Last week’s article explained the differences between “Medicare for All”, “Single Payer”, “Universal Healthcare” and “Socialized Medicine”. If you missed that explanation you can read it here.
When it comes to healthcare economics there are suppliers, buyers and consumers. “Buyers” are the ones holding the purse. They decide what healthcare services get paid and which ones don’t. “Suppliers” are the physicians, hospitals, and pharmaceutical companies. “Consumers” are those receiving services from the suppliers.
What varies from country to country is the extent to which the Federal government plays the role of buyer. Other than programs like Medicare, Medicaid and Veteran Affairs, our system here in the U.S. relies primarily on private insurance companies to pay for health services under a policy that’s been purchased either directly by a consumer, or by the consumer’s employer.
Growing up in Canada I experienced first-hand a single payer system where the government behaves as the health insurance company. As the debate heats up as to which system is in the best interest of the people, I wanted to clear up a few misconceptions.
What a lot of people don’t realize is that when the government is operating healthcare, they impose cost-saving tactics the same way private insurance companies do. The underlying economic principles may differ but in the end all are designed to influence the cost and consumption of healthcare, sometimes to the detriment of the patient.
Here I look at 4 of the most common economic principles behind healthcare spending, whether it’s the government or a private insurer paying the bill, and where those tactics are most prevalent.
is a tactic that uses pricing to encourage consumers to reduce consumption. In healthcare, examples of such tactics appear as:
Consumers are made to have “skin in the game” by having to assume some of the financial responsibility for the healthcare they receive.
Suppliers (physicians, hospitals and pharmaceutical companies) typically bill out at a higher rate when a private insurer is paying the bill. As such, we’ve lost sight of the true cost of healthcare in America. Hospitals and pharmaceutical companies are the biggest drivers of healthcare inflation in the United States. Hospital costs per enrollee have been nearly static for Medicare and Medicaid recipients since 2008, whereas they’ve grown by more than 60% for the privately insured.
is a tactic that uses pricing to motivate suppliers to reduce utilization and/or payments per unit.
In single-payer systems the government behaves as the “buyer” of healthcare services, and the “suppliers” are physicians, hospitals and pharmaceutical companies.
The “buyer” (Federal government) regulates how much the supplier (physicians, hospitals and pharmaceutical companies) can charge for services delivered under these programs. Reimbursing physicians, hospitals & pharmaceutical companies according to a set fee schedule allows the government to cap the amount they spend per unit.
Price ceilings help to control costs by eliminating billing variances by suppliers (physicians, hospitals and pharmaceutical companies), allowing the buyer (Federal government) to stretch healthcare dollars further.
Forced to accept pre-determined reimbursement rates for the services they deliver, suppliers are motivated to make up in volume what they are losing per unit cost.
For example – if an American physician makes $250.00 per office visit and a Canadian physician is only being reimbursed $125.00 by the Federal government for the services he provides, then the Canadian physician has to see twice the number of patients as the American physician in order to make the same amount of money. This translates to over-crowded waiting rooms and longer wait times for Canadian patients.
This tactic sets limits on the quantity of key resources available such as hospital beds, imaging equipment or number of physicians.
Non-price rationing is virtually non-existent in the United States other than that seen in the Veteran Affairs (VA) or Medicare systems.
Recognizing there are limited resources available, suppliers (physicians, hospitals and pharmaceutical companies) prioritize which consumers gain access to those resources first.
Because there are only so many resources made available with suppliers (physicians, hospitals and pharmaceutical companies) making the decisions as to who gains access first, the result is a queueing effect, with consumers waiting as long as several months for basic services like MRI and surgeries.
For example, the Canadian system operates like an HMO in that you cannot walk in off the street and see a specialist. The family doctor is the gatekeeper who ultimately directs care. However, once you are diagnosed and treatment protocol identified whether it be a need for chemotherapy, colectomy, etc. then the treatment itself is comparable to what one would receive in the United States minus the frills.
For example chemotherapy treatment at a Cancer Treatment Centers of America facility might take place in a polished, private room with spa music playing in the background, whereas in a Canadian hospital you will be in a large room in the comfort of a recliner chair along with 20 other patients in recliners also receiving chemo at the same time.
in some systems, consumer information regarding hospitals, physicians, health plans and patient surveys is made public to influence the buying decision. This stimulates competition and in theory should improve the quality of care delivered.
Although the lack of price transparency is still a significant issue in the American healthcare system, there are more and more tools being made available to consumers to help them make better financial decisions when it comes to seeking healthcare services.
In recent years, tools like “Healthcare Bluebook” – watch a demo video here – have been introduced usually through employer-sponsored health insurance policies to help consumers identify the most economical healthcare services in the area.
In seeking a solution to rising healthcare costs, it’s important to remember that for every action there is a reaction.
“Free” healthcare tends to influence consumption, resulting in trips to the ER for minor issues like strep throat, or ear ache which drives up costs and taxes resources.
In single payer systems, cost-containment tactics employed by the government ultimately impact access to care. People who can’t access colonoscopies or mammograms when they should, risk cancer and other serious health issues that result in the system paying out significantly more than it would have for basic preventative measures. For example the “standard of care” for mammogram in Canada is every two years after age 50, whereas here in the U.S. it’s every year after age 40. The difference in the two standards could mean life or death.
Conversely, in the United States, privately insured healthcare tends to drive billing practices by healthcare providers which also has a dramatic impact on cost. In February, 2019 as reported in this Forbes article the Trump administration called on suppliers to be more transparent with their pricing, disclosing the true cost of healthcare.
Whether consumers can’t afford it, or buyers can’t afford it, rising costs ultimately impact access to care, no matter what part of the world you live in. When it comes to healthcare economics, a strategy that motivates buyer, supplier, and consumers equally to practice integrity and accountability when it comes to recognizing their role in the solution is ultimately going to set us on the path to a better healthcare system.
Joanna Morrow is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU). Joanna is a senior partner at Arizona Benefit Consultants in Phoenix.