The Problem is Cost of Care

Understanding America's dysfunctional health care system

The problem with health care is not that we can’t afford insurance. The problem is that we can’t afford health care.

The U.S. has the world’s most expensive health care, $8,000 per person per year, eating up 16 percent of our GDP. There are many ways of paying these costs, of course, ranging from private insurance such as Blue Cross to public insurance such as Medicare. Many people pay out of their pockets, and local and state taxpayers pick up the rest.

The problem is that health care costs have increased at an annual rate double, or more than double, the rate of inflation for the last two decades. Right now, our attempts at reform are doomed by a law of accounting physics: Insurance can’t cost less than the health care it insures.  That means that subsidizing insurance likely makes the problem worse.  

Consider: I have car insurance. But my insurance doesn’t pay for oil changes.

Instead, I go down to the Happy Lube, without an appointment, get a diagnosis of the needs of my car, and choose services based on a price list published online. Some of these services are complex, and require large expensive machines and equipment. But I don’t have to pay a separate bill, or go wait in another line, at another office or lab.

Now, if I fail to get my car’s oil changed, or to perform other needed services, the engine will be damaged. That’s expensive to fix, but my insurance does not cover the costs. I bear the costs, so I care for the engine.

Health care is a little different. Many of us have “engines,” or other parts, that may not work very well, especially as we grow older. Things happen that may not be our fault, and even if they are we’d like to be able to buy some insurance against the worst consequences, the catastrophic injuries or illnesses that are part of every human society. The problem is that how we pay affects how much we pay.

Again, compare it to car insurance, for two people. Imagine neither of us has to pay for our car repairs, from accidents or engine wear. We can go to the garage as often as we like, and get whatever service we want, for free. The car repair shop can charge our insurance whatever they want, because insurance pays everything. An oil change would bill out at $600; an alignment would bill our insurance $2,200, with another $800 tacked on to pay for micro-digital wheel axis imaging.  

Of course, the services aren’t really free. At the end of every year, we sum the total repair costs for both people, and each of us pays half of that total.  

The cost of that free car care would be enormous, because of all the unnecessary and overly expensive charges. Of course, the government could subsidize the final bill; would that help? The answer is no, for two clear reasons.

First, having the government (meaning taxpayers) subsidize the total would do nothing to reduce the runaway cost increases. Buyers won’t shop around if they don’t know or care about real costs. Subsidies mean I don’t pay if I spend, and I don’t save if I’m frugal.

Second, let’s expand the example from two people (each paying half) to 300 million people getting free care (but paying an equal share of total costs). We have met the public option, and it is us! Once we are all paying ourselves, there is no one else to hit up to help with the costs. We are simply taking each person’s money in taxes, then giving some of it back in subsidies. There is no saving, even to individuals.

The French economist, Frederic Bastiat, diagnosed the problem long ago when he said, “The public option is the conceit that each of us should have free health care at the expense of all of us.” Okay, he didn’t say that, exactly, but it was the same idea.

The solution is out there, but it will require a fundamental change in the way we think. Competition among insurers, without decreases in underlying medical costs, may actually harm people through bad service and arbitrary denial of claims. Instead, we need competition among medical providers, just like oil change services now. LASIK surgery, one of the few areas of medical services open to competition and listed prices, has fallen in cost by 70 percent or more in the last 15 years. And quality has gone up dramatically. Walk-in clinics and fee-for-service arrangements for check-ups, or simple diagnoses like strep throat or  infected thumbs, are already widely available, cost relatively little, and require no appointment.

Subsidizing insurance is a terrible idea. But that is the main focus of the health care reform bills passed by the House, and now being considered in the Senate. Why pin all our hopes on an approach that can’t possibly succeed?

Michael Munger is a professor of economics, and the chair of the political science department, at Duke University. He has written on policy analysis and cost benefit analysis of government programs.

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  • ||

    "Instead, we need competition among medical providers, just like oil change services now. LASIK surgery, one of the few areas of medical services open to competition and listed prices, has fallen in cost by 70 percent or more in the last 15 years. And quality has gone up dramatically. Walk-in clinics and fee-for-service arrangements for check-ups, or simple diagnoses like strep throat or infected thumbs, are already widely available, cost relatively little, and require no appointment."

    I couldn't agree more, but good look getting people like our resident socialist trolls to see your point.

  • VM (as "The Todd")||

    *looks at photo*
    ooh, Barry, will you play doctor with me?

  • Kevin||

    Wow, that was a very well written article.

    Stay tuned for that "crayon" guy with the broken Caps Lock key to show up any minute now.

  • ||

    When mommy farts I giigle and breath deeply.

    I love you mommy!

