Rip off.

November 2, 2009 2:35 PM

An insurance industry CEO explains why health care in the U.S. costs so much. Full set of charts here (1.29 mb pdf)
posted by gman (89 comments total)

See that yellow tartar caked on the USA in each bar graph? That's money from the sick going into someone's big fat pockets.
posted by furtive at 2:43 PM on November 2 [2 favorites has favorites]

It costs too much... because it costs too much? There's rip off here, alright.
posted by anotherpanacea at 2:44 PM on November 2

Interesting interview and data!
posted by iamabot at 2:47 PM on November 2 [1 favorite has favorites]

Insurance industry CEOs, as a group, do a pretty good job of explaining why health care costs so much.
posted by box at 2:48 PM on November 2

It costs too much... because it costs too much?

Exactly. For a more thoughtful, and thought provoking, discussion of why it costs too much, I think this is a good read.
posted by bearwife at 2:51 PM on November 2 [2 favorites has favorites]

The highlighted yellow bar in the HTML page is misleading. It's probably more fair to compare the USA Medicare costs in the US to the costs in civilized countries with national healthcare. That represents the negotiated price for the care, not the bullshit price a hospital will make up for an uninsured American with no bargaining power. Medicare prices are much more in line with other countries, with the US prices being 100-200% of comparative countries.

The PDF has a bit more data, but it's unclear what "USA Average / Low-end" and "USA High-end" mean, particularly whether those prices are before the insurance company's negotiated discounts.

It'd be interesting to compare the cost of malpractice insurance in all these countries, too. There's a lot of blame to go around.
posted by Nelson at 2:54 PM on November 2 [2 favorites has favorites]

Those are charts of prices, not costs. This guy may know a lot about healthcare, but not so much about accounting. How about a cost breakdown?
posted by GuyZero at 2:54 PM on November 2 [2 favorites has favorites]

I think the last two graphs in the .pdf contain (some) of the answer. Over the past decade, patient-hours of hospitalizations have declined significantly in favor of outpatient care and home health care -- while hospital costs have risen dramatically to recoup the difference.

It's like a credit card company charging 30% on all your credit cards (no matter how good your score) because they don't have enough customers. They've gotta make that money for their investors somehow.

I think maybe it's time we remove the profit motive from medicine.
posted by Avenger at 2:55 PM on November 2 [14 favorites has favorites]

In recent interviews (here's one on Talk of the Nation), economist Uwe Reinhardt has been pointing out that the high range of prices in American health care is due to the way insurers negotiate with providers. The greater the mismatch in market power between them, the higher the prices skew, one way or the other, and those outside the insurance system have no pricing power at all (try to get a quote for a procedure) so they get charged the most. Anecdotal: my dentist began charging me the insurance price, even on non-covered procedures,when I got my dental insurance. That was about 25% cheaper than what I'd been paying before. Logically, since I was previously paying cash money up front with no billing or opportunity costs, he should have been charging me less, but because I had no market power, he charged me more.

Maryland's health care providers operate under a pricing commission that sets a uniform price, so the insurers have to compete on services and efficiency rather than market power. I'd recommend that anyone politically active in this area start pushing the idea in their own state.
posted by Jimmy Havok at 2:56 PM on November 2 [3 favorites has favorites]

There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care.

What fools we are! Of course, it's so simple, we just have to stop paying so much for our health care. I certainly feel dumb now.
posted by mullingitover at 2:56 PM on November 2

The recent This American Life episodes on health insurance (1,2) do a pretty good job of explaining why Americans pay so much (more) for health care.
posted by googly at 2:57 PM on November 2 [4 favorites has favorites]

Avenger: "I think maybe it's time we remove the profit motive from medicine."

THIS.

I fail to see how there is anything resembling virtue in profiting from a person's sickness.
posted by mullingitover at 3:04 PM on November 2 [19 favorites has favorites]

In recent interviews (here's one on Talk of the Nation), economist Uwe Reinhardt has been pointing out that the high range of prices in American health care is due to the way insurers negotiate with providers.

An interesting side note was that Reinhardt didn't believe the public option would offer any savings unless lots of people used it, because they wouldn't have any negotiating power.
posted by electroboy at 3:05 PM on November 2

How about this? Left unchecked, the price of healthcare will increase to the limit of people's ability to pay for it.
posted by LastOfHisKind at 3:08 PM on November 2

I have to laugh.

I've long said that simple gouging was the problem with health care, and no one ever believes me.

"It's gouging."
"It's not gouging."
"Then explain to me why two tablets of Tylenol in a hospital costs $20."
"Because they have to pay overhead. A nurse has to bring you the Tylenol and a glass of water, so you can take it in your bed. You're paying for all of that."
"What's the unit cost of two tablets of Tylenol? A nickel?"
"Umm ... yeah, maybe a nickel. At the most."
"You're telling me you need to include a 33 kajillion percent mark-up on Tylenol to pay for the nurse's time?"
"Umm ... yeah."
"And that's to cover the cost of the nurse. So why does my bill include her time as a separate line item? And oh look, there's separate line items for the bed and the glass of water, too. I think the 33 kajillion percent mark-up is a big-ass gouge all by itself."
"Umm ... yeah ... but ... socialism ... death panels ... the French ... umm, look at the monkey ..."
posted by Cool Papa Bell at 3:09 PM on November 2 [56 favorites has favorites]

How about this? Left unchecked, the price of healthcare will increase to the limit of people's ability to pay for it.

Regardless of how much the care costs to deliver.
posted by GuyZero at 3:09 PM on November 2 [2 favorites has favorites]

How about this? Left unchecked, the price of healthcare will increase to the limit of people's ability to pay for it.

Pay no attention to all those dead people.
posted by Cool Papa Bell at 3:10 PM on November 2 [6 favorites has favorites]

There are monkeys?
posted by dirigibleman at 3:11 PM on November 2 [2 favorites has favorites]

There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care.

