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No Market in Healthcare
James Freeman is shedding some much needed light on the Healthcare debate. Finally someone (James) points out that there is no market in healthcare in America. The entire system is a single party run system. The distinction between public (Medicare, Medicaid, Obamacare) and Private (‘private’ healthcare companies like UHC) that is the hallmark of the discussion since the cold-blooded murder, execution-style, of the CEO of United Healthcare, is a delusion.
How so?
Healthcare prices are fixed. There is no market whatsoever for healthcare as the price controls are equivalent to what Germany had in place after the end of WWII, which were removed by Ludwig Erhard against the desires of the occupying powers (the occupying powers had left in place the economic controls of the Nazi regime!!!), leading to the German economic miracle.
Remember those famous exchanges?
Lucias Clay: Herr Erhard, my advisers tell me that you have made a terrible mistake. What do you say to that?
Erhard: Herr General, pay no attention to them. My advisers tell me the same thing.
US Army Colonel: Herr Erhard, how dare you relax our rationing system when there is a widespread food shortage?
Erhard: But, Herr Oberst, I have not relaxed rationing. I have abolished it! Henceforth, the only rationing ticket the people will need is the Deutschemark. And they will work hard to get these Deutschemarks, wait and see.
And the German economy rose like a Phoenix from the ashes of post-war Germany.
All prices in the US are directly linked to the Medicare pricing of healthcare services. All private insurers pay based on a fractional increase in Medicare-allowed reimbursement, for not just Medicare Advantage products but all insurance products. Medicare produces prices (and price adjustments annually), with variations for regional costs, but all reimbursement is directly tied to Medicare payment policies. That a discussion of healthcare in America can ensue without an acknowledgment of this circumstance is beyond ridiculous, and indicates that our thought leaders are idiots and we do not have a serious country.
How did this come about? Most directly when RBRVS (Resource-based Relative Value Scale) was enshrined. This was a way to “calculate” the value of medical services. Imagine that! A centralized authority can CALCULATE the value of all medical services. Who would have ever guessed? In this case, it was Dr. Hsaio, a public health expert at the Harvard School of Public Health, along with his “team.” Oh, the arrogance! Oh, the abuse! But in this case, he was working at the behest of the…you guessed it, a Conservative Republican administration under Reagan (in 1988), soon to be a little less conservative under GHW Bush. Those RBRVS calculations included a factor for training, for equipment and infrastructure, for time and effort, for ancillary costs, for regional cost of living factors, even a factor for malpractice, etc.
The formula was long, but everyone in the GHW Bush administration had full confidence in the ability of Harvard experts to CALCULATE the value of medical care. There was no factor for outcomes, of course. Or severity of illness. This was a significantly distorted, but nonetheless, Labor Theory of Value on steroids! And of course, for all who heard it, there was the unforgettable testimony of the esteemed Marxist economist, Gail Wilensky, head of the HCFA (now CMS) to Congress in the Reagan administration, in which she excoriated the “…perverse incentives inherent in a fee-for-service system.” She sounded like a member of the Soviet Politburo in the final years of the Cold War. (Did the Soviets win that?). Of course, what she meant was the perverse incentives in a fee-for-service system paid for by the deep pockets of the federal government with no questions asked. Which is how Medicare operated up to that point.
Which is why Medicare ushered in the Golden Financial Age of Medicine. No controls. No limit on billing. No nothing. So, of course, doctors and hospitals jacked up their fees. Medical inflation exceeded general inflation by a factor of 3. Of course, there were many supporting actors. Doctors and hospitals first set up Health Insurance (in 1929, in Dallas, Texas) at the Baylor Hospital, which established an insurance program whereby for $5 a month, one could buy insurance that would cover inpatient hospital services should the person need hospitalization. The first organization to jump on this opportunity to cover its employees was the local newspaper. The hospital administration and hospital medical staff controlled the pot of money used to pay themselves from this subscription service, so, of course, their fees rose. This became the first Blue Cross medical insurance plan. It proved such a boon financially to the hospital and staff physicians that it was quickly replicated across the country. All, of course, nonprofit, community-rated, etc., etc. Later on, when family doctors saw surgeons (who were hospital-based in those days) driving Bentleys or Rolls or Mercedes while they were driving Fords and asked what happened. As it was explained to them, they wondered if they could do the same on an outpatient, non-hospital basis. Of course, they could, and so Blue Shield was born. And medical inflation has outpaced general inflation by a factor of 3 ever since.
