to $1,700.
In Japan, our closest economic competitor, the cost for the same procedure averages $160, approximately one-tenth of Aetna’s negotiated rate.
There is no evidence that Japanese MRI’s or radiological procedures are inferior to our own. According to a study conducted by the World Health Organization (WHO), MRI diagnostics in Japan are on a par with the U.S.
Consider a Separate Disparity
This price disparity for MRI’s also exists within the confines of local U.S. health markets. For example, a shoulder series at one Pensacola, FL hospital costs $900. You can get the same MRI down the street at different hospital for half the price at $450.
Unfortunately, most Americans are not apprised of these bargain opportunities nor are they generally in a position to negotiate prices to be paid before they get the procedures prescribed by their physicians. To make matters worse, as healthcare consumers, most of us don’t have a clue whether what our doctors are doing is medically necessary let alone cost-effective.
Opponents of healthcare reform vehemently argue that the President’s plan amounts to a government takeover of one-sixth of the economy – the percentage of the gross national product spent on healthcare.
If having the government regulate and subsidize healthcare constitutes a government takeover, then the horse already is long out of the barn.
Medicare, Medicaid and other government programs, including healthcare for veterans, already pay for almost half of American health care, while private insurance pays for barely more than one-third. The great bulk of that private insurance is provided via employee plans, which are both subsidized with tax exemptions and tightly regulated
The only portion of healthcare that isn’t already subjected to substantive federal oversight is the market for individuals who can’t get employment-based coverage and are forced to buy their own insurance. Everyone agrees that that segment of the healthcare marketplace is a disaster — no coverage for people with pre-existing medical conditions; coverage dropped when you get sick; and huge, unchecked premium increases in the middle of an economic crisis.
According to the American Journal of Medicine, the average American spends about $7,290 per year on healthcare. By comparison, in Japan, average spending hovers around $2,581 per person.
Japan, like many other industrialized countries, has much lower healthcare costs than the U.S. because of government regulation overpricing. They do this because they realize that there is no functional free market to force competitive pricing in healthcare.
Consider the cost differentials of the healthcare spending for America’s veterans. The government-run VA's average expenditure per patient in 2004 was $5,562, vs. a national average $6,280. The VA's patient population was older (half over age 65), more diabetic (one in five has diabetes, compared with one in 14 in the general population), and had greater incidences of chronic diseases.
Critics of the current reform package contend that the government is less efficient, and by its nature, more wasteful, than any possible market-based solution. One telling comparison, however, is the contrast in average overhead costs paid by government-run Medicare vs. private insurers.
On average, Medicare overhead costs are only 4 percent. The average overhead costs among private insurers are 31 percent. Applied across-the-board, this increase in overhead cost efficiency would amount to an annual healthcare savings of $675 billion.
Like most Americans, I don’t like everything I have seen or learned about the current healthcare reform legislation pending before Congress. We can do better.
But if the current legislation takes even a small bite out of the uncontrolled and skyrocketing costs we are now forced to pay for healthcare I am onboard.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