  • CrescoLibertas||


    I'd like to direct you to another site where you will feel much more at home- a place where you can rejoice in conventional wisdom and willful igonrance:

  • HeadTater||

    But that explanation just makes too much fucking sense! Liberals, progressives and all those folks don't have the time to look at the reality and facts. Otherwise we would figured this crap out long ago using logic like this. But instead, we get stuck with what sounds good in sound-bites and conforms to their progressive agenda.

  • spambot||

    I am confused. Single Payer Healthcare is FREE! What is all this nonsense about cost! /sarcasm

  • classwarrior||

    The reason LASIK prices have fallen is that they must compete against an established technology (eyeglasses) which are usually free or available at very modest cost to anyone with an extended health benefits plan. To expect such savings would be realized in other areas of health care is wishful thinking.

  • CrescoLibertas||

    Really? I have great insurance coverage, and my reading glasses cost me $225 - after insurance (granted, they're really nice glasses).

    But I can go to and get nearly identical glasses (with all the extras) for about half the price wihout using my insurance at all.

    Now, that's competion!

  • Frumious||

    I can get a pack of three reading glasses for $18 at Costco.

    BTW: This article should be required reading for everyone.

  • tarran||

    And why, mr classwarrior are eyeglass prices so low? Are they competing with an even cheaper technology?

    Or... Is it possible that since demand schedules generally increase in the quantity demanded as the price decreases, that producers who wish to increase their profits by increasing attracting a larger share of the market have an incentive to reduce their prices below the next guy?

    Under your assertion, a store that decides to have a sale is wasting its time, after all reducing prices will never result in an increase of sales.

  • ||

    Lasik services, even at current prices, are much more expensive than eyeglasses. They aren't really competing, any more than Tata Motors is competing with Mercedes-Benz.

  • mark||

    But, but, everything that classwarrior says about markets is true! Right?

  • peter Muldoon||

    But hey, at least he's comparing one (isolated instance) of health care to the health care system.

    Which makes it just a little more apt than comparing it to a fucking Jiffy Lube. But not much.

    It's funny, though, how Lasik is always brought up.

    The proximate reason is because David Goldberg used it in his Atlantic screed. And Goldberg used it because it's one of the few medical procedures that are easily understood and upon which market-based solutions actually work.

    Also, people don't die from lack of Lasik.

  • what the F?||

    There's an "established technology" for literally everything in medicine.

  • Demonized Deacon||

    Michael, we really ought to have more guys like you teaching over here in Wake Forest Land.

    Sometimes I feel like I'm on a sinking ship of fools.

  • CrescoLibertas||

    Well said, Professor Munger!

    Now how do we change the thinking of 160 million or so dim-witted liberals who still hold a majority vote? And that tired, old piece of parchment (you know, the Constitution) sure isn't going to save us from their "good intentions" or concern for the "common good".

  • ||

    "And that tired, old piece of parchment (you know, the Constitution) sure isn't going to save us from their 'good intentions' or concern for the 'common good'."

    You got that right:

  • ||

    When you talk about health reform politically the question is: Can all the entrenched interests agree to "lose" equally in any meaningful reform?

    Saving money in health care means less money - both in total and per capita - in health care. That means people whose pay is in that business "lose" in some way.

    The trial lawyer guild, the doctor guild, all the unions, the insurance corporate tools, the pharma biz, the government's health-care interests (Medicareaid, FDA bureaucrats, DEA, etc.) they ALL need to lose for real health care reform.

    The truly deft and gifted politician (the Obama image ten months ago) could get all these unruly interests to take one for the team in a fundamental reform. No such critter exists obviously.

  • MP||

    Well that offered nothing new.

  • ||

    It seems to me if you break down medicine into two categories: 1) emergency care and 2) non-emergency care, you could have a relatively free market in type 2 care (which could include major things like a triple bypass, hip replacement, cataract removal, etc. that afford the patient time to shop around before choosing a hospital/clinic), but not in type 1 care (Who has time to shop around when you're having a heart attack?).

    However, the free market in type 2 care would bring down the price of everything, including type 1 care.

    If the government really wanted to have a hand in there, they could publish a magazine "Medical Consumer Reports" that rated all the various hospitals and clinics for various procedures.

  • ||

    The government is, slowly and painfully, creating databases with public access on various hospital quality measures. So there's that.

    The problem is, patients don't really have much to do with what hospital they wind up in. Either (a) the ambulance takes them to the nearest one or (b) they go to whatever hospital their doctor tells them to go to.

  • RON||

    also Many communities have only one hospital, thus zero competition

  • peter Muldoon||

    Also, this does little to address the problem of people who don't have enough money lying around to pay for triple bypasses.

