Other Peoples’ Money is No Way to Finance Health Care

In a recent Town Hall column I discussed hospitals in the Bronze Age, as some hospitals have begun competing for patients’ business for those services that patients can shop for. As more patients are exposed to significant cost-sharing, they ask questions about the price of services and balk after experiencing sticker shock — and go look elsewhere.  There’s another side to this story. A recent Bloomberg article discussed hospitals struggling to collect cost-sharing funds owed by patients.

Patients’ out-of-pocket spend was only about 11 percent in 2014 and out-of-pocket payments in hospitals was about 3 percent. Yet, some consumers have deductibles that made their share of hospital bills a bite in the wallet. The typical Silver Plan has deductibles of $2,556 while Bronze Plans often have $5,328. Apparently, if someone owes more than 5 percent of their annual income on a hospital bill, the likelihood of collecting is about nil.

How much is a hospital stay worth that potentially can extend life? It depends on who’s paying for it. Years ago I took class on cost-benefit analysis. The purpose was to compare the efficiency of public policy interventions designed to extend life. At that time, the rule of thumb for the societal value of a “life-year” was approximately $50,000.  Policies that saved a life-year for less than $50,000 were considered a good deal. Policies that cost more per life-year were not.

People themselves often make these trade-offs. Many willingly choose a riskier job because they either consider it more enjoyable or it compensates them in return for the increased risk. Say you’re a desk jockey at the Department of Motor Vehicles and you decide to train to become a fireman. For the sake of argument, let’s assume firemen have a 10 percent greater chance of dying on the job each year compared to the DMV, but firemen’s annual pay is $5,000 more.  In this example, you would willingly take a riskier job for the equivalent of $50,000 per life year saved ($5,000/.10).

A 2014 study of mandatory health coverage in Massachusetts estimated the law saved a life-year at a cost to state residents of between $4 million to $5 million for each year saved. The dollar amount is undoubtedly higher now, but many experts assume Obamacare has a similar societal cost per life-year saved. Supporters believe that statistical lives theoretically extended at $5 million per year is a bargain, because it is mostly paid for with other peoples’ money (OPM).

When crafting health and safety regulations that impose higher costs on others, government bureaucrats consistently assign a much higher value on human life-years than people themselves when making their own decisions. The reason for this is that government mandates are always paid for with OPM. For those unfamiliar with the topic, OPM is often assumed to come from the same tree from which Obama and his fellow liberals derive all the free stuff they promise to give us.  OPM is sort of like magic pixie dust that makes politicians’ big promises possible.

Obamacare achieves (or fails to achieve) most of its goals using OPM. The premiums for exchange plans that don’t reflect actuarial risk; the premium subsidies for moderate-income folks; cost-sharing subsidies and the plethora of mandated benefits and costly regulations all rely on a hefty dose of OPM.

The problem is: OPM doesn’t actually grow on trees as many people mistakenly believe. It comes from other peoples’ wallets!  For example, last December an insurance agent informed my wife she would have to cough up $6,000 annually for a health plan with a $6,750 deductible. That was the best deal she could get. Why were her premiums going to be so high she asked? Because her insurer was forced to dole out about $400 million more on Obamacare enrollees than it took in from their premiums the year before. Yet, despite spending $6,000 she would have to pay the entirety of her medical bills out of pocket because the likelihood of her surpassing a deductible that high is pretty close to zero.  At the same time, many of the people who were the net beneficiaries of her premiums the year before presumably could not pay their share of the deductibles — although many likely got cost-sharing subsidies, which is arguably why their spending was so high.

As a society we want everyone to have access to medical care that currently costs about $9,231 per capita and rising. Yet, many Americans would direct their share of funds to different priorities if allowed. Paradoxically, many families are paying $12,000 to $15,000 for family health coverage with deductibles so high they cannot afford their out-of-pocket expenses. Think of it this way: People are required to buy coverage that makes expensive medical care available to other people. But many people with expensive health coverage cannot afford to see a doctor, have an MRI or a small procedure performed on them. Something is wrong with this picture.

The current system is unsustainable. Increasingly, people are beginning to balk. Sooner or later it will run out of other peoples’ money. My family’s premiums (about $1,000 a month for a family of two plus one dog who is technically uninsured) is equal to the payments on many couples’ two cars, a month’s rent or nearly a mortgage payment for many families. A better way to reform health care is to allow Americans to buy an affordable plan that meets their needs and allows enough money left over to see a doctor. It will also require better solutions to provide more efficient care to America’s sickest residents.

A version of this Health Alert also appeared in Town Hall

Comments (77)

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  1. Barry Carol says:

    “many likely got cost-sharing subsidies, which is arguably why their spending was so high.”

    Devon — I suspect that their spending was so high because they had health issues and benefitted from both guaranteed issue and premium subsidies neither of which were available to them before the ACA. At the same time, a huge number of healthy folks either chose to remain uninsured and opted to pay the penalty instead or qualified for an exemption from the penalty which allowed them to remain uninsured without charge.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      What your response is doing is hammering into one’s head that the ACA was bad policy and should never have been passed.

      The ACA is telling people how to behave with regard to their own bodies. That requires a dictatorship and we are a Constitutional Republic where Liberty is felt to be important and not something to be relegated to the sidelines.

      • Devon Herrick says:

        The ACA is telling people how to behave with regard to their own bodies.

