Monday, March 22, 2010

USA Healthcare and the Myth of Competition

USA Healthcare and the myth of competition

Americans have listened to a hysterical outpouring of vitriol against any form of actual change in the health care system as presently operated and throughout the debate has claimed that healthcare law is about the socialism of healthcare under a government based monopoly.  You would think that the present system is an example of free enterprise and healthy competition.  This is not true.

The present regime has individual Americans paying rent to the insurance industry with no personal control over pricing whatsoever, in exchange for a contract that no one can understand and that might cover medical costs if you become ill.

What no one has understood is that the insurance industry has no incentive whatsoever to negotiate lower costs.  They get a percentage of the gross turnover and that means rising costs reward them.  As a result, costs have persistently risen without check.

In practice we have monopoly pricing in place for drugs and all medical services.

On top of that the industry knows that the most profitable customers are the top two thirds at most.  So all others have been squeezed out and forced to rely on the federal government who is stuck with all the costs of the elderly and the poor.  We thus have a two tier system in which the lower third are begging for services inn provided for by governments and charged out at the rates established to milk the other two thirds.  The other two thirds are been ruthlessly exploited by the insurance industry in order to maximize industry profits.

Neither the consumer or the profession or even the hospitals have any bargaining power except to occasionally push for a bigger piece of the consumer’s dollar because the insurance industry takes a take it or leave it position.

The only competition in the insurance industry is over market share and that is simply a private affair between them and has no impact whatsoever on the consumer.

The present result is that the US consumer is paying at least sixty percent more for exactly the same service in which in fact a third of the population is denied any service at all.  And no, the quality is not better, unless you live next door to the Mayo Clinic.  After all quality is site and population specific.  Rural America must drive a long way to get a necessary operation.


The one effective solution that I am familiar with is the Canadian system of single pay and provincial pricing management.  This would work even better in the USA.  The main reason it works is that pricing is negotiated on behalf of the patients by the provincial authority with the suppliers.  It is local enough and it is large enough and the other provinces provide comparables.  The competition is thus between provinces to best manage costs.  The doctors have an effective union and so do the nurses.  They still must get political support in order to raise wages.  The drug companies are truly checked and must in fact justify each charge.  A healthy generic industry immediately supplies drugs coming off patent at a fraction of original retail.

The system will never be perfect but for half the per capita cost we serve everyone and serve them very well indeed.

The tales of personal experiences that I have heard over the years from friends who have been through the Canadian system are in sharp contrast to the experiences recalled by my American friends.  Discounting actual medical errors from both sets I have found Canadians satisfied.  American tales are about financial disasters and unwanted consequences.

To apply the Canadian system in the USA it is sufficient for the Federal government to provide matching finance to the newly established State single pay authorities and walk away after regulating universality.  In Canada, the Federal government may have initially done more but I would be surprised if they had to.  Both have the necessary taxing authority.

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