  • ||

    As a doc (but one who gets in trouble for saying so) I completely agree. A couple of random comments:
    1) market forces are presently at work with employer groups pushing health insurance companies to lower their costs. Unfortunately that's having only a modest effect
    2) yes, a "consumer market" could bring the cost of a bypass down from say $50,000 to $30,000 but it would still be a "too expensive" choice for most folks.
    3) this relates directly to our recent mammogram flap. The USPSTF stated the potential harms blunted the potential benefits of ROUTINE mammagraphy for women under 50. As expected the response was outrage about the government getting between a doctor and patient. Ironically, if payors stated we won't pay for ROUTINE mammo's for women under 50 it would be an easy step to bring the cost of a mammo down to about $50. Then the "personal" decision between a patient and her doctor would be "insulated" from outside forces (read insurance, government).

    Instead we get mandates for the government and insurance to pay for these mammo's. Inevitably the cost will go up.

  • ||

    Exactly. Forcing a third party to pay for X is inevitably going to increase the cost of X, because the third party has no more negotiating power to stop the supplier from charging whatever they want.

    It's a completely ass-backwards approach to health care reform. You don't bring costs down by promising that someone else will pay for them.

  • Mary Stack||

    Doc, "mammography for women under 50" Do women need to have a base mammo when they are younger. I always wondered if this was useful or is breast tissue too dense. I have not heard this addressed during the debate. Btw, mammagraphy is spelled with an o.

  • ||

    The joint task force said no, but the point is that mammograms only cost about $100 each, so why do they need to be covered by insurance?

    Forcing insurers to cover them will only mean that doctors can get away with jacking up the price to $200, since patients won't know or care what the price is, and insurers won't be able to refuse to pay for it.

    It's like kids running up their parents credit cards. If a third party is paying for something, why would you care how much you are spending?

    Now imagine if congress passed a law requiring parents to give their kids credit cards with no credit limit.

  • ||

    Reducing the number of mammograms (in this case, not performing mamograms routinely on women age 40-50, and only performing them once every 2 years on women age 50-75) would cut costs of mammography more than in half in total based on reduced volume. Given the current number of operational mammography machines extant, this reduction in demand may reduce costs per mammogram, but recognize that offsetting this is the cost of the equipment (which now takes much longer to pay off) and rigorous certification process itself. I think instead, the majority of sites that are currently breaking even on mammo services would drop the service and availability would dramatically decrease, particularly in rural areas.

    The introduction of widespread mammography reduced breast cancer deaths by 30%. No other factor caused this decrease. A cut in mammo screening like this is certainly just trading lives for dollars.

    I don't disagree that connecting patients to their bills is a good way to improve accountability and cause meaningful reform. I don't disagree that defensive medicine costs untold amounts.

    If you really want to reform insurance and at the same time reform providers, just limit insurance to catastrophic coverage. Then let people pay for the services that they want, and require patients to actually pay for their care at or before the time it is rendered. Can't pay but need a service? Take out a loan.

  • Mad Max||

    We ought to mention that Dr. Munger was the Libertarian Party candidate for governor of North Carolina in 2008.

  • ||

    I thought healthcare was better and cheaper in France? At least that's what your editor says.

  • ||

    It's certainly cheaper; they pay 1/3 per capita what we spend. While their quality is quite good, it is NOT better than ours. Our care is world class; our problem is cost and access/coverage. BTW, one inconvenient truth nobody wants to admit is that the europeans keep per capita costs down through VERY aggressive rationing...much more that we're used to. That's the fundamental problem here. We think we can have it all and somebody else will pay the bill.

  • ||

    JohnR wrote:

    ". . . one inconvenient truth nobody wants to admit is that the europeans keep per capita costs down through VERY aggressive rationing..."

    That is not in evidence. It is much easier and more convenient to get medical care in Europe, and Europeans live longer than Americans. If they are rationing care, it must be the kind of "care" that kills ~90,000 Americans per year from mistakes and useless treatment.

    In the best hospital in Atlanta I once waited for hours in an emergency room with a cracked wrist. I was in excruciating pain, but they did not give me so much as an ice pack. That would NEVER happen in Europe or Japan.

    Americans who think our health care system is good, or effective, know nothing about conditions in other countries. We are being robbed by doctors and insurance companies. A capitalist solution might be better than socialism, but a European or Japanese socialist system would be better than what we have. And far cheaper. We have the worst of both systems. Republicans and conservatives did nothing to fix the problem, so now the Democrats will, if they can.

  • IceTrey||

    Trying to fix health care or any other problem without fixing the society as a whole is a fools errand. If we lived in a truly capitalist society where we didn't pay taxes and the government didn't stifle business and competition, health care would be cheap and plentiful.

  • Jersey Patriot||

    How to know a glibertarian is arguing about national healthcare:

    1. S/He mentions the UK or Canada or both, but not Germany or France.

    2. S/He mentions LASIK without noting that LASIK is optional and aesthetic.

  • Mad Max||

    So, when Matt Welch says he prefers French health care to American, he isn't really discussing health care, because we know that when a libertarian discusses health care he doesn't mention France.