        I tend to agree. There are a lot of Americans who, when it comes to spending their own money on medical care, opt to purchase other goods and services instead. Public health advocates worry about this as though it is a travesty. But, it really reflects consumer sovereignty. People are basically saying some medical services have less value than, say, paying the rent. The Rand Health Insurance Experiment of the 1970s found when people made those trade-offs their health was generally not adversely effected. But, even if a decision does effect their health, it’s probably the least of their health worries. So much of medical spending is due to chronic conditions that result from lifestyle behaviors. If someone wants to over-eat foods they should not eat, why does society get so worried that they are not taking their antihypertensives and cholesterol-lowering medications?

        • Al (aka disrespectful and disruptive Al, selfish Alan Baun, and absconder of monikers) says:

          “The current system is unsustainable.”

          Where had I heard these exact words before??? Oh yes, it was in 2008 as a major campaign issue with the American people.

          [From 1999 to 2009, Kaiser found that the insurance premiums had climbed 131% or 13.1% per year, and workers’ contribution toward paying that premium jumped 128% or 12.8% per year. ]

          Since our “Constitutional Republic”‘s operational design depends on OPM, including for Allan’s single-payer Medicare, why shouldn’t we bite the bullet, eliminate Tyranical Obamacare, and go with Single-Payer Trumpcare. ““It works in Canada,” Trump said at the first Republican debate, in August. “It works incredibly well …”

          Bottom line gentlemen, the gangrene of excessive healthcare costs are caused by profits of insurers, suppliers, and providers. Military, police, fire, and health are all OPM social constructs that shouldn’t be based on profits.

    • Devon Herrick says:

      I wonder how many of the new high-cost enrollees were people who had been uninsured for years and never participated in the insurance market?

      • HD Carroll says:

        As an actuary who has analyzed at least one exchange insurer’s experience in some detail, and also cross-checked a lot of the media’s typical statistical errors when it comes to tracking the “uninsured,” it is reasonably safe to say that a significant amount of losses arising on exchange plans is from people who were at least uninsured in the immediate period prior to enrolling, and not all of them stayed long enough to even pay a full year’s premium. For each of the 2014 and 2015 plan years, there was a surge of “pent up” need services provided, especially in the first several months of each year. 2016 will prove no different I am confident. Some exchange advocates believed that this would “settle down” because people would stay enrolled through the next year, and the rest of the population would remain stable and better risks, but of course that doesn’t happen. People with ongoing conditions will jump to a new plan that offers better coverage when their current plan shrinks available providers, and that will cause a new “relative” surge at the new plan. The “uninsured” as a block is a fairly dynamic population, as a number of studies have shown, with a large percentage being transient due to being between employers, or taking leave and then returning, etc. It is probably safe to say that the more permanent status “uninsurable” population who were not in Medicaid (the population who would have been in state high risk pools if they had the money) have definitely moved over to exchange plans, and probably stay in the exchange, if not in the same plan. Of course, that is what the transitional reinsurance program was intended to help subsidize – this initial catastrophic hit. In fact, analysis has shown that what is generally considered to be the pool of “uninsured” now are most likely no less healthy, and possible more healthy, than a random subset of the insured population (all under 65, of course). However, some percentage of them will each year become what used to be called uninsurable/high risk because of an accident or a new sickness onset. Those people will of course go to the exchange each year, and probably stay there. So, you have this cycling of healthier people off coverage (transients maybe), and they come back when there is an issue. Sometimes that is short term (say, someone who knows they are going to have a baby in the coming year), and sometimes it is longer term (newly diagnosed chronic condition). Either way, this subset of persons is never going to pay anything like their “share” of the cost burden placed on exchange plans. This is one of the driving pressures in the inability of the big, credible health plans to avoid losing money in the exchange. Of course, the fact that the feds and states either prevent or brow beat them into not implementing truly fair actuarial rate increases is another. And note that subsidies are supposed to be fed from two sources – general tax payer money, and employer penalties. Have you seen any employer penalties levied yet? It is easier for the administration to just cover all the subsidies (even the illegitimate ones) with tax payer money, or OPM, than try to do the oversight necessary to go after the employer penalties.

  2. Perry says:

    The “Affordable Care Act” was most certainly misnamed.

  3. Ron Greiner says:

    Texas Blue Cross has ended all PPOs in the individual market. Now Texas Blue Cross is ending all agent commissions in the individual market.

    If you like your agent you can keep your agent.

    State Insurance Commissioners “approved” Blue Cross rates with agent commissions included. This sounds illegal to me.

  4. Bob Hertz says:

    Devon,thanks for an interesting post.

    Response No. 1 — The 3% out of pocket number sounds low, but in a nation as big as America that means thousands of persons are facing some financial hardship from hospital care.
    (We had well over 30 million admissions last year, so 3% means close to one million potential problems.)

    It takes a heck of a lot less than one million painful stories to give a rather bleak picture of American health care.

    I suppose there is a lesson here in perception and statistics. I leave it to others who may be more articulate on this issue than me.

    2. Regarding the awful $12,000 premium-policies with high deductible.

    I see these a lot in my agency. They affect families who make too much for subsidies, and who live in states like NY and Wisconsin with high rates overall.

    Those who must buy these plans must think that the insurance carriers are making money hand over fist.
    The disturbing fact is that the insurers may be losing money on these dreadful stinkers.

    The designers of the ACA knew this would happen with guaranteed issue. You can find less-publicized predictions fron Gruber especially.

    This was supposed to be moderated by subsidies at first, and then by a flood of healthy young people.

    But subsidies were truncated to keep the ACA bill under $1 trillion for ten years, and the flood of young people has never happened.

    Hilary Clinton has one helpful proposal….if a person incurs a deductible expense over 5% of their income, the government will help them pay that deductible.

    I will watch carefully how other candidates and pundits respond to this. It does preserve the ACA, so some will oppose it. But those who oppose it have not shown me many alternatives!

