We've Discovered The REAL Reason Healthcare Is So Expensive

It’s simple, actually.

There’s no market or competition in healthcare, we’ve got a rapidly ageing population and the supply of health care is tightly contrained!

That’s it!

Any scheme to slow the rate of growth of healthcare price inflation or whatnot is destined to fail if it doesn’t strike directly at the above.

Sadly, the new Obama plan does not strike at the root. In fact, as Megan McArdle argues, the new scheme is mainly based on a belief in magic

Obama got the SEIU and various corporate entities involved with health care provision in a room and got them to promise to slash 150 basis points from the annual rate of increase in health care spending.  How will we achieve this?  Whitehouse.gov has a fact sheet which outlines the concrete proposals that came out of this meeting:

  • Improving Care after Hospitalizations and Reduce Hospital Readmission Rates payments will be bundled to include the 30 days post discharge; readmitted patients will become a cash drain.  If hospitals really are making patients sicker (or not bothering to make them well) because readmissions are lucrative, it should be interesting to see what lengths they will go to to avoid readmitting very ill patients.
  • Reducing Medicare Overpayments to Private Insurers through Competitive Payments.  Bye-bye, Medicare Advantage.  Maybe.  Medicare Advantage seems to cost more because it, er, provides more benefits.  It also apparently has good patient satisfaction. Directly playing with senior health care can be politically dangerous.
  • Reducing Drug Prices  Only for Medicaid.  No dollar item attached to it, probably because the savings are relatively trivial; Medicaid is a small part of the overall budget, and prescription drug prices are a small part of its budget, and an 8% decrease in a small part of a small part doesn’t sound as good as Reducing Drug Prices.
  • Improving Medicare and Medicaid Payment Accuracy aka the infamous Waste, Fraud, and Abuse.  Traditionally much harder to get out of the system than promised by reformers, in part because the Waste, Fraud, and Abuse subsidizes other services, so if you eliminate Medicare overpayments, you suddenly get higher prices.  This is why retailers do not actually attempt to push “shrinkage” to zero.
  • Pay for Performance  The Holy Grail of health care wonks.  Good luck.  Projected cost savings:  $12 billion

You may recognise these proposals; they are recycled from the Obama budget.  Estimated cost savings listed:  $215 billion over 10 years.  That leaves just $1.785 trillion for the “stakeholders” to find.

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