This paragraph in a Vox post about Vermont’s single-payer plan pokes at a question I’ve had for a long time:
American doctors spend lots of money dealing with insurers because there are thousands of them, each negotiating their own rate with every hospital and doctor. An appendectomy, for example, can cost anywhere from $1,529 to $186,955, depending on how good of a deal an insurer can get from a hospital.
My mental model of this part of health care is that there are four players: the patient, the insurer, the employer, and the provider. The insurer negotiates a price with the provider for a given procedure. The employer picks an insurer, based on price and various other things. (I’m ignoring the VA Medical System, which is like the UK’s National Health System; I’m ignoring Medicare, which is like Canadian single-payer; I’m ignoring the individual market; etc.) I … well, I just work where I work, and in practice I’m not going to pick my employer based on how cheap a deal they get on appendectomies.
Now then. Who has the incentive to keep things cheap? Well, I do, I guess, inasmuch as I have some “skin in the game”, which is why the terrible state of the art in health insurance is that I pay more and more and have a very large deductible. (Hey, at least I won’t go bankrupt! I mean that half-seriously.) My employer does, to some extent. For one thing, they pay the majority of my health-insurance premium; they’d like to pay less of that. For another, every dollar they pay toward health insurance is a dollar they can’t pay toward salaries, and every dollar they take away from salaries decreases their odds of getting good candidates.
Where the rubber really hits the road on prices is the insurer. The less the insurer can pay for appendectomies, the more profit they make. To the extent that the insurer can just pass costs along to the patient, the insurer doesn’t really care what it’s paying for appendectomies. The more urgent the care, the more the insurer can pass it along to the customer, maybe. (I’ll gladly bankrupt myself to pay for an emergency appendectomy.)
Let’s assume that the insurer can’t just pass costs directly along to the patient. And let’s assume that neither the insurer nor the provider has unlimited bargaining power: the insurer can’t pay $0.01 for an appendectomy, and the provider can’t charge $1 million for it.
If the insurer negotiates a rate of $100,000 with one provider for a given procedure, and negotiates a rate of $1500 with another … why not pay me to fly to the cheap hospital? Suppose it’s in North Dakota while I’m in Boston. Why not pay for the plane ticket, pay for the airfare, and — hell — compensate my employer for the value they lost while I was gone. If I estimated that all of that together, plus the cost of the procedure at the cheap hospital, would cost the insurer $10,000, I think I’d be radically overestimating it. But that’s $90,000 less than they were going to have to pay. So: good for them!
Maybe emergency procedures are a bad example: if you need them now, you need them now. Even there, though, I wonder whether it would be medically justified to stick me in a chartered flight to North Dakota. Maybe there’d be a whole fleet of medical airplanes run by the insurance companies. Just spitballing here!
Two other notes:
All of the above, I think, shows that “consumer-directed health care” is nonsense. The insurer is still going to be the locus of the cost savings, under any system (and whether that insurer is the U.S. government or a private company). There’s just no reason to expect that the consumer can do anything here. Maybe consumer-directed health care means that I’ll go to my podiatrist a little less often. If I need that appendectomy, though, I need that appendectomy.
Somehow that Vox piece goes through 3,000-plus words, by my count, without once explaining what has to be the most interesting question about single payer in Vermont: how did they bring the insurers and the hospitals on board? How did they get around the hospitals? There are vague nods in the direction of Vermont being liberal, and the movement being grassroots. And they mention that the hospitals aren’t happy with this. (Really?) But how did they neuter the hospitals here? How did they neuter the private insurers? Or did they? I’m worried that skipping this part of the story is an occupational hazard at Vox. They’re trying very hard to explain “just the facts”, and there are only so many words they can pack in. If we get to the level of What Is The World Wide Web? it’s going to take us a while to get up to “how did Vermont and Canada claim victory over the pre-existing health-industry power structure?” I’ll wait patiently, but that kind of depth seems a ways off.