    • Devon Herrick says:

      The 3% figure isn’t the proportion of people paying their own bills. It’s the proportion of hospital bills patients have to pay out of pocket. It’s patients’ share of the cost.

      For health care as a whole, it’s about 11%. For doctor bills, it’s 10%. For hospital bills it’s 3%. I believe drugs are about 14%. Dental care is around 25%.

      By the way, for cosmetic surgery it’s nearly 100%. I’ve been doing research on cosmetic surgery. Prices are transparent and very stable. Physicians compete on price and quality.

  5. Jimbino says:

    Why don’t you research and publish the prices charged for common medical procedures around the world so that Amerikans could figure out how much they’re being overcharged by Obamacare?

    • Angel Guevara says:

      As I told you before, in Euskadi(Spain) single payer system works wonderful for less than 1900 dollar/person per year!

  6. HD Carroll says:

    Please pardon the length of this post. All insurance (true or artificial) involves using OPM. If everyone paid just for what they would incur, then it wouldn’t be insurance. Actuarial risk evaluation only goes so far within the allowed underwriting rules for the class of risk involved, but this is true even for policies that can reject people (the “old” way before Obamacare, at least in most states). Why? Because any group of even the healthiest people will deteriorate over time, producing a spiral of increasing need for OPM from the remaining healthier people to pay the claims of the now not healthy people. The issue will always be remembering to distinguish between what is true “insurance” for unknown risk, and what is really a “finance” issue. Once someone falls into a certain category of health “status,” their needs are now comprised of two classes – fairly predictable required medical services (a financial need), and the still unpredictable need for unknown potential new contingencies (an insurance need). The first class is no longer “current” insurance, but requires OPM to cover the financial need. It might, if properly structured, be available from the reserves of a prior insurance coverage (i.e., like long term disability insurance works – an “occurrence” based insurance rather than the way our current medical insurance works as an “incurred service” based model), but with a societal based “pay as you go” model like Obamacare, clearly the so called “insurance” coverage is intended to simply pay all current medical service needs no matter how they arise. The second class is, unfortunately, currently still stuck in the model of current pay as you go (term) as well, and that leads to premium increases that roil the Exchange marketplace. A truer solution is exemplified by the German medical insurance market for private policy opt-outs to the state system, where more or less “entry age” insurance is offered, that is basically described as “whole life” as opposed to “term” insurance. Singapore’s model is actually a split apart version of this, with some additional variations. The real issue, and the one the US is struggling with, has to do with the transition – what do you do with the people who are already sick, or who are on the verge because of lifestyle or hidden symptoms, for whom you must view the need as purely financial, and not an insurance one. That definitely requires OPM. Since we can’t “redo” the start of all people instantaneously, lots of OPM, or a more draconian societal choice, is going to be in the picture. The catastrophic element of even pure insurance is still technically OPM, though if done correctly, it is drawn solely from the class of insureds involved at some level of aggregation. This might be viewed as “other people in my group’s money.”

    • Devon Herrick says:

      I like the way you explain the problem: people transition from healthy to less healthy. As that occurs unknown risks become known problems, in addition to unknown risks that are still present.

      Insurance is good for insuring against equal risks of an unknown nature. But not so good at insuring ongoing known financial problems.

      It’s almost like Obamacare is a Ponzi scheme where young, healthy investors are told they are required to invest but promised they too will be rewarded with funds paid by “new” investors at some time in the future. Ponzi schemes are illegal because sooner or later you run out of other peoples’ money (i.e. enough new investors to keep the scheme going).

  7. Jimbino says:

    HD Caroll says “All insurance (true or artificial) involves using OPM.”

    That is decidedly NOT TRUE. It is true of Obamacare, because Obamacare, apart from being bad insurance, was designed as a wealth and income transfer mechanism.

    It is true that all insurance is a bad bargain, in that it returns at most 80 cents on the premium dollar, making health care more expensive than it would be without insurance. But if the insurance, whether auto, fire, flood, health or title insurance premium is actuarially sound, there is no use of OPM.

    • HD Carroll says:

      What part of actuarial science don’t you understand? Do you think a person buying a life insurance policy and then dies is not using “OPM”? Perhaps the issue is in the definition of “OPM.” I take it to mean that if I receive benefits greater than what I put in, it required OPM. Now, it might be a matter of “voluntary” mutual sharing, but it is still using OPM. By the way, if the “claims value” of soup is the actual food value you get from opening a can of Progresso, do you think the “loss ratio” of a can of such soup is a better deal than 80%? Or clothes at Target? I can agree that there is no value in “dollar swapping” with an insurance company on a level of claim expenses (be it auto, house, or health) that borders on a “budget-able” need (such as primary doctor visits or dental preventive care) – one can argue that those are not true insurance needs, so running it through the insurance system attracts overhead and profit that is totally unnecessary. But, true insurance events involving very high and beyond to catastrophic levels can attract legitimate management/overhead/risk-profit loads. The question is what level of “shared” risk is appropriate, and using what “underwriting class” distinctions to determine the proper shares of that risk.

  8. Larry Wedekind says:

    Good grief people! Devon’s point is that the current ACA healthcare exchange system is actuarially unsound and is creating massive federal deficits and losses for our private sector – especially the Health Plans that drive our healthcare system finance. HD Carroll is right in saying that insurance is based on OPM theory, but it is also based on the theory of ‘Large Numbers’ and this is a good thing due to the high costs of treating illness and injury in our healthcare system. It is also creating huge losses for our health plans and they are naturally passing these losses onto their employer based insurance market. This is a travesty and will be devastating to our economy and our populace if it continues much longer. We must replace the PPACA with a plan that empowers the private sector and reduces our tax burden while empowering patients to make informed decisions about their healthcare. Our citizens should be allowed to choose their own type of policy in an environment of competition, not government interference and over-regulation.