I hadn't thought of Ezra Klein as being monumentally stupid before. But for fucking real here? Don't get me wrong. I love the fact that he decided to write an article about how it only took one conversation for an insurance CEO to completely con the shit out of him, but couldn't he have given us a more informative headline? something like:

INSURANCE CEO CONFUSES THE FUCK OUT OF ME
How America's insurance execs are slick talking hucksters that totally fucked my mind in a single afternoon.

seriously, now, Mr. Klein. the next time you want to write a sentence this stupid, this completely misleading and useless, consider instead resigning your position as a journalist. The next time you're tempted take a fistful of charts from the insurance industry at face value and present them to the american public as though they told the whole story, do us all a favor and shut your stupid fucking mouth.
posted by shmegegge at 3:12 PM on November 2 [33 favorites has favorites]

Left unchecked, the price of healthcare will increase to the limit of people's ability to pay for it.

In a theoretical pure capitalist economy, sure. In reality, it will increase beyond the limit of people's ability to pay and then beyond the limit that they are able to borrow. Then it will increase some more in a desperate attempt to squeeze profit from an increasingly smaller number of (living) patients.
posted by Avenger at 3:15 PM on November 2 [7 favorites has favorites]

Perhaps I should revise my theory to say "...to the limit of society's ability to pay." My (admittedly lame) point is that there's no reason I can see for private healthcare prices to stay affordable when people will pay literally any price to relieve suffering or even just stay alive.
posted by LastOfHisKind at 3:22 PM on November 2 [1 favorite has favorites]

"Then explain to me why two tablets of Tylenol in a hospital costs $20."

Discussing Reinhardt's premises with some friends, one told about being charged $20 for an extra pillow and $7 for a pair of dirty socks while recuperating from an appendectomy. Of course, she didn't know that until she went over the itemized bill. I suspect the nurses who provided them didn't know the price either.

Someone I met at a dinner party told me about quitting a job in the billing department of a major hospital because she couldn't bear sending out bills for crap like that. That was back in the early '90s, and it's only gotten worse since.
posted by Jimmy Havok at 3:22 PM on November 2

Looking at the mean price/cost to Medicare of $300 for a procedure that the health industry charges $950 for, the story communicated through this chart by the health care industry (through Kaiser Permanente's CEO) is:

1. The federal government has been able to rein in the cost of care to a range equivalent with that paid in other countries

2. Private health insurance companies are completely unable to rein in the costs of care

Those graphs are not endorsements of the unfettered capitalist approach of private health insurance companies.

Those graphs do seem to endorse expanding the Medicare approach, as one which is a public alternative to inefficient and overpriced private care.
posted by Blazecock Pileon at 3:23 PM on November 2 [12 favorites has favorites]

On aspirins in hospitals: sick dude goes to emergency room cause no money. They have t treat him. Cost lots. They charge those in hospital with insurance to make up for cost. The insurance company pays up. The insurance company then raises costs of insurance.

On malpractice suits: actually the cost overall not that indecent. The other side of the suit: many doctors ought not be allowed to be operating room but colleagues refuse to rat them out.

Fact: we pay twice as much (average) as any other nation in the world. We rank 50th in longevity. We are not getting that much for what is paid.

socialized medicine (!): take all the folks on Medicare. Add in all the people on Medicaid. Now add in all the military, plus all the zillions of govt workers--lots and lots of Americans already getting health coverage from Big Govt...all the liberalss want is to add to that, if people so choose. Why? cause if govt pays, they are not-for-profit. If insurance pays, it is 20% markup inprice to reap profits.
posted by Postroad at 3:58 PM on November 2

I fail to see how there is anything resembling virtue in profiting from a person's sickness.

Doctors and nurses beg to differ.
posted by weapons-grade pandemonium at 4:00 PM on November 2

I think maybe it's time we remove the profit motive from medicine.

Hear that? That's the sound of America's head exploding.
posted by klanawa at 4:01 PM on November 2 [2 favorites has favorites]

I fail to see how there is anything resembling virtue in profiting from a person's sickness.

Doctors and nurses beg to differ.

Don't make the mistake of confusing profit and wages. Not the same. Not even remotely.
posted by klanawa at 4:02 PM on November 2 [38 favorites has favorites]

Yeah, For employees got paid exactly the same the quarter they lost a billion dollars as they did this past quarter when they made a profit of a billion dollars.
posted by GuyZero at 4:04 PM on November 2

Well, the ones who didn't get fired got the same wages.
posted by GuyZero at 4:04 PM on November 2

Favoriting klanawa so hard.
posted by You Can't Tip a Buick at 4:11 PM on November 2

On aspirins in hospitals: sick dude goes to emergency room cause no money. They have t treat him. Cost lots. They charge those in hospital with insurance to make up for cost. The insurance company pays up. The insurance company then raises costs of insurance.

I hope I'm just missing your snark, or something like that, because otherwise, you can't possibly be telling me that the cost of sick people without insurance going to the emergency room is enough to cause a forty thousand percent markup in the services of those with insurance.
posted by Flunkie at 4:11 PM on November 2 [2 favorites has favorites]

I really want to second This American Life (episode 1, episode 2) as a much better source for why health care costs so much. They break down into the simplest, easy to grasp pieces that I think still cover the main issues and it still takes 2 (extremely well-spent) hours.

This 5 paragraph blog entry? Not helpful and kind of insulting to people trying to make sense of this mess.
posted by Slarty Bartfast at 4:15 PM on November 2 [5 favorites has favorites]

many doctors ought not be allowed to be operating room but colleagues refuse to rat them out.

I was in a mock jury for a case where a woman with diabetes had been blinded by a doctor who was purportedly treating her for detached retinas. The procedure involved injecting gas into the eye to press the detached retina back in place.

However, the surgeon had never been trained in the procedure, and had lied to the hospital about the fact. The hospital had never checked his claim, something easy enough to do with a simple phone call, since the teaching hospital he claimed to have been trained at did not actually train in that procedure. Furthermore, his failure rate was in the 30% range, whereas the national average of the failure rate for the procedure was less than 5%. Despite this, the hospital had him doing the surgery weekly for over ten years, so he had blinded something like 150 people.

Worst of all, he had retired before the lawsuit was filed, and was now on a charity mission, doing the same procedure in third world countries.

Horror stories of unsupervised incompetence like this are not uncommon. If the medical profession supervised itself adequately, they wouldn't be complaining about out-of-control malpractice insurance. But malpractice suits are the only real means of policing still remaining for patients, since the insurance companies will be loath to cover someone who has a bad track record.

