Why health insurance for all obstructs lowering health care costs

If you are like millions of Americans, at some point in your adult life, your doctor will order you to have a CT or MRI scan. Quick, easy, and painless, these invaluable imaging tests provide a vast amount and array of diagnostic information about illnesses, and direct treatment paths.

However, the real pain usually begins when you receive the bill. It is not uncommon for the charges, including radiological interpretation, to run into the thousands of dollars. However, as those of us in the medical field know, “charges” do not equal “costs.” So what exactly is the cost of these tests? Good question.

It is not uncommon for a MRI to cost $2,000-$5,000, depending upon where it is done. So how about charging just $275 for the test? Sound like a myth or joke? It isn’t, if you go to a site like Affordable Medical Imaging. So here’s the catch: they do not accept insurance or fill out insurance forms. Neither do they wait for payment. The patient pays the bill at the time of service, and the company gives the interpretation results and billing information to the patient. The patient may then submit it to his or her insurance company for payment.

How can they do that and still make money? The answer is easy. Without having to bill insurance companies and wait for authorizations and payments, the supplier to consumer short cut saves thousands of dollars in overhead costs. It may come as a shock to many, but health insurance is in large part the problem, and not the solution, to not only skyrocketing health care costs, but also access to care in this country.

Insurance sets the rates of payment, including Medicare, and thereby increases overhead for hospitals and doctors. Since Medicare “rules the roost” over how providers get paid, and how much, they have no competition. One of the immutable laws of economics is that no competition equals increased costs. This is true whether you are selling hamburgers or imaging tests.

One of the problems with health insurance in the US is by its history and very nature: it functions like no other insurance product. Imagine if your automobile insurance was forced to pay for preventive maintenance and oil changes. Or your homeowner’s policy covered a couple of shingles knocked off a roof in a storm. If they did, then how affordable to you think those policies would be?

Every time insurance is excluded form the equation in medicine, prices go down — think LASIK and plastic surgery. Insurance, by its very nature, is meant to cover episodic large, often unpredictable, events, not everyday minor problems.

The difference between health insurance and others is the implicit belief that everyone is entitled to basic coverage for illness and accidents. Although still somewhat controversial, it is this essential belief that makes that coverage either very expensive, or not accessible. Unless this paradigm changes, medical insurance will continue to escalate and health care more difficult to access.

To be sure, not everyone can afford high deductible health insurance plans. Although the Affordable Care Act will reduce premiums for some, it will raise them for many more. Yet, if the truly free market were permitted to grow in health care, prices could only come down for everyone. Imaging is the easiest place to have price competition as the Affordable Medical Imaging example demonstrates. But there is absolutely no reason why it couldn’t be done in other medical and surgical fields as well.

Medicare changes reimbursements for often arbitrary and political reasons. Up until a few years ago, there were hundreds of freestanding cardiac catheterization labs across the US.  That was until Medicare decided to reduce payments to these labs below the actual level of costs. No matter that most labs could do a heart cath, charge between $1,000-2,000, (including facility fees and professional charges), and still make a profit.

Instead, and due solely to favored payments, outpatient heart caths went back to the hospitals where charges for the same procedure are typically between $5,000-$10,000. That is an example of how preferential pricing can be a major driver of health care costs.

The roadblocks are substantial. The medical insurance and hospital industries have vested interests in keeping costs high. And as long as we view the holy grail of medical care being equated with having similar insurance for all, costs will never become significantly lower, and access will be come more two-tiered. Sometimes the simplest solutions are the best ones.

David Mokotoff is a cardiologist who blogs at Cardio Author Doc.  He is the author of The Moose’s Children: A Memoir of Betrayal, Death, and Survival.

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  • Deceased MD

    I do have a question for anyone who knows. I am aware of how the RUC sets costs for all physicians. But I actually don’t know the economics of who decides on the costs for imaging or testing for medicare? No doubt it is more corruption at it’s best.

    • David Mokotoff

      Believe it or not, I think there is actually a panel of “experts”, including physician specialists, who help to establish the reimbursements in each field. I do remember reading something about that and will get back to you about this.

      • Deceased MD

        Thank you Dr. Mokotoff. I know about the RUC. THat’s the AMA panel that prices physicians reimbursement rates for medicare. But what I was not sure about are the associated lab tests, imaging, etc. for medicare. Who prices those?

  • M.K.C.

    I wish more people would, like you have, point out that health “insurance” is nothing like any other true insurance product out there. And the ACA takes it even further away from what insurance is meant to be, both in terms of “covering” even more routine care and maintenance issues, and in banning insurers from setting prices based on actuarial risk.

    If we had “community rating” for car insurance, for instance, and insurers weren’t able to charge under-25s, males in general, and people with histories of careless or drunk driving more for their policies, the cost of everyone else’s insurance would of course go up. As a 48-year-old female with no tickets to my name ever, and someone who only drives 5,000 miles a year, I get a much cheaper rate than a 23-year-old male who already has two speeding tickets and a drink driving conviction. Is that “unfair”?

    • Disqus_37216b4O

      Females make more health insurance claims than males, so health insurers charge females more for health insurance, and this is a “WAR ON WOMEN”. Males make more car insurance claims than females, so auto insurers charge males more for car insurance, and this is not a “WAR ON MEN” …?

      N.B. I understand the premise behind “community rating,” but I’m wondering how middle-aged women with perfect driving records would react to having their car insurance premiums double so that they could subsidize young male reckless drivers.