    That's Latin for STFU.

  • Mad Max||

    (correction - here's the Matt Welch link.

  • anonymous||

    1. Good vision is aesthetic? You know that LASIK isn't for making your eyes look sexy, right?

    2. Food isn't optional, but it's still pretty cheap. Even if you don't have the option to go without, prices will tend to go down over time if there are a lot of providers, demand elasticity, and a free market. At least one of those components is mostly missing with health care. With emergency care, the only way to get demand elasticity is to pre-pay before an emergency happens (but that's basically what you do with insurance anyway). For conditions that you can wait to treat, there's no reason you can't try to get a deal -- there's just no reason to bother.

  • ||

    Well said: Imagine restaurants providing service the way the medical "system" does and food being sold the way medical services and drugs are and both would rapidly become unaffordable!

  • Jersey Patriot||

    Did you miss the word "glibertarian" in my post? Reading comprehension fail.

  • Mad Max||

    The Urban Dictionary describes a glibertarian as a glib libertarian.

    You're right - Matt Welch is never glib. ؟

  • ||


    I doubt the author is a progamming library.

  • Andrea||

    Well, when providing free health care becomes a moral imperative and close to a religious experience, I'd say a libertarian viewpoint doesn't stand a snowball's chance in hell. Not enough to feed the rescue fantasy in it.

  • Michael Ejercito||

    What effects would price controls have?

  • ||

    No matter what the commodity in question is, price controls produce scarcity and stifle innovation!
    I challenge you (and writers on this comment list) to cite an exception to this assertion.

  • Chad||

    This is one of the few intelligent articles I have seen around here on health care (though the "I love France! article was great!).

    Munger drives home a point which I have stated around here a thousand times: The "moral hazard" underlying health insurance is NOT a function of who pays for it. If something is insured, it will be over-consumed unless some form of regulation or bureaucracy prevents it.

    Comparisons to auto-insurance are invalid in at least a couple ways.

    1: The adverse selection problem is not a real issue in auto insurance. The reason is that price discrimination against insurance for bad drivers is acceptable morally (because they DESERVE it) and will not bankrupt anyone. Neither of these true with health insurance.

    2: The second is that auto insurance does not need to cover things like engine or transmission failures, because these are affordable. Actually, we DO buy "insurance" against such failures for the first few years of car ownership via a warranty, precisely because having the car completely fail while we were still paying on it would indeed be a huge financial burden for many. However, warranties end around or somewhat after we finish paying for it, and not long after, most people even drop accident coverage. There is little concern that people would under-consume "preventative care" because of warranties, because all that would happen in reality is a shortening of your vehicles post-warranty life.

  • Brian Trust||

    "1: The adverse selection problem is not a real issue in auto insurance. The reason is that price discrimination against insurance for bad drivers is acceptable morally (because they DESERVE it) and will not bankrupt anyone. Neither of these true with health insurance."

    What about auto insurance having an initially higher cost for men than women, and more for unmarried men than married men?

    "2: The second is that auto insurance does not need to cover things like engine or transmission failures, because these are affordable."

    Did you not read that if people were paying for more procedures themselves, the prices of those procedures would go down?

  • cause married men slow down||

    Brian,"What about auto insurance having an initially higher cost for men than women, and more for unmarried men than married men?" What part of "because they DESERVE it" do you not understand? Do women squeal tires?

  • Xeones||

    Did you not read that if people were paying for more procedures themselves, the prices of those procedures would go down?

    Oh, Brian. No, Chad don't read too good.

  • ||

    It's a fundamental truth that when people perceive something to be "free" they abuse it and overindulge. When there's even a nominal cost at the point of purchase, usage goes way down.

  • Lasik Singapore||

    You're right jonnR. It's only human nature to want something without any work or effort.

  • Dave Harmon||

    Although I agree with some of the concepts outlined in your article, the LASIK price reduction is incorrect. The price of LASIK has increased at about the inflation rate for the past 11 years. This is still much better than the cost of other medical care.

  • John||

    "Let’s expand the example ... to 300 million people getting free care."

    Huh? Under which bill would 300 million get free care?

    Neither the Senate or House bills provide free care to all Americans, so this analogy is ridiculous.

  • Nick||

    This article completely ignores the larger problems with health care costs.

    The article fails to ask the critical question; what does the health insurance agency provide for the welfare of the general public?

