In Flametoad’s continuing series on health care, today I’d like to take a closer look at some of the costs that affect what we (or insurance companies) pay for health-care. Before I we get into those costs though, I did want to mention something that I meant to bring up in my first post. Has anyone else noticed that eighties are the new sixties? The average lifespan in America is now between 77.5 – 80 years old [PDF from the CDC]. Long term disability insurance is more important than ever because, as Mrs. Flametoad has said “We’re really pretty good about keeping you going. We just can’t guarantee that we can put you back to the way you were before.” This ties in directly with what I said in that first post about people who are regularly admitted to the ICU today are the patients who simply would have been dead 30 years ago. We’re better at extending life, but not necessarily because we’re living more healthy.
Anyway, this post is about expenses. What drives the costs behind health-care? Why, when you go to a hospital, does aspirin cost $10? That goes back to one of the idiosyncrasies of medial billing. If you’re really persistent, you can get a nice, itemized bill for your hospital services. What that bill doesn’t show you are items like ”nursing care”, or “administrative costs”, or “floor waxing”. When we buy a shirt from a store, we all understand that the price of that shirt includes the overhead involved in running that store–from utilities to rent to the cashier’s hourly wage. But when we see $10 aspirin on a hospital bill, the very first thing we all think is “I can buy a whole bottle for $3! I’m getting robbed.” In a way, it would be better if they did add on a line item called “hospital overhead”.
Another driving cost behind health-care is what we’ll broadly call “bad debt”. A 1986 federal law, the Emergency Medical Treatment and Active Labor Act, requires emergency rooms to screen and stabilize all patients, before even asking if they can pay. I have heard that both hospitals in my city are stuck with hundreds of thousands of dollars in unpaid emergency room visits every year. Incidentally, this law has been interpreted to apply to all persons, regardless of immigration status. That means that on boarder states like mine, hospitals get quite a few poor, illegal immigrants who go to the emergency room with no intention of paying. One source report linked from this Wikipedia article on EMTALA estimates that non-citizens make up more than 20% of uninsured (although I’m skeptical of their methodology).
On the subject of bad debt, the California Supreme Court has ruled that patients cannot be billed for services if their HMO fails to pay.
At issue in the case is a practice known as balance billing, a practice that typically occurs when a patient is treated for an emergency at a hospital that does not have a fee contract with the patient’s HMO.
In such cases, HMOs say, physicians and hospitals often submit inflated charges. But hospitals and physicians say that without minimum fee requirements, HMOs routinely underpay them.
Disputing such underpayments is impractical and costly, physicians say, so they bill patients for the balance, hoping the patients’ complaints will prompt the HMO to pay in full.
Now let’s talk malpractice. Conventional wisdom points to growing abuse of the legal system that began in the 1980s. Patients racked up large jury awards, which bankrupted some physician groups and drove insurance premiums higher. That would account for high health care costs, right? Well, there’s an interesting new study out by Americans for Insurance Reform that paints a different picture. Their report indicates that malpractice premiums and claims make up less than 1% of the total cost of health-care, that premiums and claims have been fairly steady for well more than a decade when factored for inflation, and that premiums are roughly the same in states that have enacted tort reform over ones that haven’t. Now, this is a relatively new report, and I would have liked a little more time for someone with more intimate knowledge of the situation to check it for accuracy. You also have to be careful because sometimes these innocuous-sounding groups are really mouthpieces for a particular political party. In this case, we’ve got what we’ve got so we’ll make the best of it.
To be honest, I was pretty surprised when I came across this report. It does certainly seem to fly in the face of conventional wisdom. More than that, it flies in the face of anecdotes by Mrs. Flametoad. However, upon further study and reflection, I found a pattern. The report quotes a New Yorker article about McAllen, Texas “the most expensive town in the country for health care” with regard to Medicare claims. The article quotes local doctors who claim that aggressive lawyers seeking malpractice suits are to blame. Yet, at the same time they admit that state tort reform has dramatically reduced the actual number of malpractice cases. So what gives? I think to reconcile what’s happening, we should imagine a cornered gunfighter facing a dozen grisled henchmen.
”You only got six bullets in that side-iron! You can’t shoot us all!”
“You’re right,” the gunfighter replied. So you six who want to get shot, just step forward.”
The direct impact of malpractice suits on “the health-care industry” may be small, but to the guy getting shot, it’s deadly. Nobody wants to be the target of a malpractice suit. Even if awards are capped, there are still the legal fees for the doctor’s defense. Consequently, doctors run more tests than their patients’ immediate symptoms would indicate, just as a CYA. Our bodies are all different, and despite all the medical advances we’ve made a lot of medicine is still trial and error. When it comes to our health, it’s nice to know that every avenue is being pursued, right? Yet, when it comes to assessing the cost of health-care though, how would you feel about being told that half the tests on your statement were unnecessary? And if that happens over and over again, what does that do to the cost of health-care?
In an interesting bit of timing, this hit the news.
It seems like the biggest winner in the health care system is the insurance industry. They make money from health care providers in the form of malpractice premiums. They make money from consumers in the form of health-care premiums. They even find ways to drop those bad bets to which I referred in my post on insurance.
So where do we go from here? That’ll be the next post. Stay tuned.
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