So what happens to us when tort reform gets rid of that last check on incompetence?
posted by Jimmy Havok at 4:26 PM on November 2 [9 favorites has favorites]

On aspirins in hospitals: sick dude goes to emergency room cause no money. They have t treat him. Cost lots. They charge those in hospital with insurance to make up for cost. The insurance company pays up. The insurance company then raises costs of insurance.

Yeah, you're missing several points...

1) The extreme nature of the mark-ups. I can accept a 100 percent, or even 1000 percent mark-ups to offset the cost of caring for the indigent. I can't accept how the ancillary parts of care, such as common drugs and treatments, linens and paperwork, simply EXPLODE in cost.

2) The costs are itemized. The biggest cost of anything is labor, not the pills. And trust me, the labor is itemized on the bill, too.

3) Emergency room care is already the most expensive care, in part to offset the "must treat everyone" mandate you mention.

Anecdote: I once had my head stitched up after playing rugby. When all was done, the nurse offered me the implements of the stitching job to take home. A nice set of scissors, some Kelly clamps useful for wiring jobs, etc -- because they were just going to throw them away. Why not wash and sterlize them, I asked? It's easier for them to just open up new packages, she said.

In other words ... fuck you, pay me.

I still have those scissors, 15 years later. They work fine.
posted by Cool Papa Bell at 4:27 PM on November 2 [10 favorites has favorites]

I find shmegegge's comment confusing. Why is this such a stupid statement?

One thing to keep in mind is that there are a few hypotheses as to why US hc costs so much. One of these is the idea the US citizens get too much healthcare. Another is that certain local business practices have influenced the medical community in such ways as the doctors act more like entrepreneurs than professionals/providers of essential services. The CEO here argues, no, its that the unit costs are so high.

I don't know who is right, but I don't see the stupidity anywhere. Maybe I'm missing something?
posted by Hypnotic Chick at 4:53 PM on November 2

Because it can.
posted by HTuttle at 4:56 PM on November 2

All those numbers, but I don't see a rather glaring one:

The most recent number I can find for his total compensation is from 2004, when his take was $2,400,000 USD.

Yeah, fuck George Halvorson.
posted by WinnipegDragon at 5:00 PM on November 2 [2 favorites has favorites]

Yeah, fuck George Halvorson.

Yeah, fuck him! Demonizing wealth, that'll fix it!
posted by rulethirty at 5:38 PM on November 2

I really want to second This American Life (episode 1, episode 2) as a much better source for why health care costs so much.

I didn't think it was possible I'd learn anything that would deflect any of the contempt I have for the insurance industry, but some of the discussion in the program convinced me that it really isn't all their fault, providers are also playing a significant role.

I've always thought it was a good idea for highly skilled medical professionals to be well-paid, and that hospitals and clinics should be profitable enough that they're well-capitalized, and that the economic problems of the industry were caused by insurers. I'm a lot less sure about this now.
posted by weston at 5:38 PM on November 2

One thing to keep in mind is that there are a few hypotheses as to why US hc costs so much. One of these is the idea the US citizens get too much healthcare. Another is that certain local business practices have influenced the medical community in such ways as the doctors act more like entrepreneurs than professionals/providers of essential services. The CEO here argues, no, its that the unit costs are so high.


It's all of these and more. Why do US-ians get so much healthcare? Advertising; patient 'empowerment' movements, fear of malpractice torts (note here it's not the cost of verdicts themselves that drives up costs, but extra trips to the MRI machine in order for the Dr. to CYA). Why do they act like entrepreneurs? Medical school debt and malpractice insurance don't pay for themselves. Primary care pays shite, so slice/dice/laser is the name of the game - and those are expensive. Why might the unit cost of services be high? IMO because of cost shifting: public programs underpay and shift costs to private the sector. Also because expensive technology is more widely used every day (an MRI machine on every block?).

Doctors' incentives are all wrong. The patient isn't the customer, the insurance company is. Ever tried to negotiate costs? Of course you can't, you aren't paying. Relatedly, medical coding and figuring out how to get Medicaid/Medicare/insurers to reimburse requires full-time staff who aren't incentivized to help you since you aren't their customer either.

Doctors and hospitals should profit when they make patients healthy, but this means: 1) patients have to become the customer; and 2) insurance companies have to become a supplementary, secondary player in the game. That reminds me! Another reason costs are so high: health insurers spend $1.4 million a day on lobbying.
posted by r_nebblesworthII at 5:40 PM on November 2 [2 favorites has favorites]

I've always thought it was a good idea for highly skilled medical professionals to be well-paid, and that hospitals and clinics should be profitable enough that they're well-capitalized, and that the economic problems of the industry were caused by insurers. I'm a lot less sure about this now.


IMHO medicine should move to a salary model. Fee-for-service ends up in "podiatry-by-the-toe" medicine; and the HMO model (fee-per-patient) puts doctors are at war with their patients. Salaried doctors don't have to view patients as cash cows or detriments to their personal income.
posted by r_nebblesworthII at 5:45 PM on November 2 [4 favorites has favorites]

public programs underpay and shift costs to private the sector.

Wrong. Insurance companies with market power negotiate to underpay (as you mention), and costs are shifted to those without market power, including other insurance companies. The payments from public programs are based on the premise that doctors should receive reasonable compensation (the number I heard during the Uwe Reinhardt interview was $300K/yr).
posted by Jimmy Havok at 5:48 PM on November 2 [2 favorites has favorites]

Yeah, fuck him! Demonizing wealth, that'll fix it!
posted by rulethirty at 7:38 PM on November 2 [+] [!]

Who is demonizing wealth? I'm demonizing for-profit healthcare, and a guy who is being paid a shitload of cash to point the finger at anyone but himself.
posted by WinnipegDragon at 5:48 PM on November 2 [1 favorite has favorites]

A simple act banning any non-government third party from paying medical expenses and the problem would solve itself practically overnight.
posted by rusty at 5:51 PM on November 2

public programs underpay and shift costs to private the sector.

Wrong. Insurance companies with market power negotiate to underpay (as you mention), and costs are shifted to those without market power, including other insurance companies. The payments from public programs are based on the premise that doctors should receive reasonable compensation (the number I heard during the Uwe Reinhardt interview was $300K/yr).

