Otdfbt

Whenever I hear stories about how some poor American couldn't pay their medical bills due to how obscene the prices are, the subsequent political discussion is always about health care coverage (Obamacare, Medicaid, Universal Healthcare, and all those other buzzwords).

Why?

Why isn't it the privatization (which causes those obscene prices) that is the central issue that people focus on? Wouldn't that target the actual issue more directly?

For example, in my country, we have universal health care. That's great, and I get a lot of stuff for free. But even if we didn't have universal health care, I could still afford most medical bills sent my way, and it would in no way bankrupt me.

For example, not too long ago, I had my ACL reconstructed, for free at a public hospital, but even if I had to do it at a private hospital out of my own pocket, it would cost me about 4500 dollars. I mean, that's a lot of money, but nothing that would bankrupt me, and certainly you ought to have at least that much saved up for emergencies anyways.

On the other hand, an ACL reconstruction in the USA would cost on average 35.000 dollars, and that's not even including the price of medicine, crutches, etc., that are much higher than they are here.

So why do Americans focus so much on coverage of medical bills, when it's the size of those bills that are the main problem?

This is such a broad topic that it's difficult to cover in a SO answer, but the key reason is lobbies, with a pinch of corporate interests and a tint of racism attached.

Healthcare reform efforts in the US have a very long history.

The main reason early efforts were repelled was due to lobbying efforts by doctors (the AMA labeled it "socialized medicine" and continued to do so until much later, but that was just euphemism for wanting to charge whatever they could get away with). The other is that (white) city workers were already getting insurance from their employers.

FDR tried to introduce some measures against a Great Depression backdrop, but failed. In 1951, Truman's IRS made group premiums paid by employers tax-deductible, essentially setting those in stone.

During the Civil Rights era, Johnson got Medicare and Medicaid passed in 1965. Make that only got. Insofar as I understood from following recent reporting on the topic, he reportedly was aiming for far more. But the AMA was ferociously opposed to it. So were insurance companies.

The latter two groups, and big pharma, continually lobbied against in the subsequent decades. There were incremental improvements here and there (including some under Republicans, e.g. Nixon) but opposition by lobbyists was stiff enough that the next big leg up only came under Obama.

By then, the above-mentioned tint of racism was in full swing. Against the person whose name is attached to expanded health coverage, but also against who it affected. It's still around.

Look at the interests involved. The following is overly simplified but still somewhat accurate.

Better coverage:

• Good for hospitals, because more bills get paid.


• Good for pharma, because more sales.


• Good for insurers, because more customers (assuming private insurers remain part of the system).


• Good for poor people because they get treatment.


• Irrelevant for rich people.

Cheaper treatment:

• Bad for hospitals, because less profit.


• Bad for pharma, because less profit.


• Bad for insurers, because less profit.


• Good for people, because they keep more money.

Given the above, there shouldn't really be anyone fighting against better coverage (in practice things look slightly different). That makes it convenient to tackle better coverage first.

But why not simply do both at the same time? Politics. The interests that might be convinced to become political allies in the fight for better coverage have incentives to oppose cheaper treatment. If you end up pushing for both in one big package, you risk losing these political allies.

Because it's not the privatization that causes expensive treatments. It's the insurance.

In the United States, my employer typically buys my insurance from an insurer who pays a hospital, clinic, or doctor's office which pays a doctor and some nurses to actually provide care to me. I only know my price, called a copayment. So I have no incentive to choose the cheapest doctor for the insurance portion of the price. And the insurance, rather than trying to hold prices down, negotiates discounts. So the official charge for the procedure will be twice as much as what the doctor actually receives.

If US healthcare were actually privatized so that patients could pay caregivers directly, it would be cheaper.

Now, you might say that single-payer healthcare can also be cheaper. And it can. But it does so by doing things that insurance can't do as well. For example, because it is a monopoly and a monopsony, it chooses the prices and whether an individual can receive care. It also avoids malpractice insurance. And single-payer healthcare has a rich/poor distinction. Poor people have to use the single-payer healthcare. Rich people pay directly for their care, bypassing the monopoly (possibly in a different country; e.g. rich Canadians get their healthcare in the US).