  9. Bob Hertz says:

    Let me just expand on what HD Carroll is saying.

    There is a bloc of people in the individual market who are very expensive to cover. For example, the ACA created a national high risk pool in 2011, and the pool ran through $5 billion in a couple of years, and had about 175,000 customers — i.e. $30,000 per insured.

    The public supports giving help to this group, if only because it is so easy for anyone to become part of it. Personally I had no medical costs from age 21 to age 60, and then had a severe heart attack while on COBRA. This made me an expensive risk, and I proved it two years later with a blood infection. Fortunately Minnesota had a decent high risk pool when my COBRA ran out in 2009, or I would have become a medical beggar. Four of my five best friends have essentially identical histories.

    There are only so many ways to help this group.

    We tried leaving it up to each state to have high risk pools. But the states which were stingy on Medicaid were also stingy on funding these pools. Some may find this a charming lesson in the laboratory of democracy, but to a sick person this just stinks.

    There have been proposals for continuous coverage insurance protection. I am skeptical. The insurers still have a great incentive to sneak out of covering this group.

    The ACA solution has been guaranteed issue. This blog has much evidence that this form of ‘mainstreaming’ may not work.

    I would be partial to a Medicare buy-in. Persons with a chronic illness could take their tax credit and pay a community-rated premium to Medicare. For example, a person with an income of $40,000 might get a tax credit of $400 a month at age 60. They could apply the $400 toward an $800 a month community-rated premium for Medicare. This would give them decent insurance at a decent price.

    Would this raise the overall spending on Medicare? Of course, since we would be adding unhealthy persons. I find that acceptable. The extra costs of Medicare are spread over all taxpayers.

    As even Devon seems to admit above, there does need to be OPM money to help those who are uninsurable. The challenge is to be efficient and equitable.

    • Barry Carol says:

      Bob – I agree with the thrust of your post. There has to be some reasonable mechanism to take care of the high risk people that insurers don’t want to cover if they don’t have to because they’re not profitable to cover at least at a premium that most people could afford to pay.

      The key to making your Medicare buy-in idea work is for the total number of people who utilize that option to remain small as a percentage of total Medicare beneficiaries and the cost of covering them to remain small as a percentage of total Medicare spending. Economists sometimes call this the importance of being unimportant and or the fallacy of composition.

      Even Devon has noted in the past that whatever healthcare system we have needs to work for sick people. Before the ACA, 15 states didn’t even offer a high risk pool and most states that did offered pools that didn’t work very well for the people who needed them. You’re also correct that some states are more willing to take care of their less fortunate people than others are.

      The limited government types who want to see the states function as laboratories of democracy offer an interesting theory and even a good idea for large slices of our economic life. In healthcare, though, it’s likely to leave way too many people either poorly served or not served at all. That’s unacceptable in my opinion.

      • HD Carroll says:

        Larry, Betty, Bob – this is a good discussion, thanks to all. If we look at the previous state high risk pools from a certain perspective that they allowed the remainder of the market to not have to mix in their high cost claims, driving up the general market’s claims, we are touching on what is the general societal issue – what to do about financing medical expenses for high-risk/catastrophic level “status” persons in that society. Presuming the society believes that “we” don’t abandon such persons, and find a way to finance that care (note: I am not taking a position either way on this at this time), then the problem is finding the mechanism by which society chooses to have that care paid for. The fact is that if you are going to cover such costs, there is no way to do it without money coming from somewhere.
        A clue for how we might do this in the current environment is to look at what that transitional reinsurance fee program I have previously mentioned was intended to do – provide a glide path for existing high claimant costs to be spread out over all qualifying health plans – not just the individual market plans. The reason was (at least tacitly) that the group market was able to avoid paying for those people, but they should have to pay a “fee” that allows the individual plans to cover those costs. However, the way the group market and individual underwriting market rules were changed, this wasn’t supposed to be needed for more than three years, at which point we all lived happily ever after. The fact is that since employers can still not provide coverage (small group without penalty, large group with), or downsize the coverage they offer (different penalty), or find clever ways to select against the exchange plans, the migration of high risk people continues to move more into the exchanges than out, causing the problem to not stabilize (stable population theory). I have taken the position that if we are stuck with Obamacare (that’s an “if”), we should try to make it work better. I believe that the reinsurance program for high risk/catastrophic condition people should continue, perhaps at an even more aggressive (lower attachment point) level, where the fees/premiums for such reinsurance be actuarially targeted, but then make it relatively easy for group/self-insured plans to move chronic/high cost claimants to the exchanges as a result – at least after the year of first status identification, making their risk a “term” one rather than ongoing. This allows the “societal” plans (exchange plans) to be the primary provider for the financing of the care for such persons, but have a mechanism for being reimbursed so that the extra cost is actually covered by the reinsurance program, not just an empty promise as has turned out with the formal transitional reinsurance. But then, the general group market and individual markets can spend their time trying to develop the best types of plans, provider arrangements, etc., instead of all the time they spend trying to avoid catastrophic claims on an ongoing basis. I am first hand aware of the time, energy, and money spent trying to firewall plans against such claims. There are, of course, an endless number of variants or substitutions for such a plan as I have described. At the end of the day, it still comes down to the elephant question in the room that never seems to be asked – should medical services be provided and paid for everyone in the society, or not? Once that question is answered flat out, then we can get on with the who, what, why, and how.