I disagree, but I'm a shitty writer so maybe I wasn't clear. I don't mean literally Medicare shifts costs to private payers. I mean hospitals shift costs because medicare pays less than the cost (to the hospital) of treating those patients. Hospitals make it up by making private patients pay more. Source: AHA policy forum - hospital financing trends (Medicare pays 98% of cost; Medicaid pays 96%; private patients 119% as of 2002). [this page is the hospitals themselves describing how they shift costs]
posted by r_nebblesworthII at 5:54 PM on November 2

Yeah, fuck him! Demonizing wealth, that'll fix it!

The CEO of Toyota makes around $1 million per year. Want to compare the size of the companies they run? Or how about McGuire from UnitedHealth Group? He was forced to resign for his involvement in backdating stock options. McGuire's penalty? He walked away with $1.1 billion in compensation (minus a few million in fees from the government). Every dollar spent on McGuire's compensation is one less dollar spent on patients.

Demonizing? How about we stop the looting?
posted by ryoshu at 5:59 PM on November 2 [17 favorites has favorites]

In a theoretical pure capitalist economy, sure. In reality, it will increase beyond the limit of people's ability to pay and then beyond the limit that they are able to borrow. Then it will increase some more in a desperate attempt to squeeze profit from an increasingly smaller number of (living) patients.

Actually, in the theoretically pure capitalist society it wouldn't even be that good. It would not increase to the limit of people to pay, it would increase beyond that, to the point where the money lost from people unable to pay (and thus suffer and/or die) matches the additional money taken in by the increased prices from all the remaining people who can pay. That is how prices set themselves in an entirely free market; someone is practically always denied goods and services.

That is horrifying all by itself. But then consider this: with the massive income disparity in the United States, the line where increasing prices fail to bring in more money to make up for money lost from people denied service may well be above median household income. If Bill Gates comes down with cancer, he is capable of paying billions of dollars to save himself. How many middle class families can match a ten-thousandth of that?
posted by JHarris at 6:07 PM on November 2 [7 favorites has favorites]

Yeah, fuck him! Demonizing wealth, that'll fix it!

Fuck anyone who is paid millions of dollars to provide an awful service that causes a significant fraction of its customers to die or go bankrupt, while at the same time spending millions of dollars (taken from said customers) in order to prevent people from having better options available.

He's a gatekeeper of the status quo. His wealth should be demonized given that it is stained by all those who were denied coverage, booted off the moment they got sick or lost their homes when the life-saving care they needed fell *just* outside their coverage.
posted by uri at 6:15 PM on November 2 [12 favorites has favorites]

Data Point:

During my recent rehab from the spider bite, I spent 37 days attached to a suction pump to speed closing up my wound.

I got pretty fucking familiar with this thing.

Essentially, functionally, it was a battery-powered Dustbuster with a piece of aquarium tubing, taped to some foam in the wound.

There's no way there was more than 40-50 dollars in parts in the whole thing.

The company that makes it, KCI, (I link them since they have no fucking shame at all), billed SEVEN THOUSAND DOLLARS for the month I had it.
posted by pjern at 6:16 PM on November 2 [10 favorites has favorites]

r_nebblesworthII

Klein speaks to this issue...

"Health economist Austin Frakt has been fighting a lonely war against this basic economy fallacy. "Price differentials, which [the report] describes, do not support the conclusions reached," writes Frakt. "Just because payers A and B pay different prices does not mean that if payer A paid more payer B would pay less." Think of Wal-Mart and CVS. It's cheaper to buy razors at Wal-Mart. But that's not why it's more expensive to buy razors at CVS."
posted by Hypnotic Chick at 6:38 PM on November 2 [3 favorites has favorites]

r_nebblesworthII

Klein speaks to this issue...

"Health economist Austin Frakt has been fighting a lonely war against this basic economy fallacy. "Price differentials, which [the report] describes, do not support the conclusions reached," writes Frakt. "Just because payers A and B pay different prices does not mean that if payer A paid more payer B would pay less." Think of Wal-Mart and CVS. It's cheaper to buy razors at Wal-Mart. But that's not why it's more expensive to buy razors at CVS."
posted by Hypnotic Chick at 6:38 PM on November 2 [+] [!]


Klein's analogy doesn't make sense because he's referring to two different entities who are competitors, but the problem with hospitals is cost shifting within one entity.

It seems to me that the correct analogy is if some customers at Walmart pay X for razors and some customers pay X - Y. If Walmart wants the X-Y customers, but those customers are paying less than the cost of razors, it will have to charge the others more for razors.


In any case, cost shifting isn't even a primary source of increased costs (if it is at all...) it's just one among many that I mentioned. All it does is move costs around.
posted by r_nebblesworthII at 7:05 PM on November 2

Also I think PatS2 makes a great point on the link you posted:

"The key question about cost shifting is not whether Medicare pays less than the average paid by private insurance -- it does -- or whether, ignoring for the moment the lower billing costs associated with Medicare, it pays less than hospitals' costs -- it does in the case of about 55% of hospitals and about 25% of patients.

The key question is "what are appropriate hospital costs?" Hospitals spend a great deal of money for "costs" that have nothing to do with health care, ranging from advertising to the medical arms race to overbuilding to elaborate decor features to high salaries for executives. These more than account for the reported average "losses" on Medicare. The added costs of billing private insurers almost accounts for the "losses" by itself, and better quality control would more than cancel out the difference.

Should we design and maintain a health care system that pays for all of these things, or should we encourage all insurers, not just Medicare, to put some brakes on this process before we are bankrupt?"



A lot of times when we say "cost" we really mean "billing" and they aren't the same.
posted by r_nebblesworthII at 7:07 PM on November 2

Essentially, functionally, it was a battery-powered Dustbuster with a piece of aquarium tubing, taped to some foam in the wound.

There's no way there was more than 40-50 dollars in parts in the whole thing.

The company that makes it, KCI, (I link them since they have no fucking shame at all), billed SEVEN THOUSAND DOLLARS for the month I had it.

Exactly what I'm saying.

OK, let's say it's the Ultimate Dustbuster, with oodles and oodles of extreme user-testing and super-extreme titanium parts. This thing will never fail, OK? So let's say, instead of $50 worth of parts, it's 10 times more expensive.

That's still only $500 bucks.

