Fred gets health care completely wrong.

If you don’t read Fred Reed then you should as he has some of the finest commentary on the web. But like all of us he sometimes gets things wrong, (we’re only human, right?), and this week he got it more wrong than I’ve ever seen on his blog. I was pretty surprised to tell the truth but also gratified; it’s nice when really good writers stuff things up on occasion. It gives hope to the little guys.

Fred was talking about healthcare and I started reading his piece with enthusiasm as I couldn’t wait to see what his thoughts were on the subject. But things took a bad turn not far into his article. After a couple of examples of friends getting major surgery done overseas and what it would have cost them in the USA he suddenly came out with this doozy:

I tell you, boys and girls, America is a collection of self-interested interests concerned with maximizing profits and nothing else. Hospitals are run for profit, with the result–surprise, surprise–that they charge what they can get away with.

Oh-oh I thought to myself. Please tell me that he hasn’t got this completely ass-backwards. The rest of the post is just a ramble as he goes from one thought bubble to another. Maybe it’s that time of the month for Fred, I don’t know. So let me do my bit to clear this up. To do so I’m going to enlist the help of the brilliant Dan Mitchell. His piece that I just linked is worth reading in full but I’ll quote here the relevant summation to keep things brief and not bore you all to tears:

Simply stated, doctors, hospitals, and other providers have very little market-based incentive to control costs and be efficient because they know that the overwhelming majority of consumers won’t care because they are buying care with other people’s money.

That’s really important to understand. A free market system works both ways. It’s not just the onus on the supplier to keep costs down but on the purchaser to seek out the best price as well. Mitchell gives a great example of this:

To get this point across, I sometimes ask audiences how their behavior would change if I told them I would pay 89 percent of their dinner bill on Friday night. Would they be more likely to eat at McDonald’s or a fancy steakhouse? The answer is obvious (or should be obvious) since they are in box 2 of Milton Friedman’s matrix.

The US government pays for nearly 50% of all health spending in the USA. On top of that are the huge amounts of money paid by insurers which are inflated due to a tax loophole called fringe benefits. The end result is that the consumer almost always pays nothing. It is the classic case of other people’s money. And when people pay with other people’s money they don’t shop around. And when people don’t shop around and will pay any price no matter the cost then the suppliers are going to charge whatever they can get away with, which is a lot. Plus the hospitals have no incentive to become efficient which is a primary feature of a healthy free market system. Efficiency, innovation, and the art of finding a customer, all of these go out the window when the market is wallowing in piles of money that bare no relation to the market needs.

So how does a good medical system work? To answer that question let’s turn to the country ranked number one in the world for their healthcare system – Singapore. They do a few things differently which are absolutely key to making it work for them.

A key principle of Singapore’s national health scheme is that no medical service is provided free of charge, regardless of the level of subsidy, even within the public healthcare system. This mechanism is intended to reduce the over-utilisation of healthcare services.

This is really important. No matter the level of coverage, patients still need to dip into their hip pocket in some way if they seek out a medical service. What else makes this system number one in the world?

The government regularly adjusts policies to actively regulate “the supply and prices of healthcare services in the country” in an attempt to keep costs in check. However, for the most part the government does not directly regulate the costs of private medical care. These costs are largely subject to market forces, and vary enormously within the private sector, depending on the medical specialty and service provided.

In other words, Singapore lets the free market decide what the price will be. These two features means that everyone has skin in the game, and when everyone has skin in the game then the system works. Nobody in the USA has skin in the game. The hospitals don’t need to be efficient or innovate and the consumer doesn’t need to shop around because it’s not their money. The USA healthcare system actually worked pretty well until the mid-nineties when some idiot broke it. I wonder who that was? (Hint – she recently had a shot at a national election).

So sorry, Fred, you got this one wrong. But hey, we all have our off days.

 

 

6 thoughts on “Fred gets health care completely wrong.

  1. hoboken411wp

    You don’t think the hospitals are in collusion with the “FSA?” Typically they go hand in hand. The hospitals and medical industry are just taking advantage of what you suggested (other people’s money). Never let a good opportunity go to waste is the saying…

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  2. Another Adam

    My understanding of the way that Singapore healthcare works is that costs are paid for by the Government up to a lifetime limit. You can use that limit as you like, but when it’s gone, it’s gone.

    Pretty rough if (for example) you have a serious childhood illness and use it all up.

    In the UK we have an organisation called NICE (National Institute of Clinical Excellence) which does a cost-benefit analysis for all treatments and drugs and permits the most beneficial, based on a system of how much quality years the treatment is expected to add to your life. If you want a treatment not permitted by NICE you have to buy insurance or pay for it yourself – the critic AA Gill who died this week was not permitted immunotherapy on the NHS, for example, as it’s more expensive than chemotherapy.

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  3. AA, NICE acronym when you are 80 and get cancer, which doesn’t meet the cost benefit standards for treatment. Sort of reminds me of Obama’s comment about Obamacare, to wit “sometimes you’re better off not having the surgery but taking the painkiller” in response to a 100 year old woman who had a pacemaker installed thanks to American health care. Your system basically tells her to just die and get it over with.

    By the way, let’s not confuse health care with health insurance. Anyone can walk into any emergency room in the United States and the law requires that they be treated. Who pays for this? Those of us who actually go out and provide for ourselves by purchasing health insurance (at increased rates to make up for the uninsured).

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  4. ohengineer

    In the US a person with medical insurance generally has little choice as to where they will be treated, or the cost of the treatment. I had major back surgery in August of 2012. As it turned out, the place I had to go was about the lest expensive in the area, but it wasn’t my choice as the insurance carrier determined where I would go. People don’t realize that when a 3rd party is in the loop, the third party that funnels the money will be the one that calls the tune.

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