  • Neuroscientist

    I wish Obamacare had taken the Bush HSA accounts and expanded on it and created insurance just for catastrophic care. This should have supported more independent practices and fewer authoritarian huge hospitals with its large overheads and admin costs.

    • Guest

      If I were poor, and the government was giving me $6000 a year of other peoples’ money for my health care, I’d much rather get $6000 a year deposited into a personal HSA to spend as I saw fit, than $6000 worth of “free” Medicaid.

      I’m all for providing help to the genuinely destitute who cannot afford to buy health insurance or health care for themselves (I’m not a heartless Gingichian who says, “let them use EDs!”), but I also think most of the poor are just poor, they’re not stupid, and they would make better use of our Medicaid/Medicare dollars if we gave them to them directly, in an HSA-type account, than if we spent it for them.

      Imagine what would happen if even “the poor” were able to exercise choice in health care? I think some of the big players who basically prey on those who have government healthcare would go out of business.

      It’s cheaper and safer, e.g., to provide home dialysis for patients than to make them come in to some huge megacenter that does 4 shifts a day. If a Medicaid/Medicare patient could get home dialysis for LESS, how quickly would some of those over-priced infection-ridden megacenters go out of business…….?

      • David Mokotoff

        I agree with you, but the progressive politicians and policy makers will never support this kind of individual responsibility. To do so would have them give up control of what is and isn’t covered, and keep the public under their thumb of “correct behavior.” For a really good read on this subject check out John C. Goodman’s recent book, “PRICELESS” and Regina Herzlinger’s “WHO KILLED HEALTHCARE?”

    • David Mokotoff

      To understand why they did not, you first need to understand that President Obama, his healthcare advisors, and most progressives want a nationalized form of health insurance where the government is the single payer, as in Canada or the UK. So for them to advocate anything involving individual choice, or consumer driven market forces, is a huge compromise. My own view is they knew that they could not pass single payer system in 2010 and therefore went for the piecemeal approach. They knew full well, that should it fail, they could blame the insurance companies and then have a more pliant populace accepting of single payer to rescue the subsequent mess. So far, I see this game plan as holding true after the botched launch of the Healthgare.gov web site, and shifting of blame to the insurance companies.

  • Anthony D

    The really funny part is that competition doesn’t always drive down
    prices, not when you’re talking about services that people view as
    absolute needs. At that point, competition drives up prices because
    businesses will charge what people will pay.

    What’s your health worth to you?

  • meyati

    I’ve run into only blog discussion where it states that a person looses coverage if they move to another region. This was listed in rules, but nobody else picked up on that. Why do I believe this is another problem that will bite us in the rear? When the military had Tri-Care forced down their throats-that was one of the problems. The DOD transferred military personnel to another base that was in a different region-e.g. from Ft. Hood, TX to Ft. Lewis, WA or an USN or Coast Guard transfer from Pearl Harbor to Key West. The family was unable to even get maternity care, while they still had to pay Tri-Care in Hawaii or wherever they had been. Basically, if you live in military housing-it used to be that you had to leave the housing if your spouse was transferred elsewhere. It was easier for the DOD to change housing requirements than to deal with the civilian insurance carriers that contracted with Tri-Care. The military had howling mad military medical staff, colonels, generals, admirals, and military associations to hound and threaten the DOD and Congress which came up with this system to advocate for the troops. Who do we have to advocate for us? Congress. And our leader doesn’t seem to care-except that he leaves us a legacy

    • James_04

      “I’ve run into only blog discussion where it states that a person looses coverage if they move to another region.”

      That was often the case before Obamacare, for those of us with individual policies, because each State regulates their own insurance companies and sets the rules for policies, so Florida Blue can’t cover you if you move to New York (for instance). It’s still going to be the case with Obamacare, nothing about that changes.

      I’ve noticed that with the ACA-compliant policies starting in 2014, they even restrict your choices county-by-county now. In my county, inputting my ZIP code, there are no plans available that include the medical center where my specialists are, but if I lived in the next county up, and inputted THAT zip code, there is a plan that includes it. I don’t know anyone with individual coverage who’s figured out what’s going on yet.

  • querywoman

    It sounds like your grandson works.
    He should be using a tax-supported care system like a public hospital district or go to a charity-type medical complex like a church hospital and get it their system. It’s hard to get a lot of people to do this.
    There are also good Islamic and Jewish medical charitable systems.

    • James_04

      A lot of charities would be able to help him, but neither a charity nor an insurance policy is going to fork out for a CAT scan unless it’s medically indicated. I have great insurance, but even I couldn’t just walk in and say “hey, I wish I could get a free CAT scan,” and get one, just like that.

      Sometimes I think people without insurance over-estimate the kinds of things insurance pays for. It’s not like once you have insurance, you can just have anything you decide you want, for free.

  • wiseword

    Read “Catastrophic Care: How American Health Care Killed My Father and How We Can Fix It” by David Goldhill.

  • Michael Wasserman

    Spot on! Unfortunately, neither party wants to take on the insurance industry and Medicare. Real reform would require a sea change that Pharma, the hospital industry, the insurance industry, and the AMA would fight against. They already comprise five of the top ten lobbying spots annually, having spent over $1.2 billion in the last 15 years. They don’t want change.

  • Robert

    There is so much wrong with this article that it’s not even worth the effort to rebut it. Suffice it to say that this is a solution that only Ayn Rand could love. No, wait… she accepted Medicare and Social Security in her old age but had the checks mailed to her daughter’s address in an attempt to not be found out. Of course, there are lots of Libertarians and Tea Party-ers that do the same thing while agitating against government run healthcare and hand outs.

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