What’s the matter with health care.

Posted: February 6, 2011 in Economics, Philosophy, Politics

The following is a long and wonky piece on health care policy in this country, giving my erudite opinion on exactly why it’s so fucked up.  If you’re bored by policy talk, don’t bother to read it.  But also, don’t consider yourself eligible to vote or have any sort of opinion on this subject.  Unless you have a rebuttal to my conclusions, you’re wrong.  And everyone else is lying to you (who doesn’t agree with me).

I’ve been meaning to write this for quite some time.  Years, in fact.  I’ve been heavily focused on this issue since 2004, when I had my first experience (as an adult) with the US medical industry.  A big part of my life to date has been coming face-to-face with institutions and practices that viscerally struck me as fucked-up, rejecting the “that’s just the way it is” hypothesis, and tracking down the exact reasons for this fucked-up-ness.  Nine times out of ten the answer is politics.  This explains why as I’ve gotten older, I’ve become increasingly sure of my libertarian instincts.  Every new fucked-up thing I encounter in the world is inevitably traceable to unlibertarian policies.  When you view the world through a libertarian lens, solutions become obvious.  I suppose that’s true for any political ideology.  The difference, however, is if you quiz a Marxist anarchist on what their post-statist, post-property society would look like, their answers become incoherent, and completely at odds with human nature.  Libertarians know what’s going on.

Anyway, back to the subject at hand.  Let me talk about my first experience in the US hospital system.  I had an injury — second degree burns on both feet.  My friends drove me to the hospital, where I was required to fill out paperwork for what seemed like an hour before they would treat me.  In the end, their entire treatment consisted of some wet cloths on my feet, and a morphine shot.  Total bill?  $1500.  Half of that was just for the morphine shot.  I’m just guessing here, but I’m pretty sure the street price is less.  The staff told me that they didn’t have the expertise to treat my burns, and that they had to send me to Harborview Medical Center, necessitating an ambulance ride.  Add on $800 for that.  At Harborview, comfortably high on morphine, I carefully observed everything that was done to me, looking for the expertise that apparently the other hospital lacked.  I was given a saline IV drip.  The (by now massive) blisters on my feet were pulled off, and my feet washed clean.  Then a silver oxide compound known as Silvadine was smeared all over my feet, which were subsequently wrapped up with gauze.  That was it.  That was the whole treatment, and from what I understand, this is standard procedure for a second degree burn.  No need for special expertise.  I was sent home the next day with painkillers and instructions for tending the wounds myself.  The Harborview bill was over $1000 as well.  Unfortunately, that wasn’t the end of it.  A week later I realize the burns were infected with cellulitis,  and I had to go back to the hospital for three nights to get an antibiotic drip.  I was charged well over $1000 for each night I stayed there.

The vast majority of the people I talk to about this have never looked at a medical bill, or had to pay the full cost of their medical care, because they’ve been covered by insurance.  I was not.  I had no idea how badly inflated the cost of medical care was, and thus saw no reason for medical insurance.  I haven’t bought medical insurance since then, but I’ve kept myself out of hospitals and away from doctors.

The common response to this is to lament my not having insurance, and to rail against those greedy insurance companies for making insurance so expensive that I couldn’t buy it.  Or to rail against greedy hospitals or doctors.

Which is clearly total nonsense.  Insurance companies, hospitals, and doctors are no greedier than anyone else.  The entire human race is greedy.  Food manufacturers are greedy, by this logic a Big Mac should cost $20.  Instead, McDonald’s charges a price for the Big Mac that makes sense to us, relative to the price for other goods.  Obviously, greed isn’t the issue.

$800 for a shot of morphine is not a real price.  What is a real price?  A real price is one that allows us to make comparisons between goods.  Real prices are determined by the supply of and demand for said goods, relative to other goods on the market.  If a good is very expensive, it means that that good is either very expensive to produce, or in very high demand.  By paying for an expensive good, you’re saying, yes, I want to devote my resources toward that expensive production process, or yes, I want that good more than anyone else does.  That’s how it works in a free market, anyway.  Morphine is a simple chemical, and like most chemicals, it is fairly cheap to produce.  Morphine has a natural source, the poppy flower, from whence it has been derived for thousands of years.  It does not require designer bacteria or special equipment to produce.  In a free market, it would probably cost about the same as honey.  According to the Johns Hopkins Hospital website, a 50 mL vial of Morphine Sulfate costs a measly 23 dollars.  Assuming that the hospital I went to paid a similar price, that’s an incredible 3500% markup.  And I doubt I even got 50 mL, that seems like a lot.

So if not greed, what does account for these amazingly inflated prices?  Let’s go back to that bit about most people not looking at their hospital bills.  Most people don’t look at their hospital bills. They aren’t even aware that the prices exist.  Insurance just pays for it.  But ok, if the insurance company pays for it, shouldn’t they care what the prices are?  No!  Insurance companies pay out claims on policies, but the policies are paid for by the insured. And they pay dearly.  According to the Kaiser/HRETHRET Survey of Employer-Sponsored Health Benefits in 2008, the average cost of health insurance premiums for individuals was $4,704 per year.  That’s a fucking ludicrous amount of money to pay for health insurance, especially if you don’t use it much, which most people don’t.  In this, I’m in agreement with those advocating Universal Health Care.  Where we disagree is WHY this problem exists, and what to do about it.  They say it’s greed.  I say that explanation is transparently false.

