The Trump Administration has vowed to put an end to “surprise medical bills.” But this may be easier said than done.
Reports of “sticker shock” have exponentially grown over the years and consumers want transparency of what their health care visit is going to cost. However, the average physician, nurse practitioner, physician assistant, hospital, medical center, etc. don’t know themselves until the insurance company sends an EOB “Explanation of Benefits” delineating what is discounted, what is covered, and what is the patient responsibility.
So to start, President Trump is asking Congress to address those charges incurred by “out of network” facilities to which patients go to in an emergency setting. Wanting to hold “insurance companies and hospitals accountable,” President Trump wants to put an end to patients getting charged for “services they did not know anything about, and sometimes services they did not have any information on.”
Can he do it? Politicians on both sides of the aisle want to help curb health care costs, but both sides want to get the credit. There’s race to see who could do more for healthcare before the 2020 election.
There’s a few reasons why cost transparency in an emergency medical setting is challenging.
Firstly, insurance companies aren’t transparent to hospitals. They only inform the medical facility of the out of pocket costs once they take weeks to review the claim. This can be streamlined and cut down in time with software, but same day pricing by an insurance company is impeded by the need to see if the patient paid (or will pay) their premiums that month, or if they are still employed and have the same active insurance.
Secondly, patients don’t always know what their diagnosis is when they walk up to the front counter. Some may think they have a “cold,” but actually end up having a bout of pneumonia. Some may think they have a “stomach bug,” but after CT confirmation, learn they have appendicitis. Hence until the medical provider performs the evaluation and testing, a diagnosis and then “cost to treat”, cannot be given.
Finally, patients may not prefer the “cost factor” added into their facilities’ decision making. If they pay a certain amount for a visit and end up needing more pain control, a repeat breathing treatment, or some extra bandages, they may not want to have to take out their wallet, sort of speak, each time they need more services.
As a physician who, for years, pleaded with insurance companies to give us an idea of what they would want a patient to pay, I’m for any campaign to increase price transparency and offer patient’s more choice. However, since medicine and health can be unpredictable, coming up with predictable “costs” may prove difficult.
Intensified by the early fight for money and backers among Democratic presidential hopefuls, Medicare for All and similar single-payer insurance programs have been promoted with increased volume. While there are differences among the “I’ll give you more for less” sales pitches, they share the common central premise that such plans have far lower administrative costs than private insurance, so their version of reform will produce a massive infusion of available resources.
However, the “proof” offered for those administrative cost savings claims mainly consists of constant repetition, with candidates then quickly moving on to the free lunches they would supposedly enable. But given that claim’s central place in their proposals, we must question that premise and with it, the glib answers claimed for it.
How Should We Measure Administrative Efficiency?
For health care plans, the standard measure of efficiency is administrative costs as a percentage of total costs. And in those comparisons, Medicare appears substantially more efficient. But that does not mean there would be savings if people were moved from private insurance to Medicare for All.
The primary reason is that Medicare beneficiaries are far older and less healthy than the population. That makes health care costs far higher per Medicare beneficiary. In fact, before Obamacare, medical expenditures per Medicare beneficiary were routinely more than double those for the privately insured. However, nonmedical administrative costs are only slightly related to total medical expenditures. They are primarily related to the number of persons covered. This causes the standard measure to grossly exaggerate Medicare’s relative administrative efficiency.
Consider an example. Say both Medicare and private insurance beneficiaries had identical administrative costs of $500 each, but the Medicare patient received $5,000 in benefits, while the private patient received $2,500 in benefits. Medicare would show a 10 percent share of administrative costs, and private insurance would show a 20 percent share. In other words, despite the same administrative cost per beneficiary—that is, the same actual efficiency—the standard measure makes private insurance administrative costs look twice as expensive as Medicare.
Simply ask what would happen to administrative expenses if one private insurance beneficiary was moved into Medicare in the example above. Despite Medicare supposedly being half as costly in that regard, administrative costs would not change. No resources would be freed up. And given that the administrative cost per Medicare beneficiary is actually higher than for private insurance, the shift of someone into Medicare would increase administrative costs—leaving fewer resources, rather than more—available for medical care.
What Should Be Included in Medicare’s Administrative Costs?
The public-private comparison also typically compares the administrative costs of private insurance to those that show up in Medicare’s budget. But many of the administrative costs do not show up there. They appear in other agencies’ budgets. The costs of collecting taxes appear in the IRS budget. The costs of collecting premiums appear in Social Security’s budget. Many of the accounting, building, and marketing expenses appear in the Health and Human Services budget. Including those costs would roughly double Medicare’s reported administrative costs.
How Should We Count Taxes on Private Insurance?
Private insurance administrative costs are generally defined as premiums paid in minus claims paid out. However, that means everything except claims payments are counted as administrative costs whether or not they have anything to do with administration. For example, many states impose a premium tax (averaging about 2 percent) on health insurers, and those tax payments are incorrectly categorized as administrative costs. This also makes Medicare, which is exempt from such taxes, look relatively more efficient than it really is.
How Should We Count Disease Management and On-Call Consultation Services?
As with taxes, counting private insurance administrative costs as total premiums minus claims paid introduces other measurement distortions, as well. Insurance companies offer disease-management and on-call nurse consultation services. However, those services do not generate insurance claims. Consequently, those costs are also counted as administrative rather than medical.
How Should We Count Fraud and Fraud Prevention Efforts?
