Technology is a significant driver of high health care spending. For instance, many treatments common today were not available 50, 40 or even 30 years ago. There are far more drugs and medical procedures than there were in the 1990s when I first began studying health care. Yet, treatments and therapies that have been in use for decades are still quite expensive. In typical consumer markets, the quality of technology gets progressively better while the inflation-adjusted prices often falls as older technology is surpassed by newer technology. This is especially true of consumer electronics but also true of automobiles, appliances and other types of consumer goods. The inflation-adjusted prices of consumer goods have held steady because consumers are price sensitive, rewarding the innovative, efficient firms who successfully compete for their business.
Apple computer rolls out new and improved iPhones and iPads every year even though the previous models are still functioning well. Why don’t older model titanium implants for hip replacements sell for a fraction of newer ones? Their patents have expired, but in many cases, the new ones being sold are still the old model developed more than 20 years ago. The cost to manufacture is reportedly about $350 apiece but they sell to hospitals for around $6,000, which marks them up at least 100% if not more. The answer is because health care is not a competitive industry.
Third party payment is common in the United States, where 90% of medical expenditures are paid by someone other than the patient. Third-party payers set the terms of care; establish which treatments they will pay for and negotiate how much they will pay. Third party payment also insulates patients from their cost of care. Health economists believe third party payment plays a role in keeping health care expensive — as well as keeping it inconvenient. When patients are not their primary customer, it is not in health care providers’ self-interest to compete on the basis of price. Instead, competition takes the form of providers seeking to maximize revenue against third parties’ reimbursement formulas, which are often negotiated discounts off disaggregated, exaggerated list prices.
Regulations also plays a role in keeping medical technology expensive. Medical device firms and drug makers cannot innovate as easily as their counterparts in consumer markets. New drugs and medical technology must be approved by the U.S. Food and Drug Administration or other regulatory bodies. Doctors and many other health care works are licensed, which also creates barriers to entry. Faced with the aforementioned constraints, different countries use a variety of methods to hold down the cost of medical care. These range from individual patients exposed to cost-sharing; private third-party payers negotiating the terms of reimbursement; monopsonistic (single-payer) price controls; to outright rationing of equipment and services to those most in need, while forcing patients to wait for care.
How could this be improved? There is no perfect system given that human bodies are diverse, medicine is complex, and people don’t generally like to see their fellow humans suffering. In an ideal world, young people would save for future health care needs the way they save for retirement. A mandatory payroll tax dedicated to individuals’ own health care would be the ideal way to fund their present and future medical needs. Liberals consider personal accounts to be antisocial, since money in one account cannot be diverted to someone else’s medical bills. However, a dose of antisocial behavior would benefit our health care system.
Under what I call the lifecycle theory of saving for future health care needs, individuals would begin saving while young, giving funds time to accumulate for use later in life. This is similar to the idea behind an individual retirement account. A 10 percent payroll tax may be sufficient to fund most health care over the course of a lifetime until Medicare eligibility. Medicare is funded by a 2.9% payroll tax borne by employer and employee so that would have to be taken into account, possibly raising the withholding to 12.9%. Most young peoples’ withholding would accrue in a personal health account, such as a health savings account. A smaller portion of the withholding for a young person would pay for catastrophic insurance. Over time HSA balances would grow and the ratio of HSA deposits to insurance premiums would decline as one’s health risk increases with age. Most people are healthy when young, spending little year after year. The distribution of medical spending by age doesn’t register huge jumps until most people enter their 50s. For instance, health care spending per capita on the elderly is about five times that of children.
What I’m describing is already in use. Singapore has a system of mandatory health savings, called MediSave. Singapore requires mandatory withholding into a MediSave Account and requires a catastrophic plan called MediShield. In a system where everyone is spending out of their personal account for the small things, it would be easier to control the big things.
Kentucky is spending $800 a month for State employee insurance. The State pays $700 and the employee pays $100 a month. Trump’s HSA-Qualifying STM for a 30-year-old female in Lexington is $184 a month. Trump’s 2017 Healthcare Plan with Age-Based Tax Credits (ABTC) for this age woman is $3,000 which would pay 100% of the STM premium and deposit the balance of $792 annually in the employee’s HSA. The $700/month the State is currently spending to ANTHEM Blue Cross would be deposited into the employees’ HSA for an additional $8,400 or added $792 equals $9,192 Annual HSA deposit!.
Devon, this is American and was passed 20 years ago! FORGET Singapore! When YOU wrote “A Brief History of HSAs” 20 years ago you talked about Singapore! Stop it.
Presidwent Trump’s Plan for 2017 is above! The Kentucky State Employee drops her cost to ZERO and with the Federal and Employer CASH she has $9,192 ANNUAL HSA deposit!
Can’t you be more positive and explain PROSPARITY?
Old picky Bob again.
I like the tax credits as proposed, but one clause in your pitch was puzzling to me.
She is going to drop out of the state plan and buy the STM in your scenario.
If she does that, why would the state deposit $8400 or actually any $ at all into her HSA? Once she leaves the state plan they are under no obligation to do this.
