Sunday, June 24, 2007

Health Economics: Service Charges

John Goodman reacts to a Kaiser Foundation study intended to make Health Savings Accounts look bad, and he zeros in on the charges for giving birth. What’s up, Doc?

Having Babies: According to Kaiser, an uncomplicated pregnancy by vaginal delivery costs $9,660 in Maryland. A C-section costs $12,453. If a lot of things go wrong, the cost is $287,453. … Surely the interesting question is not, "What is the patient's share of the bill?" but rather, "Why is the bill so high in the first place?"

Let's see, women have been having babies for how long? 100,000 years? Perhaps more than a million years, if you stretch the definition of humanoid. After all that time, folks in Maryland have not figured out how to deliver a baby for less than the price of a new car?

The real lesson to be learned here is one that completely eludes the Kaiser policy wonks. If all Maryland women were managing their own maternity care dollars, most Maryland hospitals would go out of business in a flash.

TCS Daily contributing editor Arnold Kling makes the case that the expense of American health care is a natural result of a few underlying beliefs. Simply put, those in need should not be denied for financial reasons and those who provide deserve to be affluent.

Reforming Our Beliefs Concerning Health Care: As it stands today, our health care system is designed to ensure that cost-benefit analysis is not taken into account. Instead, the collectivist instinct is that individuals should be insulated from having to pay for medical procedures. This belief that medical care ought to be free to the consumer is what underlies our peculiar institution of health insurance that is more like a prepaid health plan than real insurance. Because consumers are insulated from cost, neither they nor doctors are in the habit of comparing costs and benefits when it comes to medical procedures.

Even though we believe that medical care should be free for those who receive it, we realize that health care providers need to be paid for their services. In fact, another one of our bedrock beliefs about health care is that doctors deserve high status and wealth. I sometimes think of our health care system as a suction device for drawing money into the pockets of physicians. That is, many of our institutions and practices seem designed more to guarantee an affluent lifestyle for doctors than a high-quality outcome for patients. There is nothing wrong with someone earning a living based on their skills. However, the regulatory environment tends to give doctors more than a market rate of return.

I have no problem when providers with exceptional skills earn top dollar but the system in place pretty much guarantees each and every provider makes top dollar on inflated service charges. If the goal is affordability, then the focus needs to be on the fees being demanded.