    • Devon Herrick says:

      Personally I had no medical costs from age 21 to age 60, and then had a severe heart attack while on COBRA. This made me an expensive risk, and I proved it two years later with a blood infection…

      You are a good example of why Singapore has a better system than the U.S. You went nearly 40 years without a major problem. During those years you paid into the insurance system while taking little out in claims. When you were nearing the age to retire (maybe you already had), you experienced a costly event. You could not rely on all the various insurers from your youth to send you some of the money you had paid in. You could not rely on there being a steady stream of young, healthy coworkers to offset your costs. You had COBRA for a while but that runs out.

      I favor a system where individuals or families pool their own health risks over a working life — rather than rely on cross-subsidies from strangers or coworkers. When you were young most of your premium dollars should have gone into an HSA-type account and a minority of your premium dollars should have gone for a high deductible plan. As you aged, the ratio of HSA-savings to insurance premiums should switch to where more of your dollars were going for insurance. Yet, by the time you were 60, you would have built up enough reserves to easily cover your higher premiums and copays. Under a system like that, providers would be more competitive since patients would naturally be more price-sensitive.

      I think such a system would work for sick people. I also recognize that there are limits to how much society should pay for outliers. The reason I believe there should be limits is because over the next century, medical science will find treatments for even more medical conditions. That’s good for society. But not if families are not allowed to choose how much of their lifetime earnings (i.e. their standard of living) is devoted to medical care of marginal benefit. Would a family give up raising a family in a $250,000 home in return for a cancer therapy that extends life by 6 weeks? Probably not.

      Without a mechanism to allow individuals to make those trade-offs, bureaucrats will mandate an increasing share of our income to beefing up the risk pool to withstand even more costly transfers.

      I understand the concept of pooling of risks. But I derisively use the term other peoples’ money to denote the excessive reliance on someone else to pay your bills, which I think creates perverse incentives and leads to bad outcomes.

      • Barry Carol says:

        “I also recognize that there are limits to how much society should pay for outliers.”

        Devon – I agree that there are limits or at least there should be. The rub comes in figuring out how to determine and enforce those limits. QALY metrics are one possible approach. Age based rationing is another possibility. The willing buyer and willing seller concept is a third option.

        If I’m representing United Healthcare or Optum Rx, for example, those companies should be able to tell a drug company that we’re not prepared to pay $300K per year for your specialty drug to treat Gaucher’s disease or cystic fibrosis. Therefore, we’re not including it on our formulary. The drug company remains free to sell it for $300K per year to anyone who can self-pay or find a charity to pay on their behalf or to any other insurer who agrees to pay that price.

        When regulations dealing with everything from workplace safety to environmental protection are developed, we implicitly put a value on human life all the time when we determine how much incremental cost to impose on the affected industries to avoid one premature death. Individuals make those tradeoffs as well when they accept dangerous jobs that pay a higher salary than safer jobs requiring comparable skill and education.

        Back to healthcare, though, determining just what is an outlier and how much society should be prepared to pay to care for that patient is a messy process. We could be dealing with anything from a low birth weight premature infant who may have a shot at a normal life after three to six months of very expensive treatment in a NICU to a 95 year old Alzheimer’s patient with multiple co-morbidities. Short of death panels, I don’t see how we can make these decisions in a logical, consistent, moral and ethical manner across the society. In short, it’s easier said than done.

        • Devon Herrick says:

          “I agree that there are limits or at least there should be.”

          Agreed! The Devil is in the details.

          There are a few limits, but only a patchwork of odds and ends. Insurers do not cover experimental treatments (presumably) because they are not proven to be effective. The rule of thumb that was $50,000 per QALF when I was in grad school is now around $100,000 to $130,000. But it’s applied sparingly.

          The need for limits, even if they are arbitrary, is also why I don’t have a problem with annual or lifetime limits on benefits. It’s a crude instrument, but one that recognizes the need for such limits on claims against societal resources.

          There are other ethical dilemmas. Should more resources be directed to early intervention and less to late-stage medical care. Most people would say yes (assuming it does not apply to them, their parents or grandparents). Yet, there is little evidence it would make a difference. It is easy to see a low-birth weight baby would have more QALYs than a 95-year old Alzheimer’s patient. But I would tend to worry more about the 30-year old mother of three who would leave a family without a mother or support.

          Actually, I’ve heard it said we already have death panels — just not formal ones. When my father was hospitalized, his nephrologist decided further attempts at dialysis was futile and would not order any more. His point was that death was inevitable; better to accept it and manage it. He was not trying to save Medicare money. He was trying to do the best for his patient and his patient’s family.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      Bob, I understand what you are trying to do and it actually makes sense to me to a degree. You are permitting the bulk of the population to function in a free market environment and removing those that no longer can survive in it. That is not all that different than what insurers wish to do, cherry pick. You wish to subsidize them in some fashion. I agree with that approach, but it is how you deal with the details that I think needs discussion.

      Firstly healthcare is not in a free market environment and should be. Assuming we got rid of the tax preference and the government stopped micromanaging healthcare I think we would have achieved a similar marketplace seen in other insurance offerings.

      The next issue is how does one subsidize? You are having the individual pay out a certain amount from income if working and then placing him in Medicare. Why Medicare and not Medicaid (I am not advocating one or the other)? Do you believe this group of people better than all those that are on Medicaid? Should another form of subsidy be considered?

  10. Jimbino says:

    Not only do Medicare, Obamacare, VA and employer’s group policies rely on OPM in order to function, they deliberately exclude large groups of people from coverage.

    If you decide to spend six months in Brazil, sail around the world, or embark on an ascent of Everest, you will NOT be covered by any of the above, regardless of the fact that they might have taken your premium dollars for decades.