Bob, the idea is that the State redirects the current money the State is spending directly to the employee instead of all money goes to Blue Cross. This is the employees’ money anyway.
Rep. Chip Roy (R-TX) supports larger HSAs by increasing the maximum annual deposit to $12,000 a year for a single. This employee should tell the employer (State of KY) to deposit an additional $2,808 annually into her HSA to maximise her deposit. The State saves on payroll tax and workers comp charges.
Devon was talking about saving over a lifetime and employing Einstein’s 8th wonder of the universe, compound interest. Won’t anybody discuss Prosperity? How are politicians to know if the Think Tanks and PHDs won’t discuss citizens SAVING over a lifetime?
The State is currently spending over 4 times the cost STM in the Private Sector!
Bob, I got my personal rate software and can give you Trump’s Short-Term-Medical rates for this 30-year-old Lexington KY, State Employee who I said was $184 a month is only $1,430 if she [pays annually]. That means her $3,000 Age-Based Tax Credit (ABTC) at 30/yrs old minus her $1,430 annual premium leaves a $1,570 Annual HSA Deposit by the Feds!.
She can have Preferred Rates if she isn’t on Mental Medication and NO DUIs or motor cycles.
So with the State’s $8,400 added to the Fed’s $1,570 equals $9,970 HSA Deposit Annually!
Trust me, these State Employees would vote Republican for TrumpCare! Devon won’t tell them!
Last TIME I talked to Dr Goodman was in 1997 and I asked him to write about how Employer-Based insurance was a scam and he said, “My job is done!” He meant it.
You bring up an assumption that I challenge every time I see it…..which is that employer health insurance premium is really the employee’s money.
Maybe so in economic theory…but I sold group coverage to a lot of employers, and I can tell you that most of them did NOT feel that the health premiums were the employee’s money.
At the vast majority of firms that I saw, an employee who declined the group coverage did NOT get a raise of any kind. The employer was glad to save a nickel, and just left the salary the same.
If the State in your example kept pouring $8K a year into an employee’s HSA after they left the group plan, someone would call them on this. In a private firm, the owners might go ballistic over such generosity.
Correct Bob, these employers care about saving a dime. They should not be the ones choosing the health insurance on employees’ children. Parents are the guardians and love their children.
These employers don’t know the medical history of these children, they don’t know their names.
Then salesmen like you tell the owners the premiums are going up because of these 5 employees’ big claims so all the sick employhees get fired! Darn Group salespeople.
If Kentucky is spending $800 a month per employee for health coverage, that’s only an unweighted average across its entire work force. That does not mean it is spending $800 a month on any individual who would qualify for a $184 STM plan. In fact, the state is probably spending closer to $184, or even less, on behalf of that individual, assuming the STM plan’s premium is based on actuarial costs.
Since the individual’s contribution is $100, the state is only paying approximately an additional $84 on her behalf. If she chooses to opt out, the state could reasonably reimburse the $84, but not $700. But determining that the amount should be $84 for that particular individual would be impractical, so I think it’s understandable that they generally reimburse nothing.
Let me go back to Devon’s article, which is a very good one.
The vigorous competition in other parts of technology is very often due to foreign competitors. General Motors would still be producing clunky oversized, overpriced cars and paying lavish salaries, if not for the Japanese. Rinse and repeat.
For various reasons, the practice of medical tourism has not caught on to the same degree. Americans will buy running shoes from Mexico to save $50, but will not go to Mexico in large numbers to save $5,000 on knee surgery,
There is not even very much domestic medical tourism. The Surgery Center of Oklahoma charges less for operations and does them well, but its business model has not taken off.
I have not heard from Medi-Bid for quite a while.
Part of the answer is of course that persons undergoing surgery want familiar doctors around them in familiar settings, Also maybe there are just not enough cash customers to make a difference in the industry. Devon’s proposed savings plans would remedy that over a long period of time.
Bart you wrote, “the state is only paying approximately an additional $84 on her behalf. If she chooses to opt out, the state could reasonably reimburse the $84, but not $700.”
If she gets too sick to work with ovarian cancer the State of Kentucky will charge her $800 a month PLUS 2% for COBRA or $816 a month. So Bart, why is the State charging this sick bald-headed woman $816 a month when it is only really costing them $84 a month?
This COBRA question proves you are WRONG! Maybe they like to tease dying women.
In defense of Bart:
Huge group plans like for state employees do not underwrite each participating employee. The state has no idea whether this woman is a marathon runner with no interest in getting pregnant, versus a diabetes sufferer whose child has severe asthma.
Since state governments usually have strong seniority protection, their health plan probably has a lot of 60 year olds with severe health problems. That is where the $800 per month outlay comes from primarily.
I think we can all agree that Employer-Based health insurance doesn’t work with life threatening illnesses like ovarian cancer. One of my 1st tax-free MSAs in 1997 was a woman in Sugar Grove IL, who got ovarian cancer and it took 4 years for her to die. We all come from a very long list of dying people so for sure this dying thing is still happening.
The 1st MSA in 1997 for 7-Eleven stores was a store owner named Mike (St. Louis) who had a heart attack and sold his store and kept his Individual Medical (IM) insurance. If he had a Small Group Employer-Based plan the owners have to work 30 hours a week too to keep their insurance, just like their employees.
