More Profitable Health Care Is the Solution

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Americans enjoy the best medical care in the world. When judged by nothing other than the ability to provide quality care, no country does better than we do. Every ranking that puts the United States less than first includes some other measurement.

We don’t give it to everyone, however. And what we do provide is expensive. As a result, the quality of care is proportional to a patient’s ability to pay. Every state doesn’t provide insurance as a right of residence either. Americans also don’t have the healthiest lifestyles. Too many people are overweight or drink too much.

Sexual promiscuity, lack of exercise and smoking are also increasing the costs of health care. For all of these choices, we bear personal responsibility. The inevitable result of using public funds to pay for health care will be all of us battling to restrict freedom of choice and forcing our idea of morality on each other.

Because of the expense and hassles associated with our current insurance coverage, Americans are not satisfied with the system as a whole. But we need to define which problem we’re trying to solve before we can evaluate any prospective change. Some of the economic forces in place provide us with top-of-the-line care. Irreversible damage could be done by snake oil medicines.

First, we must acknowledge the limits of what is possible. No elixir of life, no amount of hopeful change can alter the fact that we are mortal. The cost of keeping us alive is asymptotically infinite. And every citizen’s concern for the well-being of his or her loved ones translates to an unlimited incentive to override a dispassionate rationing of medical resources. No system can work fighting love, economics and the survival instinct.

The high cost of medical care is part of the reason why we offer the best. So many innovative techniques have developed here because patients are willing to pay enormous sums for them. But if you fix the price and ration who gets it, you only cause shortages. Unchecked by cost, rampant demand will overwhelm supply.

Some liberals advocate rationing. They argue it’s what we have now because care is only given to the rich. They claim that in a rational system, care would be apportioned specifically where it would do the most good. For example, it would be spent on preventive medicine or on young people. Economically, this is foolishness.

We should not equate economic demand with rationing. Rationing is controlling the distribution by some method other than price and supply and demand. But when economic demand is used, it increases the supply. Patients who are willing to pay motivate more people to provide services at those prices.

In contrast, no doctor wants to treat patients on Medicaid. Reimbursement is both difficult to get and inadequate. The failure of the program represents all that is wrong with a government-run option.

According to its champions, when we all get together under a single-payer system, the government will have the leverage to negotiate lower costs for pharmaceuticals and medical services. They argue that this scenario will contain health-care costs without any negative side effects. This quackery ignores the proven effects of supply and demand.

Healthy competition requires both supply and demand. Think of a single-payer system as a government monopoly of demand with no competition. You may want health care and be willing to pay, but you are not allowed to pay. As a result, demand dries up.

Imagine the government was the only customer. They could tighten the screws on companies and fix the prices. Workers could either accept a pay cut or take a hike. Quality would certainly suffer. Worse yet, fewer of the best and brightest would attend medical schools if the outcome was working for reduced wages as government employees.

Other suggestions, such as information technology, are proposed to reduce medical costs. Whatever the merit of these ideas, the ability to implement them lies completely in the hands of the health-care industry. Government incentives to speed up automation will have unintended consequences. We should remember that if proposed systems are cost effective, they will stand on their own merits and be implemented like any other innovation in the free marketplace.

Attempting to circumvent economics is always a losing proposition. And trying to make the industry less profitable only defeats the industry’s quality. It may sound strange to people not versed in economics, but the best way to reduce the cost of something is to find ways of making it more profitable. If you can do that, doctors won’t have to charge as much to make the same profit and more people will pursue careers in the field.

The irony is that government could make medical care more profitable. For example, some doctors start the year $250,000 in debt because of malpractice insurance premiums. That expense has made the cost of health care more expensive than it needs to be.

Anyone who claims that U.S. health care is expensive should compare malpractice insurance in the United States with other countries. Not only is the insurance added directly to the costs of health care, but to avoid lawsuits, doctors practice not necessarily the best medicine but certainly the most defensible. Tort reform is the solution to expensive malpractice insurance.

Another huge cost savings could be gained if it was easier for physicians to get paid. About half the cost of running a medical practice is paying support staff to handle insurance collections. Making it easy for a doctor to get paid would slash health-care costs.

If it were legal, patients who paid up front in cash could get their health care at half price. But because the government is the largest consumer of health services, by law preferential treatment can’t be given to those who don’t have government insurance. It doesn’t matter that it costs more to try to collect from the government. They write the laws, so they get preferential treatment.

And when a doctor does submit an insurance claim for services rendered, keep in mind the great financial incentive to deny the claim. It doesn’t matter why. Delaying payments is almost as lucrative as denying them entirely. Insufficient coding does the trick. If anyone complains, just say you are eliminating insurance fraud and protecting public funds. All the while, those willing to pay in cash subsidize those whose public insurance bloats a doctor’s office with medical coding specialists trying to maximize minuscule government payments.

You may frown at this comparison because your employer-sponsored medical insurance acts the same way. Exactly! Employer-sponsored insurance looks and acts more like a government program than the free market. And private payers are forced to use a system shaped largely by government purchasing.

Great inefficiencies occur when the one who benefits from the services, the one who pays for the services and the one who evaluates the services are different. Half of the expense is wasted fighting competing interests. That’s why health-care payments and decisions should remain in the hands of consumers.

Only consumers can balance their own competing values and make those tough decisions regarding what to purchase. And once they have made a choice, only they will be willing to pay for the services they receive without reams of bureaucratic red tape.

Reduce a doctor’s malpractice insurance and collections staff, and you will get less expensive health care. In both of these cases, the laws on the books have costly consequences. Reducing these roadblocks for health-care providers could reduce costs in some doctors’ offices by half.

Pushing doctors toward cheaper health care is too expensive. Only if we can make health care more profitable will competition naturally reduce the cost. Next week I examine the desire for universal coverage and the economics associated with that worthy goal.

Photo by Evelyn Mostrom on Unsplash
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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)