    Insurance is nothing more than an expression of religion or superstition. It is an irrational reaction to fear, as are prayer, church attendance or circumcision — practices not based on science and not resulting from rational thinking. It also specially penalizes intelligent, educated, inventive and resourceful persons.

    As an economically sophisticated, world-traveled, multi-lingual scientist who spends months living and traveling outside the USSA, I’ll be damned if I let myself be roped into participation in anybody’s religion of insurance.

    • John Fembup says:

      Jimbino, I was covered by each of my (several) employers private group plans – from the time I entered the workforce in 1968 until I retired in 2012. Each of the plans covered me when I traveled abroad. Though I must admit I skipped the Top of Mt Everest tour.

      By the way, where do you live?

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      Jimbino, I think insurance of all types is a necessity for commerce to function smoothly. The same thing pertains to healthcare insurance, but the difference is that healthcare insurance is overly regulated by the US government. If it was provided by the free marketplace with both a willing buyer and willing seller it would be much more worthwhile.

      I assume if you were in the US and suddenly were hit with the rare illness that cost ½ million dollars you would be paying the bill in cash. That is fine up until the point you obligate other people to pay for you. I myself would prefer just catastrophic coverage and even carry special insurance when I travel so I can get a private jet to take me home from anywhere in the world should it be needed.

      • Devon Herrick says:

        …so I can get a private jet to take me home from anywhere in the world should it be needed.

        If I were uninsured and experienced a problem that still allowed me to travel, I’d probably opt for treatment in Costa Rica or India. (I have a couple of problematic teeth that my dentist is monitoring. One of these days when one of them finally acts up, I will take them to a dental laboratory I’ve toured in San Jose, Costa Rica.)

  11. Bob Hertz says:

    Notes to Al:

    You asked why I suggested a Medicare buy-in rather than a Medicaid buy-in…….

    Simple answer: Medicaid is partly funded by the states, and the states have some degree of veto power. I for one am tired of programs which are generous in Connecticut but stingy in Alabama. We do not treat seniors that way, we do not treat veterans in that way, etc.

    America also has let individual states steal jobs from other states with lower wages, fewer union rights, and lower local taxes. This is utterly baffling to Germans, Swedes, and other advanced nations.

    2nd note:

    You state that health insurance would be better if left to willing sellers and willing buyers.

    True in theory, but for a subset of high-risk insureds, there are no willing sellers of coverage. The cost for a 50 year old with MS or cystic fibrosis can run in the hundreds of thousands of dollars over a 10 year period. No insurer in their right mind would accept such a client in a free market.

    Note to HD Carroll:

    I like your idea that group plans should pay at least something toward reinsurance for the individual market plans…..since the individual market must accept those persons who are laid off and/or too sick to work.

    As you can tell, I always favor programs that spread the costs of medical care over a broader population than the just the sick person and their family. The accounting cost of a 3-alarm fire is surely $10,000 when you add up men and machines, but we do not expect the family suffering the fire to pay $10,000.

    However, as a former actuarial student I am troubled by this fact:

    Despite a reinsurance program that pays for at least half the costs of any claim over $70,000 or so, the insurers in the ACA exchanges are still losing money.

    I would have thought that reinsurance to cover larger claims would make it much easier for an insurer to make money….but the ACA population must be filing all sizes of claims at a rapid rate.

    A prof named Seth Chandler had a post on this over at Forbes.

    • Barry Carol says:

      Bob – While state experimentation and innovation certainly has its place, I think it would be better if Medicaid looked more like Medicare. That is, a common benefits package financed at the federal level with hospital care, physician and clinical benefits and prescription drugs combined into one plan. It would serve the poor below a certain income as a percentage of the FPL and applicants would apply through the Social Security Administration like they do for Medicare and would have to recertify their eligibility every year. We could have standard FFS Medicaid and Medicaid Advantage like we do for Medicare. Provider reimbursement rates are a separate issue that would have to be addressed. There would also need to be a separate carve out for long term custodial care that would be covered separately based on both income and asset based means testing.

      Obviously, a significant tax increase at the federal level would be necessary to pay for this, most likely a value added tax. States could use the money freed up to fully fund their currently unfunded retiree pension and healthcare obligations but also be required to bring benefits related to future service into closer alignment with what exists in the private sector. Any money left over in states with good pension funded status already should be returned to state taxpayers in the form of lower state income and / or sales taxes.

      If we went back to medical underwriting for middle class people who don’t get their health insurance through an employer, I fear that we would have a lot more who would flunk medical underwriting than current estimates suggest if there were robust high risk pools at the ready to provide heavily subsidized health insurance to these people. While private insurers are more than willing to cover healthy people for a reasonable premium, the same enthusiasm doesn’t extend to people with known health issues that may be expensive to treat like cancer or a chronic disease or condition like CAD, CHF, COPD, ESRD, MS, RA, diabetes, asthma, hypertension or depression. Guaranteed issue can’t be sustained without either a mandate to purchase insurance or a requirement that the applicant was continuously insured with no more than a 63 day gap without coverage.