But things really got going when the feds paid the bills with no questions asked. In those halcyon days, in a town in which I practiced, a general internist built his own personal 50-bed hospital and admitted Medicare beneficiaries. He kept it filled continuously, whether the patients needed to be there or not, ran every test available, then fired off the bills to Medicare and got paid. He became a multimillionaire. That scenario was played out across the country. At that time, medical practices and medical facilities exploded. So rampant was the process that states (such as California) began requiring a “certificate of need” before allowing the construction of new hospitals.
Again, when Medicare passed in 1965, it was estimated that costs per year in 25 years would be $10 billion. Those costs in 1990 were on the order of $90 billion, and the upward spiral continues. Total Medicare spending for 2023, a third of a century later, was $1.029 trillion, 11 times what it was in 1990. Medicaid’s total spending was $871 billion. “Private” spending was 1.464 trillion.
Rob Long thinks all of this spending is just wonderful. He needs to go back to his Koine Greek and stay out of the discussion, particularly as the American public is being mostly scammed with overutilization, among many other things. Take the case of my brother-in-law, who is from Uruguay and travels back and forth several times a year. He had a coronary stent placed several years ago. He will always go to his cardiologist and demand a cardiac catheterization before he travels to South America, just to make sure the stent is open, despite the fact that he has no symptoms of angina. His cardiologist always accommodates. Both should be sanctioned for waste, fraud, and abuse.
I think of the old days, as when the surgeons in Los Angeles went on strike due to high malpractice insurance premiums. An epidemiologist tracked the death rate in the city before, during, and after the strike. The death rate was at a certain level but fell dramatically during the strike. As soon as the strike was called off, the death rate statistics went back to their higher baseline. Fortunately, or unfortunately, depending on your perspective, the strike didn’t last very long. Or consider the fact that studies have shown that Medicaid patients have worse health outcomes than people without health insurance (there could be many reasons for that, not all of them due to the mistakes or incompetence of treating physicians).
Mostly the American healthcare system stymies innovation and improvement in care (and that’s completely apart from the disasters that Marty Makary details in his frightening book, Blind Spots). For my entire career, the incidence of obesity and type 2 diabetes has been skyrocketing (that is over 40 years). That entire time, we have been instructed to prevent disease. Everyone bemoans the lack of prevention. Well, now we have the means to really prevent type 2 diabetes and treat obesity, and we are not allowed to use those means.
Medicare famously doesn’t cover treatments for weight loss. As a consequence, neither do “private insurers” because they follow Medicare guidelines. Further, treatment of pre-diabetes (a condition in which blood sugars are above normal but do not meet diagnostic criteria for overt type 2 diabetes mellitus) is off-label, and since Medicare does not cover that, private insurers do not cover that. Mounjaro has been shown to prevent type 2 diabetes in patients with pre-diabetes to the tune of a 95 + percent reduction in progression to overt type 2 diabetes. Sounds like it should obviously be used, right? Not a chance. In ancient days, physicians could prescribe medications off-label and insurance would cover them. No longer. Today, everything that is not permitted is forbidden.
Currently in the news is the fact that Lilly has just received FDA approval for the use of Mounjaro to treat obstructive sleep apnea (which is, essentially, a complication of obesity). That is regardless of whether the patient has type 2 diabetes, or pre-diabetes, or not (many of them will). One might assume that such FDA approval would result in Medicare and private insurance coverage. One would be wrong. FDA approval does not override Medicare policy. We shall see if Medicare allows it. Medicare, surprisingly, will now cover Mounjaro for patients with coronary artery disease, as weight loss with this agent results in improved outcomes of coronary disease! Not surprising. So we can treat pre-diabetes or polycystic ovary disease (a pre-diabetes condition generally) if clinical coronary artery disease is present. One might ask, why wait until coronary disease is present (also a complication of obesity, and pre-diabetes, and doubly of type 2 diabetes)? The answer is: because Medicare says so.
I spend most of my day in the office processing or responding to “Prior Auths” — or their denials. A Prior Auth is now the bane of medical practice. Again, everything that is not permitted is forbidden, and on virtually everything we do, on virtually every prescription that I write, a prior authorization is required. This is a permission slip given if the insurer agrees with your care. Mostly they don’t. The insurers want 1950s care while we are trying to provide current care. GLP-1 analogs are part of the management of polycystic ovary syndrome, per Endocrine Society guidelines (but then again, so are puberty blockers and surgical “gender-affirming care” of minors, though there is good scientific evidence for the PCOS guidelines but none for the latter care). Never mind. The insurers have no idea what polycystic ovary syndrome is, nor the complications (type 2 DM, heart disease, increased mortality, shortened longevity, gestational diabetes, etc.). So they continue merrily denying our efforts to manage the disease.