It's also easier to get care if you have a large employer. Because you can go to Human Resources and tell them when your care is denied. Then HR can call the insurer and threaten to get another insurer. So you get your expensive and unnecessary care.

With single-payer, you would call your political representative. But your political representative cannot make a change alone. It requires a majority. So the single-payer department can ignore most of these requests. And so representatives ignore most such voter requests, as they know they can't do anything.

A side issue is purchasing power parity. If you live in a country where $4500 is a year's salary, then everything is going to be cheaper. Healthcare. Cost to build a hospital. Everything. In the US, where a year's salary is more like $60,000, it should be unsurprising that everything else is more expensive.

Why isn't it the privatization (which causes those obscene prices) that is the central issue that people focus on? Wouldn't that target the actual issue more directly?

No, because the mere fact that some aspects of the US healthcare system are private is not the reason why the US spends a disproportionate amount of money on healthcare. As you yourself note in your question, there is private healthcare in other parts of the world that does not have this uniquely American problem of high prices. What is unique to the United States is its conception of health insurance, which despite its name does not actually function the way that other forms of insurance are expected to.

How is insurance supposed to work?

Insurance is supposed to be a financial product that will provide you with money in the event an unlikely but costly future event takes place. It does this by charging you and many other people like you a small premium on a regular basis, and if the bad thing happens to you, you file a claim and the insurance company pays you a lot of money from the premiums other people are paying. The main operating assumptions behind this kind of insurance are:

• The event you are insuring against is unlikely to happen


• The event hasn't already happened


• There are lots of people like you facing similar risks

If you have an event that is likely to happen, then the natural thing to do is charge a very large insurance premium that approaches the size of your loss in advance, because otherwise the insurance company (and by extension, the other people who file claims and need money) will lose money. If the event already happened, then with certainty the insurance plan would need to pay the full amount, so the natural thing to do is to make your premium 100% of whatever that amount is. If there are not a lot of other people like you facing similar levels of risk, then the key thing that allows the insurance company to charge a small premium to pay big claims, that all of you will not need all of the money, is no longer operative and this entire system will fall apart.

None of these assumptions are actually operative in the case of what is called health insurance in the United States.

Political intervention in what is health insurance ought to do has made the first and second assumptions in the US health insurance system non operative. People are and have been encouraged for decades to use health insurance for every health related cost they may face under the theory that certain insurance arrangements in the United States make this beneficial (e.g. the HMO, which I would argue hasn't actually worked out that way). Another term for "an event that has already happened" is "pre-existing condition", something that is an un-popular idea that was recently banned as part of the Affordable Care Act.

The result is a system which, despite being called insurance, doesn't actually function like insurance, but instead acts as a form of pre-payment for possible healthcare services, some of which you and everyone else in the plan certainly will use (you go to the doctor every year, right?). This causes premiums to get really high and everything to become expensive. The natural reaction to having a really high insurance premium (where "really high" could be equal to or greater than rent you pay) is to consider whether or not you really need health insurance, and maybe do without it if you're young and healthy. Which, makes the insurance even more expensive, because old and sick people are definitely more likely to have medical bills than young and healthy people. This is a problem called "adverse selection" and it's why the Affordable Care Act and the Swiss healthcare system have mandates to ensure everybody buys health insurance (though in the US case, the mandate was too weak and has recently been repealed).

I know what you're thinking: this sounds like a giant Ponzi scheme that is in the process of collapsing, why would anyone ever get involved in any of this?

And the short answer is, because many decades ago, someone decided that health insurance benefits as employee compensation should have special tax exempt status, so it became popular to offer it as a form of compensation. When that started happening, people who weren't employed by big corporations wanted nice health plans too. Naturally, they asked their Congressman to make that happen. Then Congress kept fiddling around with the system, with the goal of trying to cover 100% of everyone in the country with health insurance, because that's what was politically popular. Now that all of that is failing because the Affordable Care Act has made the fact that this system is defective obvious (but not the underlying defects of the system, which most people don't actually understand) the new politically popular thing is to blow all of this up and replace it with something else.