So why ARE people paying so much to the health insurance companies?  Reason #1 is that they aren’t — their employers are.  Right now about 60% of working Americans receive health insurance through their employer, who typically pays the bulk of the cost.  Well if the employers are shouldering the lion’s share, shouldn’t they be pissed?  No!  Employers are not required by the government to pay payroll taxes on health insurance premiums for their employees.  So employers are perfectly content to dish out for health insurance instead of paying their employees a higher salary.

So now we’ve arrived at policy problem #1:  the tax break for health insurance.  Essentially this is a huge subsidy from the government to the medical industry, and the result is that it jacks up prices.

Policy problem #2:  Occupational licensure.

As I mentioned earlier, while at Harborview hospital, I was able to collect, through visual observation, a complete understanding of how to treat a second-degree burn.  While injured and stoned.  It’s really very simple.  In fact, most of medicine is.  That’s the big secret that doctors don’t want you to know.  In fact, protecting this secret is almost the very essence of what it means to be an MD.

The AMA cashed in by selling tobacco ads.

At the turn of the 20th century, the American Medical Association began a successful campaign of lobbying for government policies that would raise the wages of its members.  Using the smokescreen of “increasing medical standards”, the AMA set up the state medical boards that exist to this day, began shutting down medical schools, and enacted state licensing of doctors.  The AMA reduced the number of medical schools in the USA from an all-time high of 160 in the year 1900, to only 85 in 1958.  Among the schools shut down were 12 of the 14 black medical schools that existed at the time.  By controlling medical schools and licensing requirements through the state medical boards, the American Medical Association now has a choke-hold on the supply of doctors.  And naturally its members have an incentive to keep that supply low.  60% of all applicants to medical school are turned away.  You can’t even go to medical school if you want to, and have the means to pay. Why keep people out of medical school?  Because people who have graduated from medical school, but are being denied licensure, are far more likely to lobby for a change in the status quo.  Can’t have that.  I should give a shout-out at this point to Milton Friedman, who discussed this in his 1962 book “Capitalism and Freedom”.  That’s right, these ideas aren’t new.  They’re inconvenient for the powerful — the American Medical Association, the most powerful trade union in America, sending your medical costs sky-high.  I’m not saying every doctor in America is evil.  Like most people, they’re usually just complacent.  But the AMA as a whole is as evil an organization as any you will find on this Earth.

Why shouldn’t I be able to rent a storefront, stock up on medical supplies, and go into business as a doctor without the government’s permission?  Because I might fuck up?  So what?  When you purchase a good or service, it’s your responsibility as a consumer to ensure that you’re getting what you bargained for.  If someone wants to come to me, and pay me money, knowing that I have very little experience or formal schooling, isn’t that their right?  What right does the government have to interfere?  More to the point, isn’t it far preferable to allow this than to have a choked-off supply of doctors driving up prices to the point where the poor can’t even afford medical care?  It simply doesn’t take four years of medical school and years of residency to understand how to set a bone, make a cast, treat a burn, suture a cut, administer antibiotics, or any of a myriad of other basic medical procedures.  Most of what goes on in ERs around the country, paid for by taxpayers at inflated prices, could be happening in corner clinics for reasonable prices paid for by the patients.

Policy Problem #3:  Massive government subsidization

1991 Source Book of Health Insurance Data

When you subsidize something, it becomes more expensive.  That’s Economics 101.  This year, the USA will spend 2.5 trillion dollars on health care, and about half of that will be paid by the government.  Half.  That’s incredible.  Imagine if the same were true of the food industry, if half of all farms, grocery stores, and restaurants were owned by the government.  Most of this money is being funneled to old people through the Medicare program.  For a doctor or hospital, Medicare and MedicAid are even better than health insurance plans.  It’s a regular bonanza.  When the government is paying, you can charge pretty much anything you want.  Why should the government care?  It’s not their money!  To paraphrase Milton Friedman, there are four ways to spend money.  Here they are, listed in decreasing order of efficiency:  Spend your own money on yourself, spend your own money on other people, spend other people’s money on yourself, and spend other people’s money on other people.  That last is government.

So those are the three main reasons health care is fucked up in this country.  If it weren’t for the government, health care would be way cheaper and more accessible.  Our overall health knowledge and public health literacy would probably be higher, too.  The American Medical Association has successfully propagandized the public into thinking of their health as something to be left to the professionals.  You get sick, you go to a doctor.  They’ll take care of it.  And make a pretty penny while they’re at it.

  1. Marcia Garrett says:

    I am pretty sure a single dose of morphine is no more than a few ml’s!!!

  2. jsalvati says:

    I agree.

    I will only point out that it would be a mistake to calibrate the correctness of your libertarian instincts on the workings of the healthcare system since that does seem to be an especially crazy area of life.

    You might also consider mentioning the RAND study (http://www.overcomingbias.com/2007/05/rand_health_ins.html), since that’s pretty powerful evidence.

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