The worst insurers for PAs and denials are the Obamacare “market” insurance plans. Whoever called this a “marketplace” should be prosecuted in The Hague for crimes against humanity.
But the fault is not in health insurance CEOs. The fault is in ourselves. We tolerate this insanity, because we fear the consequences (trivial though they may be) of managing and paying for our healthcare ourselves. We cannot see the uplands of self-sufficiency, innovation, and improvement — those unseen benefits of markets — until they appear through actual markets. We will never see these in our current malaise.
I am still ridiculed by my wife for what I did almost 40 years ago. When medical savings accounts became available, I rejected my employer-provided health insurance and bought a high-deductible medical savings account insurance product and began saving for and managing mine and my family’s healthcare. Due to some primary care costs, my wife strenuously objected, so my dreams of my own medical savings account bit the dust, sacrificed on the altar of marital harmony.
Today, at age 75, I am 3 years into coverage by Medicare, with a medicare advantage plan. I was very much with Dick Armey when he sued to be allowed to stay off Medicare and keep his (gold-plated) “private” insurance plan, which was much better than Medicare. He was denied in court. The Collective will have its way. All must cooperate with the Collective. I stayed off Medicare until it was no longer legal to do so.
About 15 years ago I had the opportunity to have a conversation with Thomas Saving, who had been a trustee of Medicare and SS under George W Bush. This was after his tenure at these agencies. He had a well-developed and well-thought-out plan to transition to a privatized Medicare as well as Social Security systems, via private accounts started early in life. That went nowhere. It would be enlightening if we could even allow choice in these programs during our working years: Choose to contribute to Medicare or to one’s personal healthcare savings account. Choose to contribute to Social Security or to one’s own IRA or 401k. But, alas, like education, no choice is to be allowed under our collectivist systems.
Medicare and SS are going to sink the nation, and not in 100 years. Much sooner.
We need to do a Milei on our collectivist systems. Otherwise, we will wind up worse than Argentina. Indeed, if Argentina sticks to its current course, and we to ours, we will all be heading south through the Darien Gap trying to get there.
Published in General
I agree that there is no market in healthcare.It has been years since anyone would tell me the cost of any medical visit or procedure until four years ago I agreed to hire a concierge physician and pay her out of pocket for my visits. None of the bills and records of payments I get from Medicare and my private insurance sheds any light on what the cost of the procedure to the provider is.
There is money spent in grants to universities and others for medical research and development that when promising or proven effective is then procured by private entrepreneurs for little investment, medical device manufacturers and big Pharma, and then when they get a marketable product the federal government joins in with more taxpayer money to help medical institutions with procurement. This cycle never stops.
Amen, brother!
I should also point out that I went to the concierge physician because from recent experience with trying to get a satisfactory primary care physician prior to that I had lost confidence in in those new entrants into the medical profession. The lady was in her fifties, had worked and taught in a hospital system for over twenty years, so I felt good going to her and paying out of pocket. One of my daughters recommended her.
All the concierge physicians in our area are no longer taking new patients. Reminds me of the old Yogi Berra statement: No one goes to them anymore. They are too overbooked.
In fact, almost all of the physicians in our area are no longer taking new patients. For a Medicare patient to establish with a physician is well night impossible.
Great health system we have here. Shame if we were to lose it.
What is a “privatized Medicare system”? How can a Medicare system be private?
Now that I am finally on Medicare, I notice things like certain services are not paid for or required, and too many visits required. I also hate all the drug commercials – appalling. I see so many overweight people, especially young, and the junk food commercials usually follow the drug commercials. I hope Kennedy does a deep dive into all of the costly and unhealthy abuse and is able to contribute healthy changes to our much needed healthcare system. I don’t think we are healthier all these years later.
I’ve been seeing some Ozempic TV ads recently, and it’s funny to see how they all say “Not a weight loss drug” in the corner.
By the way, for years the left has trotted out the “there is no market in healthcare” line as a reason why we should go to full socialized medicine, or whatever euphemism for it they’re using at the time. I haven’t heard it recently, but am I the only person here who has got into “discussions” where they did that?
