http://www.investors.com/politics/editorials/the-big-missing-piece-in-the-obamacare-replacement-debate/
March 17, 2017
Health Reform: Critics of the Republican's ObamaCare replacement plan - and many moderate Republicans as well - complain that it will result in millions losing insurance. What nobody asks is whether we have too much insurance today.
Insurance, after all, is supposed to make health care more affordable. But what if it's making it less so?
University of Michigan economist Mark Perry recently compared inflation rates for health care with price increases for cosmetic surgery. What he discovered was illuminating.
From 1998 to 2016, the overall inflation rate was 47.2%. But for medical care services, prices went up 100%. And for hospital services, the inflation rate was 177%.
But what about cosmetic surgery - which accounts for $15 billion in spending a year?
Perry found that for most procedures, prices went up at or below the overall inflation rate. All of the 10 most popular treatments saw prices climb below the inflation rate.
In fact, a Botox injection - the most popular procedure by far - cost 11% less in 2016 than it did in 1998. The cost for second most popular procedure - laser hair removal - dropped by 22% over those years.
Liposuction prices went up 31%, varicose vein treatments climbed 33%, a tummy tuck 46%.
Perry doesn't include laser eye surgery, but the price trend for that is even more astounding. In 1998, the average price for laser eye surgery was $2,200 per eye. Today, it can cost as little as $300 per eye.
Cosmetic surgery often uses many of the same tools and procedures as regular medical procedures. It's also had to keep up with the latest technology - that's particularly true of LASIK - which is supposedly a factor driving up health costs.
So what explains the vastly different trends in prices over the past two decades?
As Perry notes, the chief difference between the two is who pays.
Cosmetic surgery is, for the most part, paid out of pocket. But only about 11% of hospital, doctor and pharmaceutical bills are paid out of pocket. The rest is picked up by insurance companies or the government. Back in 1960, almost half of the nation's health care bill was paid out of pocket, according to the Centers for Medicaid Services.
What happened in between was the steady growth in the scope and generosity of health benefits at work, and the creation of Medicare and Medicaid in the public sector. These developments are always treated as big victories for consumers, but as Perry notes, there's a huge price to be paid.
"Consumers of health care," Perry writes, "have significantly reduced incentives to monitor prices and be cost-conscious buyers of medial and hospital services when they pay only about 10% themselves."
What's more, "the incentives of medical care providers to hold down costs are greatly reduced knowing that their customers aren't paying out of pocket and aren't price sensitive."
So, voila, you get the high costs and the bizarrely complicated bills that everyone gripes about.
ObamaCare intended to drive health care further down this third-party payment road by both expanding Medicaid and heavily subsidizing the purchase of generous health care benefits. The Republican alternative isn't much better in this regard.
And since nobody wants to talk about the third-party payer elephant in the room, the country is unlikely to ever get health costs under control.
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