    Healthcare insurance is fundamentally flawed because it attempts to make money off of people's health problems and does not allow for efficient care. A efficient health care system would provide low cost checkups for preventive care. The reason why costs are spiraling out of control is due to stagnant wages. The cost of going to the doctor for even a basic check up has skyrocketed, leaving people without an ability to go to a doctor. Limited Checkups allow for small medical problems to move to much larger issues. For example, a bad eating habit can be caught early, but if it is not than it turns into Obesity. Your 'solution' provides no form of preventive care that will be significant. If you were to have a privatized check up market how would doctors cut costs? The only reasonable solution would be to provide less care, and thus have ineffective prevention. The insurance company, and free-market health care need to go entirely.

  • peter Muldoon||


    What value to insurance companies add to the system?

    They discriminate based on risk.

    Everything else that they do (socialize the cost, negotiate with providers, etc,) can be done by the government, and, in fact, is already being done.

    If a major goal of health care reform is to eliminate risk discrimination, then there is literally no reason to have insurance companies at all.

  • Mann42||

    Full disclosure, I'm a staunch moderate who sees benefits and risks in both pure competitive market or a government monopoly. I also believe that if we do anything, it needs to be all or nothing: subsidizing the oligopoly even more doesn't help.

    With that said, even a pure competitive system would require regulations that we don't currently have in place. Most of the arguments I see are whether or not we should socialize Health Care, but I think it misses the point that the industry does need better regulation to protect its customers.

    Case in point: Health Insurance payouts need to be tied to results, not procedures. Right now, there is actually incentive to run a person through as many tests as possible before curing them, because the medical providers get paid regardless of the outcome. There is no requirement to actually produce results, and there are more incentives inherent in the market to not produce results. Worst case, you literally die, and the only thing they have to worry about is the possibility of a malpractice suit. You can't really shop around if you're dead.

    Pinning insurance payouts to results would force medical providers to innovate ways to work smarter and focus on solving problems instead of pushing their patience back and forth through the rotating door.

    I'm also strongly of the opinion that insurance companies shouldn't be allowed to drop coverage on someone that paid into their system just because they get sick. It would be the same as your car insurance dropping you because you got an accident BEFORE they paid out for the damages. I've heard people fight against this type of regulation, saying that it's bad for business, but I personally think that its a requirement to make the market trustworthy enough to deregulate into a pure competitive market, and I do think it would force more innovation among insurers.

    In my opinion, a fully competitive market, where checkups and non-catastrophic procedures no longer go through insurance, would still require these regulations. Of course, I expect that there are people here that truly believe all regulations of every sort are bad, but truly free markets do some seriously anti-competitive shit when left alone, and I'm not so naive as to think that providers and insurerers would just start playing nice just because we deregulated the market.

  • ||

    This concept has actually been tried and failed. There are zero guarantees when you are dealing with a biologic system. Malpractice concerns drive a considerable amount of the testing. Patients also do so as they refuse to take a reassurance of a specfic diagnosis without testing, as a doctor I am all to familiar with this. Doctors are driven to do more testing for compensation, you stop this by paying them adequately, eliminating regulations and reducing the number of doctors.

  • peter Muldoon||

    So you agree that the regulations that are needed to make a free-market system functional don't work, and your solution is to just get rid of the regulations and have a non-functioning free-market system without them?

    Huh. Well, I suppose that having a health care system that doesn't work is a small price to pay for the aesthetics of not having government involved.

  • ||

    I was recently in the hospital. It was an emergency and I had big time surgery and spent a week in the institution. The bill was $75,000 for the hospital and $1500 for the surgeon. As a physician, I asked around among the various hospitals in our area and they all agreed that the price was in line with what was expected. The hospital that I was in does not get that much business due to population movements and other factors. I watched what was done and governed much of my care. The problem is not as simple as what you may think. Simple economics does not work in the medical world. You can use Lasik as an example but it is a false concept. This is one machine with one doctor in an outlying office. When all the other factors are added in as in my surgery, the economics do not hold up. We do not need more doctors, in fact the opposite would be true in driving down doctor cost. As to the hospital charges, the same surgery 10 years ago would have cost $20,000 (which is reasonable); the problem is that hospitals have been mandated to take medicare, medicaid and nonpaying patients. If the government paid its bills and we elimiated or reduced the illegal aleins, and required people to pay for what they get, then the rest of us would not be stuck with this hidden tax.

    Malpractice plays a big part in this as well. It adds a considerable amount to the bill in the form of excessive testing. Note that the Obamacare bill distroys the states efforts at containing malpractice. Tort reform is necessary and very, very simple. If doctors are allowed to countersue for defamation this will end. As a doctor, I can tell you that we are not allowed that option.

  • ||

    Well stated, and I agree.

  • ||

    I agree, and have stated often, that insurance is the problem, not the solution. Nobody in power listens.

