The expansion of health insurance and government entitlements created “free money” and thus the explosion of healthcare costs. The solution is simple and “impossible”: we all pay cash.
Here’s why healthcare (a.k.a. sick-care) costs cannot be reduced; the entire system is based on vast pools of “free money”: The corporate-America or union/government employee who goes to the doctor pays a few dollars for a visit and drugs; the “real cost” is of no concern. Ditto the “real costs” charged to Medicare and Medicaid.
The link between the “consumer” of healthcare and the provider has been broken for decades. There is no “free market” in healthcare–there isn’t any market at all. We live in a Kafka-esque nightmare system in which “some are more equal than others” and hundreds of thousands of dollars are lavished on worthless tests, procedures and medications for two reasons:
1. Because there’s “free money” to pay the bills
2. So-called “defensive medicine” in which worthless tests are administered to stave off random (sometimes valid, sometimes nuisance) malpractice lawsuits.
There is a solution so simple and so radical that it is “impossible” (and of course you’re reading it here): shut down insurance and all government entitlements, and return to the “golden era” of the 1950s when everyone paid cash for healthcare. Here are the costs of childbirth as of 1952 at one of the finest hospitals on the West Coast, The Santa Monica Hospital:
And here are the obstetrical rates:
Having a baby cost $30, which is today’s dollars is $244. A private deluxe room cost $23 or $187 in today’s dollars. According to the Bureau of Labor Statistic’s inflation calculator, $1 in 1952 is $8.14 in 2009 dollars.
What does it cost to have a baby now? $10,000? Or is it $25,000? Who even knows?
I know all the reasons why “costs had to skyrocket”: we’re getting so much better care now, right? Actually, as measured by death rates and any other metric you want to select, there is simply no way to justify a 40-fold increase (or is it 100-fold?) in medical care costs. The returns on all the “miracles of modern medicine” are in fact exceedingly marginal– but nobody wants to talk about that.
In 1952, if something awful happened and a patient died, here was the response: “We’re very sorry.” Families weren’t outraged; they expected people to die and interventions were not expected to be miraculous every single time. Doctor Kildaire and all his imitators on TV had not brainwashed the public into reckoning that if someone died, a mistake had been made. They also hadn’t been brainwashed by the mental disorder known as “the American Legal System” into thinking that in every possible circumstance in life, there is liability, and the only question is where to pin it for the big bucks jackpot.
Stories about people suing doctors and hospitals for 5 times the value of a house ($1 million in today’s money would have been $120,000 in 1952, when you could buy a nice house for $20,000) simply did not exist in the 1950s. The cultural mindset that someone somewhere must be at fault and it’s a “right” to go after them did not exist. Since insurance was limited, there was no “free money jackpot” to go after, either.
I know you’re probably outraged at the suggestion that “modern safety nets” of insurance and entitlements are the cause of our ills, but follow this idea through:
With no insurance or government program to bill vast sums, then every clinic, doctor and hospital in the U.S. would instantly go broke. Someone would pick up the pieces for $1 or whatever the auction price happened to be and start charging people $50 for a visit to the doctor–not a “co-pay” which was accompanied by a bill for $500 or $1,500 or $15,000 to an insurance company or the government, but $50 cash–that would be the total cost. People might decide they did not need to see the doctor every time they got the sniffles. They might ask the doctor if an MRI was really going to help diagnose their problem or if it was gilding the lily.
As for malpractice, maybe the clinics/hospitals would be non-profits. Go ahead and sue the bejabbers out of them–they have no insurance and no cash. Go ahead and win a huge settlement: you’ll never collect because there’s simply no money. The non-profit folds and another one buys the clinic for $1. With no giant pot of “free money” to pillage, the pillaging goes away. Hospitals which sought stupendous profits would presumably charge more, and hence would have fewer customers. It would be up to the consumer.
The solution to malpractice is information, not lawsuits. Based on my conversations with the M.D.’s who frequent this site, here are some simple policy/regulatory steps which would have very low end costs:
1. License all M.D.’s nationally so they don’t need to go through the absurd waste of time and money being licensed in multiple states.
2. Make all information on clinics, hospitals, surgeries, etc. public on the Web. Those doctors willing to take on the very ill will have more patients die than those who avoid the risky cases; it will be up to consumers to sort out the track record of the people who they choose to hire to attend to their health.
Something magical would happen to prices: they would drop to what people could afford to pay cash. Yes, those wonderful folks in the pharmaceutical industry could list their drugs for $10,000 a dose, but few would be buyers. Just as in other countries with no “free money” to tap, the price of that drug would quickly drop to $50. That, or the pharmaceutical companies can go bankrupt and let others fill the vacuum.
What would happen is simple: marginal care would vanish because few would be willing to pay for it. The cost of an MRI in China is a tiny percentage of the cost of an MRI in the U.S., and the machine and training of the technicians is the same; so why does it cost 25 times more for an MRI here? Because there’s a pot of “free money” available to tap.
If the entire system collapsed and everyone paid cash, the cost of an MRI would be $100 or so, regardless of any other conditions. Or, the owners of the MRI machines could declare bankruptcy, sell the machines at auction and let someone else provide the service to those who decided it was worth the expense.