Instead of sending the Medicare tax to the government you put it in your health savings account and out of that pay for your insurance or healthcare costs yourself. No government mandates. No price setting by government. No government specification of covered benefits that are mandated for all insurance plans. You own your resources to purchase your care. You do this your entire life. If allowed to accumulate your own financial resources to fund your own care with prudence you can take care of yourself your entire life. You can likely leave resources to your heirs. Employers wouldn’t provide health insurance. Employers could provide money for you to fund your own insurance plan. There would be no need for a change to a Medicare program at some given age.For the indigent charitable organizations could fund healthcare for those individuals.
That would be a system of individual medical savings accounts established at or before birth and continuing throughout life.
Transition to such a system would start at a given point and such things as Medicare would be gradually phased out as the individualized system grew and became established.
With individuals controlling their own resources to purchase medical care you would actually have a market system. Would there be turmoil and upheaval in such a transition? Absolutely. Health insurers would become medical financial advisers with fiduciary obligations to assist account holders to get the greatest benefit for their healthcare dollars rather than entities that collect and own premiums and deny coverage for their financial benefit regardless of the patient’s medical needs.
Would such a system be viable in the long run? Yes, far more so than our current nonmarket system. Innovation would skyrocket. Costs would come down. Services and treatment would improve far more rapidly than in our current system and health would rapidly improve.We currently have a crushing and brutally bureaucratic system with exploding costs and poor outcomes with looming financial collapse of the system.
But, as with yourself, our society cannot envision such a system. We are locked in a medieval mindset and our “social imaginary” simply is unable to encompass such ideas.
You and all of the rest of us are being sc….. royally and mostly are begging for more. This is what HL Mencken was suggesting when he said the people were going to get democracy and they were going to get it good and hard.
But this would also require things like… private “death panels?”… If someone got cancer and they had decided to save a little on their coverage by not getting coverage for cancer… do they just die? “Too bad, so sad.” How do you plan to get people to go along with that? And if you do have some kind of government-funded surrounding “Disaster Insurance” for things like cancer, how do you get people to pay for it on their own? Then if you have a perfect solution for cancer, what about diabetes, etc?
Great post. Thanks.
A private death panel would be the individual deciding how to expend his or her own resources. As Sowell tells us, there are no solutions, only trade offs. In our current system I see patients and have friends and relatives who decline care considering the treatment worse than the disease. And I have had patients who demand care that kills them very painfully.
There was a paper in the NEJM in the 90s that looked at cancer mortality generally and found that across all cancers, those who received treatment died faster than those who did not.
Don’t get me started on diabetes. We have been told for my entire 40+ year career that we need to prevent diabetes while the rates of diabetes have sky rocketed. Now we have medications that can prevent diabetes at a rate of 95% yet their use for prevention is banned! That is due to ‘private’ insurers following Medicare policies!
You are lucky to have her, Bob.
Many doctors in their fifties have early retired due to how “state mandated standards of care” are all about promoting sickness. The standards usually involve over-prescribing everything from vaccines to statins. A friend just told me this morning about recently created recommendations for pre-diabetics that will set those who follow the doctor’s orders into becoming diabetic in short order.
This varies state by state. In 2002, when my dad complained that patients in Illinois who were in the hospital were kept there too long, I was shocked. Here in Calif at the same time, women had their breasts and arm pit lymph glands removed and then sent home the next day. (Sometimes the same day!) The hospital “care team” would provide said patient with a mini dufffle bag of wound dressing and antibiotic creams. But how a woman who can barely move either arm could accomplish said wound care if she had no help, I don’t know.
Calif is the worst in this regard. I shouldn’t be quite as pissed as I am, because way back in the 1990’s I made a pretty penny from employment opportunities. One of these opportunities was to serve as a private duty nurse’s assistant while the doctor or nurse was in the local hospital! These medical personnel were fully aware of the high rates of death and injury, as well as high rates of being infected with a troublesome malady, all while in the hospital.
As someone who attended many talks on breast cancer offered by “Breast Cancer Watch”‘s supported researchers in San Francisco, the message was clear. People fell for the fact that chemo and/or radiation would indeed put their cancer into remission and all would be well for the first five years after that remission was noted.
But so many women then were ill again by year six or seven after treatment. Some faced a return to the breast cancer, while others had new, more rare cancers most likely caused by the damn radiation or chemo treatments themselves. This is the aspect of cancer treatment that oncologists often decide not to mention to patients whom they seek as new candidates for heavy duty treatments. (Cancer treatments are a 90 billion dollar industry in the USA alone.)