    Regarding getting excess care because "insurance will pay for it": There are some people who delight in every visit to the doctor and every procedure and test (shudder). However, I think the vast majority of us would rather not be spending so much time in the doc's office. It isn't a whole lot of fun.

    Personally, I'd rather spend a little more money --that I need to is so ironic-- to see someone who will focus on whatever's wrong with me now, without being subjected to a whole lot of silly tests that have nothing to do with my current complaint. At the primary care practice I went to last year, it was fairly implicit that one must regularly submit to a battery of tests for future diseases and give due consideration to interventions designed to manipulate risk factors (which don't actually cause disease) if one wanted any kind of care related to actual present health concerns. I'm not interested in coercive medicine. So, I now go to an "Urgent Care" center where they focus on my immediate concerns and don't require me to practically beg for appropriate treatment.

    So we have primary practitioners who don't actually provide care, just services of dubious value, and we have the insurance companies to thank. Question is, why are they so happy to pay for a whole lot of useless services, which take away from the bottom line too, but discourage real health care, which could actually improve it?

    Ugh! They all need to go.

  • ||

    The people who desire multiple test and spend all the time in the doctor's office generally have government insurance. Usually they have Medicaid.
    As a physician I have heard just about everything on payment. The ones that are the worst about wanting everything come in and say "do everything, we will have whatever it cost". Now that is a clue, it means they don't have adequate insurance to cover basic procedures and that they will never pay a single bill. In fact these people will keep any insurance checks they receive.

    I have an idea. Lets return medical care to a person and there family with the option to consult a doctor if they desire. Get rid of the costly, ineffective DEA and allow all drugs to be available.

  • ||

    Greater government control of the medical sector is simply cover for the failure of Medicare. We've been hearing that it was in serious trouble for a couple of decades. Rather than fix it through higher payroll taxes, they have been reducing the percentage of the cost they pay, forcing the difference on to private payers.

  • ||

    exactly. Medicare is also such a beast that the private insurers follow its lead on the price caps/payment proportion that it becomes a serious price ratchet.

    Doc sees percentage paid by insurance cut.
    Doc raises prices (within the approved index) to achieve same revenue. You always lose a percentage by having the public pay: even if it all comes in the end, the collection agency takes it cut. And you've got office staff to pay ...

    And so the ratchet turns again.

  • ||

    Do insurance company profits contribute anything to anyone's healthcare (other than insurance company executives, employees and stockholders, of course)?

  • ||

    Some insurance companies are not-for-profit. Their profits are used to lower premiums, etc. Although they are often less effective at cutting costs because they don't have the same financial pressures as for-profit insurers. And the still have to pay employees including executives; they just don't pay stockholders or dividends.

  • ||

    You are absolutely correct! No one, not even the federal government, can afford what Americans have come to expect- unlimited free care for everything in every circumstance.At present there is no incentive for patients or doctors to control health care costs. To the contrary, doctors order unnecessary tests, xrays, ct scans, mri scans, and consultations to protect themselves in the event of a bad outcome and malpractice litigation. Patients demand that they receive what they deem to be appropriate care even if it is not medically indicated- antibiotics for a cold for example, or the new arthritis medication advertised on TV which costs fifty times as much as their present generic medication which is equally effective for almost everyone.The reimbursement for doctors and hospitals is LESS each year, but medical expenditures continue to rise because of continuing increases in utilization. i.e. more patients with more problems.None of the presently proposed solutions in congress addresses these problems. If and only if we approach health care reform as someone once said we would- in an open, transparent, and bipartisan debate, "televised live on C Span", do we have a prayer of achieving effective health care reform. Until then it is all about politics and power.

  • ||

    Yes, this is the key. Europe/canada spend 1/3 per capita what we spend and they do it through VERY aggressive rationing. The fundamental problem is we won't allow the pols to implement a reasonable rationing system. We're spoiled rotten and expect to get everything for everybody...all the time and all for free. The Left sees it as a moral crusade (it's a "right" they squeal), and the Right are mostly employed and don't care because they're covered. I guess we'll have to have an economic Pearl Harbor before we're willing to change. It's coming too; national debt at $12T and soon to grow to $19T according to CBO.

  • ||

    US health care costs are high for one reason: We think we're entitled to lots and lots of the very best. ObamaCare merely hides the price--till later.

  • ||

    Yes, the article is correct. But what he fails to understand is that for the Left, the issue isn't really medical care (or cost, or coverage). Just like AGW isn't really about climate change. The issue for the Left is raw lust for power. And expansion of the federal govt as an end in and of itself. An expansion which can ONLY be funded through massive tax increases which will reduce personal liberty and establish a citizenry utterly dependent on federal largesse. It's socialism at best, and marxism at worst.

  • ||

    Mr Munger doesn't state "I have campaigned against the health benefit offered by Duke and now all employees of Duke earn higher wages and pay for health care out of pocket."