But what about the “poor people” who can’t afford medical care now? Well right now they have to stand in line at emergency rooms–the most wasteful, inefficient system possible. Even “poor people” can afford a few dollars–there’s endless excuses provided yet how many “poor people” have cell phones, eat costly fast food, do costly illegal drugs, etc. etc. Everybody has choices; we’re not all deranged, and for those who are deranged, then clearly the government will have a role in their care when it exceeds the capacity of their family or if they have no family.
Everybody’s got an excuse in our current system, and perhaps that’s why it is morally and financially bankrupt. The U.S. (and certainly not Santa Monica) was not a Third World nation in 1952; people did not feel their healthcare was deficient or poor. There was simply no money to pursue marginal returns except perhaps for a few millionaires seeking exotic treatments. Fine, it’s their money; most died right along with the rest of us and at about the same lifespan.
As for “overall health” of the populace: what with the “diabesity” epidemic out of control due entirely to lifestyle changes, it’s hard to say we’ve gotten 50 times healthier as a result of our healthcare costs rising 50-fold.
When it comes right down to it, the current system is based on this premise: the average American is too dumb to figure out healthcare for themselves and so we need a gigantic structure of “experts” to figure out what should be done and what it should cost. It’s not even really “insurance” because everyone gets old, ill and then dies.
This has resulted in the most brutally inefficient and even cruel system possible, one in which the very elderly are milked for hundreds of thousands of dollars of “healthcare” in the last days or weeks of their lives while tens of millions get no care at all except at the emergency room. Since no one takes responsibility for their own health or healthcare costs, then people take poor care of themselves and thus many of our ills are self-inflicted. People save little to nothing for emergencies because they’ve learned to expect someone, somewhere, to pay for their healthcare. (It’s a “right.” Really? At whose expense? The Chinese who buy our debt?)
I know, I know–going to a market/cash system is “impossible.” But the irony is that’s where we’ll be in a few years, regardless of what anyone thinks or wants: “healthcare” in its present incarnation will bankrupt the nation just as surely as the sun rises.
Charles Hugh Smith
Charles Hugh Smith is an American writer and blogger. He is the chief writer for the site "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites.
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I would contest the main problem with healthcare today is a utilization issue not a cost issue.
Insurance in general was doomed to fail eventually anyway. People by their very nature feel they must use a “benefit” to get their “fair value/share” out of what they pay for. Especially when it comes to health insurance. How often have you heard, “By god I pay $500 a month for my health insurance premium so if I need to go to the doctor for anything I go!”, “Or I pay huge premiums so do whatever it takes Doc”. Though the basic premise of insurance is that you spread your costs around amongst all the participants in the plan, and not everyone will use the benefit in any given year.
Yes the “It only costs me $30 to visit the doctor” rears its ugly head all the time too. But in the back of their mind is “I pay for it, so by gosh I am going to use it”.
We have also mandated “free” services be provided by healthcare providers as well to the “unfortunate”. What is the incentive not to use it there? Go to any emergency room in the country and look at the uninsured there for non-life threatening reasons. It is overwhelming!
So handing out free health care and charging huge amounts for coverage both conspire to increase utilization. Straining the system and forcing increased costs onto the insurers as well as the providers. And when they see their profits squeezed or eliminated what are they going to do other than raise the rates yet again for another year. It’s a vicious cycle.
So yes the solution is partially to pay cash for services provided. But it has to happen across the board or no service, period. Otherwise you will continue to perpetuate the problem.
Brilliant. I’ve often thought this myself in regard to the healthcare system. I’m old enough to remember what it was like before the current form of “paying” or as you say “free money” drove up the prices. I think there’s a similarity to the whole education system as well, government grants, loans, scholarships… etc.
I find myself in agreement with the premise of this article and, further, its application to the college education industry. A huge flood of government largess has just about guaranteed that a college education is no longer affordable… without government help, that is.
Also, what can we really expect from the current debate over health care when we cannot even distinguish between “health care” and “health insurance”. These are VASTLY different things, yet it is almost always the case that in any broadcast discussion these terms are used interchangeably.
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Well put. I am not a doctor, but I work in healthcare. One of the worst outcomes I see from the way the system is set up is that many healthcare-based institutions aren’t run like businesses because of all the “free money”. The system is full of pelf.
Two further points may be noteworthy here:
1. Surprisingly, modern medicine is in fact not much better at saving lives than it was four or five decades ago. A good book to read in this regard is “The Rise and Fall of Modern Medicine,” by James le Fanu.
2. I have worked in the medical industry and know from personal experience that about 80 to 90 percent of people who seek out medical care do not in fact have anything discernible wrong with them. All over the world, there is an unprecedented epidemic of hypochondria raging, and we all pay for it. Basically, we pay a fortune in medical insurance so that an army of hypochondriacs can flood emergency rooms on Sunday evenings in order to get medical certificates so that they don’t have to go to work on Monday morning.
Seems to me the most common disease nowadays is that we have all become a tad lily-livered…
Pretty sad when basic economics is too difficult for the average Murricun to understand – price goes down, demand goes up. When the price is artifically suppressed, then, demand rises artificially. Duh.
Can’t last forever. I’m thinking we need a clean-out.
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