Seven thousand a month to rent it? How is that not gouging? If you pegged rent at $2,000 a month, and half of your users stole the machines instead of returning them, you'd still make more than 100 percent profit each year.

And plus, if this is the super-extreme Dustbuster that never fails? IT. NEVER. FAILS. No worn parts! No replacements! No technical support required! Rent away!
posted by Cool Papa Bell at 7:10 PM on November 2 [4 favorites has favorites]

Exactly what I'm saying.

OK, let's say it's the Ultimate Dustbuster, with oodles and oodles of extreme user-testing and super-extreme titanium parts. This thing will never fail, OK? So let's say, instead of $50 worth of parts, it's 10 times more expensive.

That's still only $500 bucks.

Seven thousand a month to rent it? How is that not gouging? If you pegged rent at $2,000 a month, and half of your users stole the machines instead of returning them, you'd still make more than 100 percent profit each year.


Absolutely. But: who has an incentive to bargain down KCI? Not the patient, they aren't paying except through premiums and their individual premium won't go up that much; not the doctor because they're either billing per-patient or per-procedure; and the insurance company just raises rates, kicks a few sick people off the rolls, or doesn't care because they're making money anyhow ($4k/year average individual premium X 40 years...)

Even though the CEO in the OP sounds like a moron at first glance ("healthcare costs too much b/c we pay to much, hurf durf) this is what he's talking about - no player has incentive to push down costs.
posted by r_nebblesworthII at 7:19 PM on November 2

I love the fact that he decided to write an article about how it only took one conversation for an insurance CEO to completely con the shit out of him

Ever look to see if the Insurance firm has advertising with that medium?

Could there be a connection between controlling the ability to write a check and the content of the medium?
posted by rough ashlar at 7:20 PM on November 2

I don't really understand the venom directed at Klein in this thread. He dared to talk to a CEO of an insurance company and report what was said, the horror.

Insurance companies are a large part of the problem of expensive health care in this country. but they are not the only part. Health care providers are also paid way to much money, especially since they don't even have very good results when compared to other cheaper countries. But this hardly ever gets talked about because doctors and nurses are much more sympathetic than insurance company CEOs.

This is also the largest under-reported part of the public option fight. In the senate version of the public option insurance is actually likely to be quite expensive, on par with private insurance, largely because, unlike Medicaid, it will be unable to negotiate prices.
posted by afu at 7:23 PM on November 2 [1 favorite has favorites]

Weird question: Is there any way to comparison-shop medical care? Like, say I break my arm. Is there any way to know whether I'll be paying $500 or $5000 to set it? More to the point, is there any way to know that a comparable product will cost $500 at Hospital A vs. $5000 at Hospital B?

I guess what I'm asking is... Is there any feedback mechanism to make this American capitalist system actually work for the consumer, competitively driving down prices the way other markets do?
posted by LordSludge at 7:32 PM on November 2

Weird question: Is there any way to comparison-shop medical care? Like, say I break my arm. Is there any way to know whether I'll be paying $500 or $5000 to set it? More to the point, is there any way to know that a comparable product will cost $500 at Hospital A vs. $5000 at Hospital B?

No. Printing prices for services would make insurance companies very, very unhappy.
posted by ryoshu at 7:36 PM on November 2

Plus, if you break your arm (or have a heart attack or a stroke or a seizure) you aren't really going to be comparison shopping at that point anyhow - most likely you'll just be screaming at the ambulance driver to get you to the nearest hospital. Once there, the doctors aren't going to be bringing you a menu of services, either they fix your arm/heart/brain or they don't! Plus, if you're insured you aren't paying the bulk of the cost so providers don't care what you think anyhow.
posted by r_nebblesworthII at 7:40 PM on November 2

WinnipegDragon: Who is demonizing wealth? I'm demonizing for-profit healthcare, and a guy who is being paid a shitload of cash to point the finger at anyone but himself.

fwiw, Kaiser Permanente is a non-profit organization.
posted by ygbm at 7:42 PM on November 2 [1 favorite has favorites]

OK, let's say it's the Ultimate Dustbuster, with oodles and oodles of extreme user-testing and super-extreme titanium parts. This thing will never fail, OK? So let's say, instead of $50 worth of parts, it's 10 times more expensive.

That's still only $500 bucks.

You left out one important part, though. It needs to be an FDA-approved Dustbuster.
posted by mr_roboto at 7:55 PM on November 2

Is there any feedback mechanism to make this American capitalist system actually work for the consumer,

The 1st mistake is to assume America is a 'capitalist' society.

I remember being told/informed that there were laws that prevented orginized ratings for doctors but www.ratemds.com exists so I've changed my position.

But if one says something about someone else - do you want to defend yourself in a court of law. And you have state laws - like the one below that resulted in a high profile case Texas Cattlemen v. Lyman & Oprah

The lawsuit alleged Lyman and Oprah had violated a Texas law which forbids someone from "knowingly making false statements" about agricultural business.
posted by rough ashlar at 7:55 PM on November 2

no player has incentive to push down costs.

Insurance companies have an incentive, and that's to stop paying for highway robbery.

Instead, they choose the easy route, which is to turn around and also commit highway robbery against their clients. Yet we're supposed to be concerned that "Medicare for all" would put them out of business. What value do they provide?
posted by Cool Papa Bell at 7:59 PM on November 2 [2 favorites has favorites]

It needs to be an FDA-approved Dustbuster.

That was included in my cost estimate under "oodles and oodles of extreme user testing." What part of "oodles" do you not understand? ;-)
posted by Cool Papa Bell at 8:00 PM on November 2 [2 favorites has favorites]

No. Printing prices for services would make insurance companies very, very unhappy.

Yes, I can tell you for a fact that this information is marked confidential within insurance companies and is closely guarded by cadres of lawyers. Not just so you don't know, mostly so their rival insurance companies don't know what their negotiated rates are with their doctors, or what fees they're charging Your Employer to cover, say, chemo treatments or broken legs. Because those are all negotiated in contracts.

The information leaks out, but it is nowhere officially available to you, Joe or Jane Average.