Then I enrolled a MD in Colorado Springs who got bone cancer and cost the insurance company $2.6 million in 2004. He had a stroke in his 1st surgery and has never worked again. I saved his ass too because he was on a doctor group that he would have lost.
That is just 3 people I SAVED at the beginning of the MSA Test. Millions have died to keep Employer-Based insurance. That’s why we are losing our FREEDOM with Obamacare is to keep that BS Dangerous and DEADLY Employer-Based insurance.
YOU guys all agree that Employer-Based insurance is just fine. It is STUPIDITY!
Ron, how long can your ovarian cancer patient remain covered under STM? Is it guaranteed renewable for $184 a month even after being diagnosed with cancer? I’m guessing your examples from 2004 are for conventional underwritten policies, and not STM.
Obviously if she is diagnosed with ovarian cancer, she is no longer costing the employer $184 a month. It’s probably thousands at this point, so $816 per month for COBRA is a bargain. Especially after having been covered while on the payroll during the first year or two of the illness. And she will only pay it for a few months until she is able to enroll in an ACA plan, where she would have ended up in any case after losing STM coverage.
I’m not anti-STM, so long as taxpayers aren’t subsidizing it (the subsidies will come when the enrollee gets sick and moves onto Obamacare). I just want to see fair comparisons with the alternatives.
I wrote the 1st MSA with TIME Insurance Company, America’s oldest health insurance company, in 1996. State Farm agents sold TIME because they were in more states. The other Individual Medical (IM) insurance company that did the MSA test was Golden Rule, who Devon lies and says they were 1st to market. Today, Golden Rule is United Healthcare, the world’s largest insurance company. It’s STILL these same 2 companies offing STM in the USA. Golden Rule was bought by United Healthcare and TIME is now the Good Hands People who have an AM Best A+ rating and also employee the Mayhem Man.
Here are some numbers for you Bart. The Pasco School District (Tampa) is charging poor teachers $1,899 a month to add a spouse and son to the school’s Blue Cross PPO. (It is online) Trump’s Short-Term-Medical (STM) is $271 a month and the STM is HSA Qualifying family insurance (30/yr old Mom and 10 yr son). In 2024 she can shelter $8,300 in her HSA and she avoids Payroll tax and Income tax. If her income tax rate is the highest she saves more in taxes than the cost of her insurance! EXACTLY like the 1st MSA in 1996.
Admit it Bart, that’s affordable healthcare! Everybody else is cut rate Bart!
Ron, you didn’t answer my questions. They weren’t intended to be rhetorical.
Bart, I gave you actual prices for Employer-Based insurance in Tampa for a teacher’s spouse and son is $1,899 a month and Trump’s STM is $271 a month. STM is less expensive in Kansas City and this 30-year-old Mom and son would drop to $170 a month. Lee Summit, MO (KC) teachers pay $2,183 a month for KC Blue Cross HMO!
Bart, Employer-Based insurance is over 10 times more! They are scamming poor teachers!
Here is the link: https://user-7eh7e5h.cld.bz/2023-LSR7-Benefits-Guide/18/ (page 19)
Bart, Mariana was self-employed with ovarian cancer. She closed her retail store and kept her insurance. You had to be self-employed if you remember the MSA rules.
You know Bart under ERISA you can’t sue an employer-based health insurance plan. So in the land of lawyers, the USA, you have no legal rights! Keep defending this employer-sponsored crap. YOU will take the insurance your employer wants you to have! that’s final SLAVE!
Ron, these were the questions I asked: _”how long can your ovarian cancer patient remain covered under STM? Is it guaranteed renewable for $184 a month even after being diagnosed with cancer?”_
It seems that both ESI and STM users can end up on Obamacare after a serious illness. If so, it comes down to whether the $84 a month savings during employment makes up for the added $632 a month cost during the six months or so on COBRA. If employment lasted a few years or more, it probably does, all else being equal. I know there are other variables.
You make a better case for dependent coverage. I know dependent coverage can be unreasonable under ESI, which leaves STM vs ACA coverage. I guess it would depend on the subsidies.
Bart, I will go slow for YOU! Obamacare doesn’t have ONE PPO in Texas! Obamacare ONLY has dangerous and DEADLY HMOs that pay NOTHING when sick Texans go out of network desparately trying to survive. SURE Rep. Chip Roy went to MD Anderson Cancer Hospital for his cancer treatment but not ONE Obamacare plan uses MD Anderson.
I know Bart, you will say something about ACA subsidies which means NOTHING!
Ron, you do make some good points. But you never answered my questions lol.
I think the basic problem is that they’ve outlawed any decent alternative.
Based on a website from someone called Cosmo Insurance, here is what I found: 27 states will allow a Short Term policy to last for 12 months, (several states have 3 or 6 months, several states do not allow any Short Term policies.)
If you buy a policy and then get cancer after enrolling, you will NOT be able to get any renewal at all. Renewal requires a fresh application with medical history.
I guess that if you can then duck back into ObamaCare, this might not be too bad. You can save good money for just one year.