Meanwhile laetrile is still prohibited, despite its being discovered to be a cheap, effective available remedy that stops breast cancers from mestastisizing. This fact was known in the mid-70’s. Within months if not weeks of this discovery, it became impossible to obtain this substance!
Here s how it works: https://www.chrisbeatcancer.com/b17-laetrile-alternative-cancer-treatment-suppressed-50-years/
I was led to believe that although the laetrile prohibition doomed hundreds of thousands of women to metastatic breast cancer from the 1970’s for a period of 30 years, that these days we have a candidate for remedying the situation. Then I recently read a paper a doctor wrote that focused on the fast approval track the new drug was offered, plus his take on the new medicine being far less worthwhile than laetrile.
It should also be mentioned that currently the ivermectin/fen-ben combo people are using to knock out even terminal cancers is, as usual, castigated by our health agencies as being worthless.
That is nuts.
gOVeRnmENt forCE maKEs OUr LivEs bETteR
lIbERtaRiAns dOn’t lIVe iN tHe rEAl woRld
Everything Moves Towards Stalinism All Of The Time™
This isn’t perfect and I’m not that smart but here’s my idea. People want socialism. The government prints too much money all of the time. When you are born, the government prints money to give you two barely self funding life insurance contracts. One is for all of your welfare and unemployment. The other one you turn on when you’re 50 for Social Security and Medicare.
Anybody with brains would be adding to both of them. You can get an evaluation by an actuary annually or frequently enough. That has to take care of everything and if it doesn’t, you have to go to charity.
This is my reasoning. Equity returns 9% in this country. A life insurance contract is like 5% or 6% and it’s tax-free, but it’s guaranteed all of the time.
I may not be fully informed on all of this, but that is my idea.
I just don’t think a lot of people would be willing to accept that degree of uncertainty about their future. Or they might accept it now, but when something goes wrong, you’ll have a lot of complaining and perhaps other problems.
What do you think is going on right now? This is far worse.
I’m not convinced that it is worse, really. At least not on the… “action” side. Right now you have people complaining that they aren’t getting enough benefits or whatever. Seems to me it could easily be far worse if you have a lot of people making no mandatory “investment” at all, or at least not that has some kind of useful guarantee, and then ending up with little or nothing if they have major health issues, or are ready to retire.
We fund it at gunpoint and you don’t have any control and you have to keep pouring in money when you get old. Trillions of dollars of unfunded liabilities.
You can have the actuaries force it around so it works either with money or the date you pick. This is just a mathematical fact. Anything else is going to fall apart.
But if you’re not assuming any kind of growth/interest rate, that means you have to 100% fund your own retirement. Anything else introduces the possibility of decline/failure. Such plans sound great when the economy is doing well, and when everyone manages to pick stocks that continually increase; but SOME people might get sick, or need to retire, during a down time.
It may be true that over years/decades, the stock market etc goes up overall. But in any given year there may be people needing healthcare or retirement, when THAT year – and some years that follow – could be DOWN. So far I haven’t encountered a privatization plan that well accounts for such things.
That’s why I said use life insurance contracts. Even though it’s way under the equity performance of the United States, it’s guaranteed. Guaranteed return.
We already have what you are talking about and it is a complete failure.
Life insurance companies do all kinds of things besides pick stocks.
If we are in a gigantic stock bubble, it is the fault of Federal Reserve policy, and the way they run the fractional reserve banking system.
Interest rates have been forced too low ever since 1996 or even prior.
The part of my retirement funds that I wasn’t required to put into an annuity doesn’t depend so much on whether the market is down at one given moment. Some years my minimum withdrawal is up or down a little, depending on market conditions on the previous December 31. If something catastrophic happens to the market, I’ll take out less the next year, but under those conditions everyone is going to be in difficulty, so there will be the comfort of all being in it together, and we’ll all have to make do.
Healthcare is a situation that’s a little different.
You state: “A life insurance contract is like 5% or 6% and it’s tax-free, but it’s guaranteed all of the time.”
Whenever I mention this to my spouse, especially after he’s refused to end a fight by saying that he’s wrong, he looks a tad bit worried.
Like Bernie Madoff said while being indicted: “I’d have been able to make good on the money people offered for the next 100 years, if the far Bigger Ponzi scheme hadn’t taken itself down.”