Now as to what it actually costs a hospital to set your broken leg, well, that's pretty much whatever they decided it was when they talked to the insurance companies. Think of it as trying to buy something wholesale from a supplier that doesn't particularly like dealing with the public. They've got everything all set up with their regular customers, and some guy off the street buying out of pocket is not really something they want to deal with. You don't get the special markdown.
posted by emjaybee at 8:31 PM on November 2 [1 favorite has favorites]

fwiw, Kaiser Permanente is a non-profit organization.
posted by ygbm

Also, Kaiser is not your typical insurance company. They own their own hospitals. The doctors and nurses work for Kaiser. So there is no adversarial bargaining over prices for hospital stays and services. So he is in a unique position to know and to be willing to explain exactly how much independent hospitals are overcharging.
posted by eye of newt at 8:54 PM on November 2

>No. Printing prices for services would make insurance companies very, very unhappy.

Yes, I can tell you for a fact that this information is marked confidential within insurance companies...

Interesting, but I was thinking more about cost info for uninsured folks who have to pay out of pocket.

But if one says something about someone else - do you want to defend yourself in a court of law.

Forget about ratings and the potential liability for the moment (although I do think that'd be great info for consumers to have) -- what about simple cost posting after treatment?

Plus, if you break your arm (or have a heart attack or a stroke or a seizure) you aren't really going to be comparison shopping at that point anyhow - most likely you'll just be screaming at the ambulance driver to get you to the nearest hospital.

Might not work for all treatments, especially many emergency services, but at least consumers could get a sense of which facilities are expensive vs. which are less expensive. There would be greater visibility of ludicrous costs (never mind the $20 Tylenol -- an uninsured friend of mine was charged $780 for a single Oxycodone pill!) and at least SOME downward pressure on costs in general.
posted by LordSludge at 9:04 PM on November 2

Seven thousand a month to rent it? How is that not gouging? If you pegged rent at $2,000 a month, and half of your users stole the machines instead of returning them, you'd still make more than 100 percent profit each year.

And plus, if this is the super-extreme Dustbuster that never fails? IT. NEVER. FAILS. No worn parts! No replacements! No technical support required! Rent away!
posted by Cool Papa Bell at 10:10 PM on November 2

Is this a joke? If it's so simple a device, why don't you start manufacturing a competing device and rent it for $1000 a month? That's how capitalism works after all. More suppliers lowers the price. So I expect to see your product on the market in 6 months.
posted by Pastabagel at 9:17 PM on November 2

What value do they provide?

This argument is worth linking to, and hammering, over and over and over again, until anybody can come up with an actual answer containing real numbers as opposed to ideological bloviation about government "takeover".

Health care is not a product. In any civilized country, it's a citizen's right to obtain and responsibility to fund. The idea that private enterprise must be able to do this with better equity and at lower cost than government can is an ideological position, not a fact, and is in fact not supported by the available evidence.

The US's private health insurers do not operate as competitors in a free market. They are a gouging cartel of rent-seekers that have the market all nicely sewn up in distinct little segments carefully designed not to overlap too much, and they are shit scared of the genuine competition they would face from a universally available, taxpayer funded mutual (which is effectively what a publicly-funded health finance provider would amount to).
posted by flabdablet at 11:24 PM on November 2 [4 favorites has favorites]

Is this a joke? If it's so simple a device, why don't you start manufacturing a competing device and rent it for $1000 a month? That's how capitalism works after all. More suppliers lowers the price. So I expect to see your product on the market in 6 months.

I'm gonna go out on a limb and say there's probably some kind of barrier to entry, perhaps a patent or FDA certification, that's keeping them safe from competition.
posted by mullingitover at 11:28 PM on November 2

That's how capitalism works after all.

Yes, that's how capitalism works. This machine, that I am the only one allowed to make, is the only thing that will keep you alive. What's it worth to you? Is it worth you going bankrupt? Is it worth your entire family being financially ruined for their entire lives?

Unregulated capitalism. Best fucking system ever created by humankind.

Don't ever get sick.
posted by dirigibleman at 12:12 AM on November 3 [6 favorites has favorites]

an uninsured friend of mine was charged $780 for a single Oxycodone pill

If I received a bill like that, I'd buy one somewhere else for a few bucks, bring that to the hospital with a "for that price, I don't want it after all, here, you can have it back"
posted by DreamerFi at 2:03 AM on November 3 [1 favorite has favorites]

Pjern, your favorite company earns a gross margin of 40% on dustbuster rentals and 70% on sales of aquarium tubing and foam. Their rental fleet brings in about $8k/unit/year in revenue, a third of which is from consumables. They spend 4% of revenue on R&D. The CEO makes $5.5M and there are at least a half-dozen execs making around $1.5M.

What kind of spider was that?
posted by ryanrs at 4:04 AM on November 3 [1 favorite has favorites]

France's everyday heath care providers are largely private actually flabdablet, not hospitals, not laboratories, drug stores, individual doctors, etc. All the U.S.'s problems come from private insurance, not private providers.
posted by jeffburdges at 5:11 AM on November 3

Anyways, Halvorson has clearly said one true thing : Health care costs obscene amounts in the U.S. But the blame falls 100% upon the insurance companies. All those other countries control prices through their single payer system, even when the providers are completely private. Single payer systems also eliminate most secretarial staff from doctors offices while simultaneously letting the doctor focus more on being a doctor and less on paperwork.
posted by jeffburdges at 5:20 AM on November 3 [1 favorite has favorites]

btw, if we are going to talk about Kaiser, let's all take a little trip back in time:

Ehrlichman: “Edgar Kaiser is running his Permanente deal for profit. And the reason that he can … the reason he can do it … I had Edgar Kaiser come in … talk to me about this and I went into it in some depth. All the incentives are toward less medical care, because …”

President Nixon: [Unclear.]

Ehrlichman: “… the less care they give them, the more money they make.”

President Nixon: “Fine.” [Unclear.]

That's the problem with our healthcare system.
posted by ryoshu at 5:50 AM on November 3 [4 favorites has favorites]

All the U.S.'s problems come from private insurance, not private providers.

We appear to be in (possibly heated?) agreement on that point.

It seems obvious to me that any arrangement designed to fund health services must work best if

• the funds pool is as large as possible
• there are as many payees into the fund pool as possible
• non-health-related expenditures that draw down the funds pool are made as low as possible
• management of the pool is performed by people accountable to those who pay into it

and it seems equally obvious to me that a taxpayer-funded government-run body is the form that best ticks all those boxes.