Waste, fraud, and efforts at their prevention also complicate administrative efficiency comparisons. Consider what happens if Medicare (estimates of whose excess spending exceed $50 billion yearly) spent less on prevention efforts. It would look more efficient because its administrative costs would be lower and because undetected excess spending would be counted as medical expenses, not waste. In contrast, insurance companies, whose bottom lines are at stake, are much more diligent about eliminating such excess spending. But those efforts, even though they can generate very large overall savings ($1 of fraud prevention has been estimated to reduce those costs by as much as $15), raise their measured administrative cost percentage, making them look less efficient.
How Should We Treat the “Excess Burden” Caused by Switching to Single Payer Systems?
In addition to all these biases exaggerating private insurance administrative costs and understating Medicare’s administrative costs, another large difference should be noted. When people pay more to get better private insurance coverage, they don’t treat it as a tax, but as part of their employee compensation. Under Medicare for All, however, higher payments into the system will not provide greater benefits. That means that Americans will rationally start treating those payments as taxes in exchange for nothing.
It will, therefore, act as a large income tax increase with correspondingly large economic distortions. Those distortions, created by the wedges taxes impose between what buyers pay and what sellers keep, reflect the wealth destroyed by the reduction in mutually beneficial market arrangements that result, which economists call excess burdens. While not incorporated in official comparisons, they are very large added costs of single-payer systems compared to private medical insurance.
One study found that even the “lowest plausible assumption about the excess burden engendered by the tax system raises the true costs of delivering Medicare benefits to about 20-25 percent of Medicare outlays,” imposing costs far higher than any supposed private insurance administrative cost deficiency.
It is striking how much single-payer promoters rush past their repetitions of administrative cost savings claims before quickly turning to their vote-buying promises in large part funded by them. It almost seems that they don’t want voters to think carefully about those claims. And that might reflect an accurate judgment. If people questioned the basis of those promised solutions, it would reveal supposed administrative cost savings to be the opposite once the compounded mismeasurements are deciphered, and it would not be anyone’s ticket into the White House.
Gary M. Galles is a professor of economics at Pepperdine University and a guest columnist to the Penny Press. His recent books include Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013). This piece was originally published on fee.orgm then pennypresslv, reprinted here in full, with permission.
People used to know who their doctor was. His name and phone number were on the wall or the refrigerator next to the telephone. He was there for you and could manage most of your problems.
When I was about 13, my mom took me to our pediatrician for belly pain. He was on his way out the door, but he stopped to take care of me. He diagnosed appendicitis based on history and physical examination. He called his favorite surgeon (“Billy,” a Tucson legend), who came from the golf course to meet me in the emergency room. Within hours, my red-hot appendix was in a jar. My parents paid the hospital bill ($150—10 days’ pay for a construction laborer) as I was discharged a few days later.
Today, the patient with abdominal pain could wait for hours to see the ER provider—possibly a nurse practitioner or physician assistant who had never seen a case of acute appendicitis. She’ll probably get a CT scan, after another wait. Eventually, Dr. On-call may take her to the operating room, hopefully before the appendix ruptures. And the bill will be beyond the means of ordinary people.
I used to be able to direct-admit patients from my office and send them with a set of orders to the hospital admitting office. For years, this has been impossible. The hospital is decidedly unfriendly to independent doctors. There’s now a gatekeeper in the emergency room, and most patients are under the control of a hospitalist.
This hospital, still Catholic at least in name, is now owned by a huge national conglomerate. Recently, it thwarted all efforts to keep it from dehydrating a patient to death despite lack of an advance directive or permission from next of kin. The patient’s mother disputed the diagnosis of brain death. The gastroenterologist of her choice was willing and able to place a feeding tube, needed in order to transfer the patient to a skilled nursing facility, but the hospital would not permit it. An outside physician whom the mother had called on was removed from the patient’s room by security, when she was merely praying with the mother. The mother could not get a phone call returned from an attending physician. Who was the doctor? Apparently, the hospital system.
Recently, a physician called me about her mother, who was seemingly a captive in a world-renowned hospital. She was concerned about her mother’s nutritional status and falling oxygen level. She could not speak to the attending physician. “They play musical doctors.”
Largely driven by government policy, the System is increasingly in control. A new level of intrusion is being proposed in California in a bill (SB 276) that would outlaw all medical exemptions for vaccines, unless a public health officer approves each one, based on the very narrow list of contraindications accepted by the Centers for Disease Control and Prevention (CDC).
Doctors traditionally swore an oath not to harm patients, and are liable if they do. But government officials are immune from liability, even if they overrule a physician’s judgment that a particular patient faces an unacceptable risk of harm from a vaccine.
If you disagree with your private doctor, you can fire him or simply decline to follow his advice. But what if the government is your doctor?
In Arizona, law enforcement officers in tactical gear broke down the door to a home where children were sleeping, entered with guns drawn, and took three little children away from their parents. The stated reason: the mother had decided not to follow a doctor’s advice to take her two-year-old to the emergency room for a fever, because the fever broke and the child got much better soon after leaving the office. The main concern seemed to be that the child was not vaccinated.
Americans need to defend their right to have an independent physician, to choose their physician and type of care, and to give or withhold informed consent to medical treatments. Otherwise, their “doctor” will be a protocol in a system staffed by interchangeable automatons. Treatments will be inaccessible or required, tailored to meet the needs and beliefs of the system.
If the government is the ultimate authority on your “health care,” remember that its tools for checking whether a child has a life-threatening disease such as meningitis include battering rams and assault rifles.
Jane M. Orient, M.D. obtained her undergraduate degrees in chemistry and mathematics from the University of Arizona in Tucson, and her M.D. from Columbia University College of Physicians and Surgeons in 1974. Her views and opinions, if expressed, are her own and do not necessarily reflect the opinions of GCN. Her column can often be found here at www.pennypressnv.com. Her column has been reprinted in full, with permission.