Monday, November 29, 2010

The (True) Cost of Health Care

An overarching theme here at IB has been that health care costs drive health insurance costs. While this may seem obvious to us, it bears repeating.

Why, you ask?

Well, a fundamental precept of ObamaCare© is that by controlling health insurance costs, health care costs can be better controlled. This is patently and (more important) demonstrably untrue:

"What Anderson might not know, however, is how Sutter's battle for market share in her corner of suburbia is affecting her bottom line. Hospital prices in the Sacramento region are among the highest in California, driven in large part by the negotiating clout of the hospital chain Sutter Health."

The Anderson family lives in a suburb of Sacramento, California, but their plight is far from unique or geo-specific. As hospital "chains" grow, competition is reduced, and prices increase. That's basic economics, of course, but a lesson lost on many folks who continue to believe that "reforming" health insurance will have any impact on the cost of care. In fact, the opposite is true. As we've previously discussed, ACO's (Accountable Care Organizations) threaten to dramatically change how health care is delivered, and the price we pay for that delivery. Bob sent me an interesting link, from an outfit called American Medical News, which underscores just how insidious these new entities really are. Here's what they want us to see and believe:

"Accountable care organizations ... generally involve a combination of physicians and hospitals taking responsibility for a defined population, working together to improve care and cutting costs."

Can you see the problem in that very short statement? A "combination" implies a partnership of co-equals. But that's laughable on its face. In any such "relationship," the hospital (and more likely, the chain of hospitals) is going to be the Big Dog, and is going to determine how the organization behaves. The doc is simply another vendor in this equation, with precious little say-so in how (and how much) health care is delivered.

And there's this little tidbit:

"Though ACOs are primarily defined as cooperative agreements between hospitals and physicians, health plans are keenly interested in the model and need to keep on top of developments because they will be the ones to reimburse the new entities for care."

Once again, what they want you to see and what's really happening are two very different things. The primary problem is that there's still that pesky third-party (the insurer) sandwiched betwixt the provider and the patient. Let's ignore for a moment the lack of consumer participation in this equation; if consumer-centric health care is predicated on choice (and it is), then it's DOA when it comes to ACO's. That is, what choice does one have when, as in the Anderson's case, there are only one or two plans that include the biggest ACO, er, hospital chain in the area?

And then apply that to the whole country.

This is a recipe for economic disaster: less choice (competition) means higher health care prices, which means higher health insurance premiums. And, as Bob's pointed out, this is exacerbated by the looming shortage of carriers.

Talk about your death spiral.

[Hat Tip for NPR item: FoIB Holly R]
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