A model featuring competition between multiple health services funders does several bad things that easily outweigh any theoretical competition-derived efficiencies:

• funds splits across several different pools means that none of them have the bargaining power of a single large pool
• multiple pools competing for contributors provides an incentive to duck-shove people with "pre-existing conditions" to somewhere (anywhere) else, as these represent a predictably higher drain on pool funds than people without
• if the funders are for-profit private corporations, payments to shareholders and executives form a non-health-related drain on the funds, and accountability to contributors is minimal
• advertising to attract new contributors is a significant non-health-related drain as well

The argument is often made that "Medicare and Medicaid are already in danger of going bankrupt because the population is aging, so it makes no sense to extend their coverage any further than at present". In fact this is an argument for extending coverage to the entire population, not against it. At present, Medicare and Medicaid pay out bigtime because all their customers have "pre-existing conditions" i.e. age and/or poverty. In contrast, private insurers get to cherry-pick their customers and refuse coverage to anybody who looks like they might actually need health funding. The commercial-in-confidence sweetheart deals set up between health insurers and health care providers do, as many people have noted above, amount to straight gouging and profiteering, and they set the prices for services that Medicare has to fund.

If Medicare were made available to the entire US population, and properly funded (with a tax increase, if necessary - the horror, the horror), the net effect would be to reduce that kind of gouging by virtue of sheer buying power, and to reduce the scheme's average per capita payout by spreading coverage across the young and healthy as well as the old, poor and sick. A universal health fund that needs to pay out less per head than Medicare, and isn't tapped for private profit, must cost less per capita than the present privatized arrangements unless it's run outrageously incompetently and inefficiently, which I'm led to believe is not the case for US Medicare and Medicaid. It's certainly not the case for the (universal) Australian Medicare system, which has a well deserved reputation for being the least troublesome Australian bureaucracy to deal with.

Resistance to universal health care funding in the US really does seem to come down to ideology, in the end. Regardless of the evidence of their own experiences - hell, despite the evidence of their own experiences - US citizens seem ideologically disposed to prefer having things run by faceless, unaccountable corporate bureaucrats rather than bureaucrats working for the very government they're so proud of being able to elect. As an outsider, I find this completely bizarre and baffling.
posted by flabdablet at 5:59 AM on November 3 [9 favorites has favorites]

If anyone would like to rent out the crazy Terminator-looking arm thingy I have that's designed to crank your arm out straight and (painfully) hold it there, left over from my elbow surgery and billed to the tune of several thousand dollars for, say, $500 a month, it's yours. (It would be a great addition to any Terminator/Transformer type Halloween costume).

Also: another data point. The insurance company (United Health) went after ME to get back ALL the money they'd spent on my accident when I won a lawsuit related to it a few years later. So basically, they're not too big to fail, a la a bank, they're "not allowed to not make huge profits." Millions upon millions in premiums paid by my then-employer every year no matter what, and they have to go after me for a few thousand bucks because I happened to need to use my coverage?
posted by bitter-girl.com at 6:52 AM on November 3 [1 favorite has favorites]

George Halvorson's salary costs too much.
posted by stormpooper at 7:03 AM on November 3

Also: another data point. The insurance company (United Health) went after ME to get back ALL the money they'd spent on my accident when I won a lawsuit related to it a few years later. So basically, they're not too big to fail, a la a bank, they're "not allowed to not make huge profits." Millions upon millions in premiums paid by my then-employer every year no matter what, and they have to go after me for a few thousand bucks because I happened to need to use my coverage?

The plural of anecdote isn't data, but... I get my health insurance from my wife's employer, a hospital. A few years ago I had to go to the emergency room so I went to her hospital. I was seen, things came out fine, I had coverage (paid for by the hospital I was treated at), everything is okay, right? Wrong. Two years after I was treated at the hospital (that paid for the insurance coverage), I get a $300 bill. United Health never paid the bill, so the hospital billed me for it.

The hospital had to fight for two years with their own insurance provider to get paid $300. United ended up covering it, but not until I got a United rep on the phone with the hospital billing department. I ended up losing more than $300 in my time spent fixing United's fuck up. But maybe that's the point.
posted by ryoshu at 7:16 AM on November 3 [1 favorite has favorites]

Hypnotic Chick: "One thing to keep in mind is that there are a few hypotheses as to why US hc costs so much. One of these is the idea the US citizens get too much healthcare. Another is that certain local business practices have influenced the medical community in such ways as the doctors act more like entrepreneurs than professionals/providers of essential services. The CEO here argues, no, its that the unit costs are so high.

I don't know who is right, but I don't see the stupidity anywhere. Maybe I'm missing something?"

you're actually not missing anything. the things you mention are precisely why the statement I quoted is so stupid. he doesn't mention any of them, EXCEPT the one that conveniently leaves the insurance markup out of the equation, and then goes on to say "the reason why our healthcare is so high is simple. I think we can all see, without the benefit of an insurance CEO talking down to us, that it's not simple. that there are a bunch of things that contribute to it, INCLUDING insurance markup and unit cost at the hospital. dumbing it down the way he did, especially so that he acts as the face of the insurance industry's evasion, is either stupid or willfully misleading. I choose to believe stupid.
posted by shmegegge at 7:57 AM on November 3

Even though the CEO in the OP sounds like a moron at first glance ("healthcare costs too much b/c we pay to much, hurf durf) this is what he's talking about - no player has incentive to push down costs.

Least of all the CEO of a company that works on a cost plus basis of profit.

Choosing health insurance (if you're lucky enough to have a choice) feels a lot like walking down the midway of a carnival.

Insurance does, absolutely, serve a specific purpose: It stretches the costs of an individual occurrence across all of the insured. The only difference between socialized health care and for-profit health care is, well, profit.
posted by Revvy at 10:16 AM on November 3

no player has incentive to push down costs.

This isn't really true. Certainly, consumers have a lot of incentive to push-down costs. The old model of insurance, where the consumer pays a copay for any procedure and the insurer covers the balance, is coming to an end, as consumers are being moved from group plans and onto the private policy market.