    Obviously he is telling everyone without insurance to rejoice in not having insurance while gaining the benefits of low insurance premiums because those without insurance will get free rationed government health care after they have gone bankrupt.

  • ||

    From Duke's website:

    "Each employee's needs are different — that's why Duke offers different medical plans to meet the needs of Duke faculty, staff and their family members. Each health care plan covers pharmacy and mental health benefits."

    Don't pay attention to what Munger says, but what benefits Munger gets.

  • ||

    Oh, thanks for playing, Mulp! In the absence of actual facts, your argument makes good sense.

    But, as for the facts, I don't use Duke's health insurance. It is outrageously expensive.

    And, so, yes, I would much prefer having my employer pay me, rather than insure me.

    If you have more questions, please do post them, pumpkin!

  • Frumious||

    This is a very good article - unless you look at the world through the eyeglasses of Goldman Sacks. GS believes (and they should know) that the US government can simply print more money if the deficit grows - such as it would from subsidizing healthcare. Using the GS point of view, it would make sense for the US to not only subsidize every American's total healthcare bill, but to pay the healthcare bills of everyone in the world. Think of it: We could become the healthcare provider of the whole world. We would have 100% employment and an unlimited number of new high paying jobs forever! All we would have to do is keep printing money.

    From GS' point of view, this is a no-brainer.

  • Weston||

    This is not a good article. In fact, I'm going to go out on a limb and say that the author knows that he's deliberately omitting some complicating factors to keep the scope of the article simple and his point more compelling. At least, I hope so. The alternative doesn't say much for the state of our higher education system when it comes to economics.

    Cost control is clearly a problem, and easy first-dollar insurance coverage can contribute. I'm with anybody that far. But the assumption that market competition can solve it cost control problems doesn't hold up all the way across the continuum of care from elective/lifestyle through routine/maintenance to urgent and even emergency care. Lasik and Lipo? Sure. They're utterly elective procedures you can take or leave and shop around for. Checkups for "simple diagnoses like strep throat or infected thumbs"? Less so -- you're going to have some of the same problem you have with automotive repairs, really -- but over time I can see markets exerting influence. Emergency care? Extremely critical procedures? Ha. I'd love to hear Mr. Munger explain how consumers will shop around for this stuff. Absent some kind of collective negotiation, whether in the private form of an insurer or public regulator, the market economics you'll see there is much closer to the cost of flashlights and water bottles during a natural disaster. And the place where costs of care truly explode aren't particularly clustered on the side of the continuum where markets are most effective.

    Then there's statements like "First, having taxpayers subsidize the total would do nothing to reduce the runaway cost increases." To the extent that the public option were to produce a large insurer, it would indeed *immediately* have considerable negotiating strength with providers. Its mere existence would be likely to be a cost control mechanism, just like Wal-Mart is. But if that's not enough for you, that's fine. The complaints about the length of legislation? No small part of that length and complexity is actually dedicated to 31 flavors of policy thinking on cost control mechanisms.

    "The public option is the conceit that each of us should have free health care at the expense of all of us.”

    One could just as meaningfully say that *insurance* is the same conceit.

    Which is to say, not particularly meaningfully at all.

    I'm all for letting competition work where it can and for a system where cost information is signaled clearly particularly for first dollar coverage. But the tone and content of the article makes it sound like all we need to do is build our reform efforts around this, and unless we're somehow fortunate enough to see health care issues like Lasik and Strep infections become our most pressing, it's not going to be anywhere near enough.

  • ||

    The best form of rationing is self-rationing.

    I have a friend who is relatively wealthy. He has a health savings account, and has hip pain. However, he won't get an MRI, because he knows it is just due to degenerative hip disease and he doesn't want to blow $800 to get an answer to a minor problem that won't really help him much. Thus he is rationing his own care because he'd rather spend that money somewhere else.

    The model that dentists have assumed needs to be used throughout healthcare. You just pay for your care. It's a novel concept. Sure catastrophic insurance may have a role, but insurance company intermediaries for routine care water down the free market forces.

  • ||

    The entire healthcare debate is being carried out in bad faith. We hear about insurance, public options, government-run healthcare, socialized medicine, but all these discussions are based on the false premise that we haven’t already left the idea of insurance far behind. Insurance is (was) supposed to be a voluntary pooling of funds in order to cover costs that an individual would not be able to cover alone. Unfortunately though, once we see a pot of money, we can’t resist thinking up ways to spend it. Once “insurance” started to cover the majority of costs for things like basic checkups, and other care that most people could afford out of pocket, plus expensive, but not medically necessary items like vasectomies, “erectile dysfunction” medication and sex-change operations, we’d already gone off the cliff.

