Republicans have for decades sounded a bit like a broken record when it comes to the issues they perceive as being costly to the healthcare system: insurance plans being restricted to individual states and the lack of medical malpractice limits cause massive inflation in healthcare costs. According to the GOP, these issues are the primary problems with both healthcare access and costs in the United States.
Cielo Gonzalez Villa wonders if this is actually true. Many physicians and medical institutions report that the lack of medical malpractice limits forces them to order more and more tests in order to cover themselves in the event of an undiagnosed condition or terminal illness that is discovered later. They also claim that this affects the cost of medical malpractice insurance. With regards to the “state lines” theory, nobody is shocked to hear the Republicans claiming that “more competition means lower costs”; this isn’t anything out of the norm in terms of what they claim for… well, everything.
The Cleveland Clinic conducted a study that, among other things, analyzed the effect of direct medical malpractice costs on the healthcare sector as a whole. The findings: what the Cleveland Clinic deemed to be “defensive medicine” accounted for approximately three percent of all healthcare costs in the United States. With the United States now spending roughly $3 trillion per year on healthcare as a whole, medical malpractice costs account for only about $80 billion.
This certainly doesn’t explain why healthcare inflation in 2014 was equivalent to $160 billion in added costs (side-note: the reduction of healthcare inflation during the initial days of the ACA appears to be reversing to some degree). Obviously, other forces are at work here.
With regards to the “state lines” theory, the GOP claims that insurance companies are clamoring to compete with one another across state lines, and the very act of such will lower health insurance costs over the long-term. Again, we have evidence to suggest this is merely a myth.
Georgia, in 2011, actually passed a law that allowed health insurance customers to buy insurance from out-of-state providers. The result: not a single out-of-state insurer applied to sell across state lines. The Insurance Commissioner of Georgia, Ralph Hudgens (the same guy who bragged about openly obstructing the ACA, including the use of paper notices to customers that would blame ACA for the price increases he would allow as Insurance Commissioner ), said “Nobody has even asked to be approved to sell across state lines”. He was “dumbfounded” by such developments. Imagine that.
It would appear that health insurance companies like the current system just the way it is: by restricting themselves to individual states, they do not risk upsetting the status quo.
Nevertheless, the “competition” angle is a hard concept for some to refute, considering that there is evidence that competition does lead to lower costs in a variety of industries and job sectors. The problem with assuming that it works for health insurance, however, is that health insurance is a completely different monster.
In a rather succinct explanation of why the health insurance industry does not respond to competition in the same way as traditional consumer sectors, one individual explained the dynamic in a simple fashion.
The premise: two identical insurance companies with identical numbers of people and identical risk inevitably experience different circumstances. Health Insurance Company A encounters added costs from health events among some of its insured, requiring the company to double premiums the following year. Health Insurance Company B now, instead of lowering costs to “increase competition”, decides to set its price to $1 below that of Health Insurance Company A’s new premium price (even though its operational costs haven’t changed). Younger, healthier people, seeing the increase in premium prices, begin to drop coverage due to excessive premium costs. Now, Company A is required to increase its costs even more to cover its insured, and Company B once again follows suit, setting its monthly premium $1 per month below that of Company A. The process continues to repeat itself in some capacity – even though the overall costs for Company B haven’t actually changed.
The verdict is simple: medical malpractice costs are not a major driving force of the increase in the cost of healthcare or health insurance, if any at all. Competition, while effective in some industries, does not adequately address the dynamics that exist in the health insurance industry. Insurers are under no obligation to be competitive because they simply don’t have to be in order to guarantee profits.
Far greater cost-drivers exist in the healthcare industry. Administrative/marketing costs (which add up to 15% to the bill of any private insurance plan, despite Medicare/Medicaid operating with 2-5% overhead) are a huge component. The inability for the federal government to negotiate prices in the private sector like it does via Medicare/Medicaid is another huge discrepancy. If Republicans are serious about reducing healthcare costs over the long-term, then there is a way forward. Unfortunately, they’re not presently very interested in addressing those concerns.
|Cielo Gonzalez Villa||https://es.wikipedia.org/wiki/Cielo_Gonz%C3%A1lez_Villa|