One of the more common private policy models is for patients to pay a copay for office visits only. Any other procedure or expense...tests, bloodwork, xrays, prescriptions, etc...are simply subject to an adjudicated discount and patients are billed the balance. These costs are also applied to the high individual deductibles. This model exposes the consumer more directly to the true costs. It certainly results in a massive escalation in their out-of-pocket expenses. It's also a hell of a profit model for insurers, as their payout is significantly reduced by passing-on the adjusted costs to the consumer.

So, under this growing model, the consumer has a huge incentive to push-down costs. Unfortunately, the consumer has been marginalized to "non-player" status in the healthcare world. They are merely open wallets for the insurers and providers to wrestle over. Consumers really have no realistic, effective voice in the healthcare arena.
posted by Thorzdad at 10:39 AM on November 3 [1 favorite has favorites]

"Full set of charts here (1.29 mb pdf)"

Could you possibly put this in napkin form?
posted by Eideteker at 12:36 PM on November 3

the things you mention are precisely why the statement I quoted is so stupid. he doesn't mention any of them, EXCEPT the one that conveniently leaves the insurance markup out of the equation, and then goes on to say "the reason why our healthcare is so high is simple.

shmegegge, I don't understand your argument here. First of all, the charts of average prices are what the insurance company pays to the provider (doctor or hospital). There's not an insurance mark-up on an individual unit of care; that's not how insurance works. To the extent that per-unit prices are ridiculously high in the U.S. and that fact is driving overall high costs, insurance companies literally don't even enter into the equation. Second, the point that Halvorson is making--and which, by the by, is backed up by a 2007 CBO report that makes the point much better and cannot be argued to be biased--is that those other factors that Hypnotic Chick mentioned are not in fact driving higher overall costs. Since most of discussion around health care reform has implicitly assumed that the problem of medical costs is one of utilization--that is, that Americans use too much healthcare, either because they don't get enough preventative care and so end up in the ER, or because docs are motivated by a fee-for-service system to provide wasteful care, or because pharmaceutical and device manufacturers are inventing new treatment that are of marginal use, or some combination of the three. If utilization is not actually the problem, if it all comes down to price instead, then that's a real problem in terms of the solutions that have been proposed to start getting costs under control.

I'd guess that if you asked the generic man on the street, Mr. Joe Citizen, about why healthcare costs are so much more expensive here, he'd say that it's because we have such advanced treatments (the technology hypothesis). If you asked Obama--or maybe one of his health care advisors--all of whom have been enamoured as of late with Wennberg and the Dartmouth research, you'd probably hear them say it's a matter of over-utilization (the volume hypothesis). There's almost zero conversation politically at this point about per-unit prices for medical care being the problem. All of the delivery-side reforms that are being talked about are about lowering unnecessary care by re-aligning doctor incentives so they're not paid for providing more care rather than good care. If the true problem is actually prices, and not the patterns of health care use, then these delivery reforms aren't going to be effective at all in bending the cost curve down.

So, yeah. It's not a stupid blog post at all, and I suspect that the people who are saying "duh" are not really grasping the finer points of how the health care reform debate has been playing out and the implications of what is being argued here. Politicians have really not wanted to talk about prices being a problem, because providers really don't want to hear that, and Dems have decided it's politically more feasible to make the insurance companies the whipping boy rather than the providers. (Which is why Obama gives speeches about how heartless insurance companies are, while cutting sweetheart deals with PhRMA, the AHA, and device manufacturers, and is going out of his way to woo the AMA.) Since the problems of our health care system are vast and hard to understand, I don't necessarily have a problem with an ends-justify-the-means argument about how it's better, if not necessarily correct, to blame it all on insurance companies. HOWEVER, if we're at the point where the needs of the political strategy have started to overwhelm what is actually good policy--that is, we're going to target the wrong thing in trying to bring costs down--I think that's a problem.
posted by iminurmefi at 12:54 PM on November 3 [1 favorite has favorites]

iminurmefi: "First of all, the charts of average prices are what the insurance company pays to the provider (doctor or hospital). There's not an insurance mark-up on an individual unit of care; that's not how insurance works."

which is why that's the statistic the insurance CEO wanted to look at. that's my point. my point is that a real journalist doesn't take a handful of charts from what is possibly the most biased source possible, present them to the audience sans fact checking or deeper analysis, and then go "so there you go. the CEO says this is the problem, let's listen to him." that's why it's stupid. per unit costs, among a number of other things, no doubt contribute to the problem. I'm not saying otherwise. but klein's article basically implies "blame it on the doctors," which, when it comes from an insurance CEO is so laughably narrow that I'm completely surprised he even published it.
posted by shmegegge at 1:33 PM on November 3 [1 favorite has favorites]

is going out of his way to woo the AMA

Know what I learned recently? That when they implemented universal coverage in Saskatchewan in 1962 all the doctors went on strike. The government brought in doctors (essentially scabs) from the US and Britain. Because this really will boil down to less money going to doctors and medical associations in the end.

Basically nationalizing an entire field of work and setting fixed prices is the rational thing to do, but the US is as dogmatic as Russia was in the 60's so it's not likely to happen.
posted by GuyZero at 1:56 PM on November 3

Wait a second. An insurance industry CEO is saying that the government should take the people who set the prices by the balls and squeeze until they start singing soprano. Maybe turkeys really do vote for Christmas. After all, keeping costs down so they can provide the best value insurance is supposed to be their job.

And there's one more major cost difference between public and private healthcare that no one ever mentions - the US government only covers 27% of the population - but that's the expensive 27%. By comparative estimates, 60% of UK healthcare spending is on the over 65s alone. Given that you then need to add diabetes, veterans, and medicaid, that's probably 75% of the cost base of the equivalent portion of the US population. Which would make the US government literally three times as efficient at providing healthcare as the insurance companies. No one's pointing this out...

(As for the use+throw issues, sterilisation would be needed - still a false economy not doing so, but not as simple as washing).
posted by Francis at 7:10 AM on November 4

when they implemented universal coverage in Saskatchewan in 1962 all the doctors went on strike.

So, half a century down the line, how many are against it now?

There are a whole lot of doctors in this country who are in favor of single-payer health care. The AMA is losing a lot of influence in the community it purports to serve because of its opposition. Given the complexities of billing, I'm not surprised that doctors like the single-payer option. They could reduce their accounting staff and costs significantly if they only needed to deal with one bureaucracy instead of half a dozen or more.
posted by Jimmy Havok at 1:48 PM on November 4