    In a free-market system, insurance companies should be able to structure packages that carry premiums sufficient to create the pool necessary to pay claims plus profit. One should be able to choose one of those packages based on their means and what they consider their risks. But, I am lapsing into denial again. We have left that world behind, having established healthcare as a right.

    Now that we demand that all but trivial portions (co-pays) of our healthcare costs be paid by others, we already have a “social” apparatus. It is only a matter of deciding who we want to manage the pool of money. The current choices are insurance companies, government or some combination of the two (looks like saving for ourselves is out). Once that is settled, we will either pay “premiums” to insurance companies or taxes to the government. So, we already have a socialized medicine process – it’s only a matter of learning to call it what it is. Then we can get on with deciding the mechanics of it. The problem that really needs to be solved is “how much?”

    How much? That is the question. We hear about government panels that will decide treatments and are horrified. Blunt rules promulgated by obtuse bureaucrats and enforced by tactless drones. However, today’s insurance companies already bluntly promulgate and enforce tactlessly. Someplace or other, there will be obtuse bureaucrats promulgating and enforcing blunt rules on how much coverage will be promised and paid.

    Similar tactless drones will decide how much this coverage will cost. We will have the ongoing dialectic of us, our lawyers and our advocates demanding more. Bureaucrats will find ways to promise fifty percent more for twenty percent less and deliver minus five percent. Since the whole process depends on many people contributing more that they get out (free-market or social) plus our inability to let a pile of money sit until it is needed for what it was intended, the demands will continue to rise for ever more trivial coverages. Band-aids? “My boo-boo is ill health. Ill health is contrary to my right to health. Therefore, I should not have to pay for my band aids. You’ll be sorry (pay more) when it gets infected. It is therefore an investment and a public good for you to pay for my band aid.” (Who is “you”?)

    So, sorry Virginia, in this case there is no Santa Claus. We’ve already plodded into the quicksand and demanding that someone else hand us a hollow reed to breath through. The problem is everyone else is in here with us. I for one would be grateful for just getting it over with. Just tell me how much I have to pay to cover the debt to buy the “made in China” reeds.

  • Milton Recht||

    Plus the number of doctors graduating US medical schools has been flat for over 30 years. Nothing like limiting the supply of a service as population and demand increases to cause a price increase.

  • ||

    Thank you Dr Munger.

    As a trial lawyer for an auto insurer, I completely agree.

    Funny that you bring up the auto insurance paradigm..... This is what I've been thinking:

    1) Auto insurance companies are much better at adjusting medical bills and paying rational amounts than are health insurers.

    2) When auto insurance became mandatory in the 1970s, the keystone to the entire system was a cap on insurance profits.

    If we are to have a private health insurance system, we would be well served to have one that fuctions as well as auto insurance, which is highly competitive and reasonably priced. How I wish auto insurance reform was considered a model for health insurance reform.

  • ||

    i'm not so sure i agree with this writer's analogy. car insurance doesn't really have much do with the car's "health". it's there to cover financial implications of crashes. if i use the comparison the way he does, health insurance would pay our salaries or our debts and then only if we got into a fight(equivalent of a crash). i can understand his point about insurance costing more than the actual service it's intended to cover, but i don't think he illustrates it well.
    i don't think that insurance should cover smaller or customary events, but now that those procedures are already billed at high cost, with insurance taken away, how would someone who doesn't use insurance pay for those services? are doctors and health companies really going to start adjusting the costs down for cash patients?

  • ||

    "Obama specks right concept about the things you asking. if there is increase in job creation and with relative other concepts then there would be much best concepts renown to all.

    About the Zombie Politicians and Zombie Pundits are relatively different. There is even a new term for them, 'zombie banks,' technically insolvent. who can make them work – or put them out of their misery? i am not sure. As the young idiot zombie generation of the realities of socialism.

    Tina Roy
    caravan insurance"

  • abercrombie milano||

    My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane. Even some cursory knowledge of Hebrew and doing some mathematics and logic will tell you that you really won't get the full deal by just doing regular skill english reading for those books. In other words, there's more to the books of the Bible than most will ever grasp. I'm not concerned that Mr. Crumb will go to hell or anything crazy like that! It's just that he, like many types of religionists, seems to take it literally, take it straight...the Bible's books were not written by straight laced divinity students in 3 piece suits who white wash religious beliefs as if God made them with clothes on...the Bible's books were written by people with very different mindsets

  • allan||

    thank you dr. munger for the enlightenment but if you say that what we need is competition among medical providers haven't we been having that?

  • Larry||

    While the comparison was a bit over-simplified.. I believe everyone should have the right to choose their own insurance and heath care services / heath care service providers.... Medicare is a total failure and can only survive due to large subsidize. When will it end? When will each person again have the responsibility to care for them-self instead, of relying on others?

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