      • HD Carroll says:

        Barry – you are definitely describing the situation that exists with the “commercial” group market, whether it is insured or self-insured. I think that taking “term” risk for unknown contingencies that arise during the coming year is something the commercial market can do quite well, and be competitive. Even covering what I call the “chronic condition status” or CCS persons during the year in which such condition is first identified is not an issue, so long as it was an unknown risk when underwritten. The problem is how to “finance” the ongoing, now known and expected, medical expenses (those predictable with a reasonable expectation, at any rate). The other issue is privacy related – a self-insured employer treads on thin ice when they are made aware of a given employee or dependent’s condition and expected expense for the renewal, and what they do about it. I think in the system we are discussing, we have to find a way to “bribe” people identified as CCS into moving voluntarily (and if they do, they can be given financial compensation for doing so) to the Exchange, or Medicare, or whatever. I would use the broader base of all “individual” policies to put them in order to avoid the stigma that might arise if it were an isolated program. The only way to do that is to make the benefits available in that system as good as or better than they would have in their employer plan – which would have to include the best facilities, etc. The idea is that, to a large extent, society itself (via national programs) is the only group large enough to apply the law of large numbers (as some comment mentioned) to spread the risk for such expensive conditions, and therefore needs to be the pool that attracts all those risks. I don’t want to get into the ramifications for provider payment this might entail, but general national negotiations between payers and providers takes place in a number of European models, so perhaps it could here as well. I just don’t want it to create a perceived need by the providers for significant cost shifting back to everybody else, which is what got us into the fine mess we are in today anyway. The trick is finding a “moral/ethical/legal” way to move all, or most, of CCS people to the national system, whatever it is, and out of the commercial system so the commercial system can deal with unknown contingencies and incidental initial catastrophic levels that won’t “renew.” Unless, of course, we want to change commercial insurance into an “occurrence” based system like I discussed in my original post, although I still think a national “reinsurance” system would be necessary to stabilize that kind of market as well. It would just take a different form.

        • Barry Carol says:

          HD Carroll — I think I hear what you’re saying but it sounds like you basically want insurers to only insure healthy people and then as soon as they get sick, they get transferred to some national system that taxpayers pay for. I think there is a large segment of the population that would oppose that concept though healthy people would probably like it, at least as long as they remain healthy.

      • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

        You fear that many will not pass underwriting. Let insurers and actuaries do their jobs and let them decide how to insure based upon risk. Based upon the fear I am listening to half the population could be considered uninsurable, but we know that isn’t true because in order to make money insurers have to insure.

        The major problem is government intervention both with tax favoritism and with government’s micromanagement of healthcare. It is inhibiting new insurers from entering the market that would add to innovation and competition, preventing all insurers from insuring risk and regulating the industry to such an extent that we are unable to control the dollar flow.

        There will be some outliers that need additional help. We do not need to help them by destroying the marketplace. The price of healthcare will radically fall with a freer marketplace so there will be plenty of dollars around to handle the problems while leaving a lot left over to return to the taxpayer.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      Fair answer Bob. You wish to take the power from 50 state laboratories and have only one the federal government. Instead of having some generous states and some not so generous states you would prefer to throw the dice and have only federal rule which might be too generous or too stingy. To date this type of rule hasn’t worked out very well, but that type of debate is for a different time and place.

      Regarding your second note it is true there are outliers such as the sick patient with MS or cystic fibrosis, but that is not a reason to destroy the marketplace which has been proven to be the most efficient way to transact business. The severest of outliers for all practical matters cannot be insured so don’t you think subsidizing them while preserving the marketplace is a reasonable alternative?

  12. Devon Herrick says:

    At its core, what we are talking about is how much should society subsidize sick individuals’ medical care. We don’t make millionaires out of welfare recipients to atone for their perceived shortcomings in earning capacity. I’m a little hesitant to require million dollar transfers to genetic losers beyond the risks insurers would underwrite in a free market. That’s not an indication of a lack of sympathy; rather it’s the realization we cannot design health insurance that will solve the problem of how to make health care affordable for the sickest people. Health care will never be affordable for the sickest people. Neither will insurance be affordable for the sickest people — it will have to be subsidized in some way which requires answering the obvious question about how much transfer of wealth is appropriate.

    As we’ve discussed in the past, 5% of patients consume 50% of all health care, while the sickest 20% consume 80% of medical care. With incentives that are even more perverse than we currently have, I can imagine a system where the sickest 5% consume 75% of all health care dollars and 20% consume 95%.

    But, the question remains: how much is enough. And how much personal responsibility should enter into the equation? By that I mean, does a diabetic get kicked out of the high-risk pool if they fail to adhere to the protocols? Or do people get a defined contribution they have to make due with?

    I don’t believe we can somehow design the perfect insurance coverage that makes health insurance affordable for middle and lower-class people while providing unlimited benefits. Health providers are pretty good at testing the upper bounds of limits.

    • Barry Carol says:

      Devon – Instead of trying to figure out how to set limits on the extent to which sick people can access health insurance, I think we would be better served if we focused more on how to reduce the cost of healthcare. As I’ve noted numerous times before, there are several strategies that could address this which include the following: (1) We should encourage more people, especially older people, to execute living wills and advance directives so their family members will know what care they want and don’t want at the end of life and won’t have to guess. (2) Doctors could be quicker to admit there is nothing more they can do if that’s the case, they could offer an honest prognosis without holding out false hope especially in cancer cases, and they could explain to family members that we’ve reached the point where we are doing more TO the patient than FOR the patient and the patient is suffering as a result. (3) We could pass sensible tort reform including safe harbor protection from failure to diagnose lawsuits for doctors who followed evidence based guidelines and protocols where they exist. (4) We could require price transparency to make it easier for both patients and referring doctors to identify the most cost-effective high quality providers in real time and direct as much business as possible to them. (5) We could invest more in data analytics to identify fraud in the Medicare and Medicaid programs and stop paying bills quickly if something suspicious needs to be clarified first.

      In a perfect healthcare world, almost all healthcare services, tests and procedures would take place in the last few months of life except for prenatal care, labor and delivery, childhood vaccinations, and other worthwhile preventive services. We would all be perfectly healthy until our bodies wear out. Our health span would converge with our life span. In the meantime, we need to find an acceptable and affordable way to provide everyone with health insurance including the already sick and those with bad genes.

