Wednesday, January 1, 2014

What's wrong with Obamacare?

A friend of mine recently shared an article from viral nova about the $55k bill a 20 year old reddit user received after he went to the hospital with appendicitis. The first thing that came to mind for me when i read this article wasn't "why doesn't he have insurance?" rather - it was "WHY IS A SIMPLE PROCEDURE SO EXPENSIVE?!?!?

The Affordable Care Act does a good job of guaranteeing insurance for those who want it. However, where the ACA fails is in addressing the root issue - and the root issue is cost.

There's no good reason for health care to be as expensive as what it is. On a per capita basis, America is a world leader in health insurance cost ($8,608, which equates to $2.7T or 17.2% of GDP). America also ranked 46 out of 48 countries in a recent Bloomberg study on health care efficiency (life expectancy vs absolute and relative per capita cost of healthcare). Suffice it to say that in America, medical care smells of rent seeking behavior.

Expensive health care means expensive insurance. Just because I get someone else to pay for something that is very expensive for me does not make it any less expensive. Insurance companies are not charities - they will pass their high costs onto their consumers.

I browsed bronze-level insurance options in NY: The most affordable option for me had a $4k annual premium and a $6k deductible before 50% coverage with no out-of-pocket maximum kicked in. Essentially, I would have to pay $10k out of pocket before getting 50% coverage. Presented with choosing between this "affordable" option and a 1% penalty for 2014, I would choose the 1% penalty every time.

But why is health care so expensive? Here is a partial list:

  1. Insurance (for doctors): One of the (many) reasons why health care is expensive is because insurance for medical providers (malpractice etc) is expensive. Median ob/gyn salary is around $200k, however, ob/gyn malpractice insurance premiums can run anywhere between $85k and $200k - and let's not forget the fact that with malpractice lawsuits come legal fees. All these things *must* be factored into the price doctors charge for their services
  2. Tort Reform: One of the reasons malpractice insurance is so high is the lack of effective tort reform in this country (I don't know what effective tort reform will look like, but i know that it can help). Tort reform efforts in Texas have not had much of an impact, but that is a reflection of ineffective legislation. Patients may need to bear a larger portion of the risk inherent in receiving medical care. I'm not 100% sure here.
  3. Price Transparency: Another reason why care is expensive is because of the lack of price transparency. Price transparency would place downward pressure on prices as consumers would shop around to get the best value (and no one would go to hospitals that charge $2000 for anti-nausea pills and an overnight stay when they know another hospital located 2 miles away charges $500). In no other sphere of life do we make purchases without having some idea of what said purchase will cost...and there is a societal "cost" associated with this behavior. Especially when you consider the fact that a high cost option for you is ALSO a high cost option for your insurer who is covering between 50 and 100% of your costs. High costs for your insurer means high costs for all the other people they insure.
  4. Corruption: One reason (of many) why there hasn't been significant change in policy that affects the cost of service (contrasted with Obamacare, which addresses coverage for the cost of the service) is corruption. The medical lobby is strong and many of our politicians have been bought. I'm convinced that in the same way that corruption is the largest driver of instability and inequality all over the world, corruption is the largest driver of high medical cost in this country. It is easier to legislate change that affirms our current medical cost structure than it is to expose the medical industry's ridiculous pricing and impose regulations that make the US healthcare system one that is more fair for all American citizens.
edit (1/4/2014): here's a video that i stumbled across on facebook concerning corruption 

I don't know how to fix everything, but i know that there is no good reason for our costs to be as high as they are.

just thinking aloud. I welcome your disagreement/agreement/augmentation