      • Devon Herrick says:

        Barry – I agree. The problem of how to pay for the sickest people is largely a problem because: 1) medical care is very costly; and 2) the sickest people have few incentives to decline care that might extend their lives slightly and provide them with a measure of hope.

        I don’t believe medical care necessarily has to be costly. It’s costly due to regulations and perverse incentives that inhibit competition. The perverse incentives directly relate to the way we finance health care — by attempting to shield the sickest patients from as much of the cost as possible (hospital patients only pay 3% of their care out of pocket).

        The more we try to transfer income away from the healthiest patients to the sickest, in addition to expressing benevolence we also erode incentives. I’m not suggesting we should not be benevolent. I’m just saying that’s partly where the cost problem in health care comes from. The hospital isn’t competing on price, quality and other amenities in a free market when it is treating the heart failure patient or the terminal cancer patient.

        Part of the reason I wanted to consider approaching the problem from the defined contribution model is to see if there isn’t a better way to provide subsidized care to the sickest people without wrecking the risk pool for the rest of the population. Also, for someone who is seriously ill (and getting huge subsidies), I don’t mind there being a coercive element that requires certain adherence to protocols. For example, a hard drinker sharing IV drugs with Hep C-infected friends should not be given a free liver transplant or an $84,000 regimen of Sovaldi every year. The diabetic may have to send in a blood glucose readings on a daily basis, etc. The hypertensive diabetic may be required to lose weight or lose some benefits.

        Since we know cross subsidies drive up insurance premiums and erodes cost-control, maybe we need to find a cheaper way to care for the beneficiaries of cross subsidies. We know insurance is good at pooling similar risks. We know that individuals are capable of shopping for non-life threatening medical procedures. We just need to extract the costly events that are no longer insurable and find another way to subsidize them.

        • Barry Carol says:

          “The hospital isn’t competing on price, quality and other amenities in a free market when it is treating the heart failure patient or the terminal cancer patient.”

          Devon – I don’t think any provider is competing on price and quality for any patient who has exceeded his deductible whether it’s a high deductible or a low deductible. More patients now have high deductibles as compared to five or ten years ago which is a good thing in this context.

          I’ve read that the patients most likely to be frequent flyers at the ER are those with congestive heart failure and mental illness. I think they can be most effectively treated by a more holistic approach that utilizes nurse case managers who can visit the patient in the home to assess needs. The CHF patient could report his weight daily to better monitor him for fluid buildup. There may be strategies that would better ensure medication compliance. Frequent phone and e-mail contact may be useful in managing these patients. Some of these services don’t have insurance billing codes so a payment model other than fee for service could be more appropriate to treat these patients in the most cost-effective way and significantly reduce expensive ER visits.

          As for terminal cancer patients, I noted in my last comment that doctors could provide an honest prognosis without holding out false hope. There is a strong role for palliative care here and we should try to ensure that these patients have executed a living will or advance directive to make it easier for family members to let go when the time comes assuming the patient doesn’t want the full court press.

          For patients who are still well within their deductible, we need price transparency to increase the probability that they seek care from the most cost-effective high quality providers when they need care. Defining and measuring quality in healthcare remains a significant challenge, however.

      • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

        Barry writes: “Devon – Instead of trying to figure out how to set limits on the extent to which sick people can access health insurance, I think we would be better served if we focused more on how to reduce the cost of healthcare.”

        Limits are a big part of reducing the cost of healthcare. We have an infinite amount of healthcare needs, but a limited number of dollars to spend.

        In response to each numbered suggestion I have numbered my comments.

        1) While living wills might save money that is not a guarantee. Eventually the opposite of what you are seeking might occur.

        2) “Doctors could be quicker to admit there is nothing more they can do if that’s the case, they could offer an honest prognosis” You are placing the blame on physicians and calling them dishonest. That is a pretty lousy way of looking to reform the system, but it does let us know where you stand. From what I have seen over the years the oncologists I have dealt with have been very honest with their patients. Some speciality hospitals are known for their aggressiveness. Would you like to close down Memorial Sloan Kettering one of the best hospitals of its type in the country?

        3) Which guidelines are evidenced based? That is something that is proven in court. What you are talking about is that if physicians follow a guideline that is bad for the patient and the physician knows it he can’t be sued. If he doesn’t follow the guideline for the right reasons he is in greater danger of losing a malpractice case. In medicine there are conflicting guidelines and not infrequently the guidelines are out of date.

        4) How do you require price transparency? The best way is for the patient to ask the physician the price, but if it doesn’t make a difference to the patient why should they spend the time? Those without insurance are the ones that are careful.

        5) Fraud, abuse and transparency: Ask Former Senator Le Mieux ® about fraud prevention and transparency in the Obama administration. Though he doesn’t go into as much detail in the op-ed below as I have heard him, consider how credit card companies prevent fraud and abuse.


        The reason for healthcare costs to be as high as they are is because the free marketplace has not been permitted to exist and some support every entitlement possible whether those on the recipient end can afford the costs or not.

        • Barry Carol says:

          Living wills are more likely to save money than not. If they don’t, they don’t but it’s better have one and not need it than need one and not have it. The cost is minimal.

          Stop telling me that I’m accusing doctors of being dishonest. Nothing could be further from the truth. The main reason I think they might be inclined to hold out false hope in late stage cancer cases is that they don’t want to be seen as abandoning the patient. They’re acting out of what they view as compassion, not dishonesty.

          If a guideline is appropriate 95% of the time, doctors can deviate from them when there are exceptions and note the reason for the deviation in the chart. Safe harbor provisions should easily be able to accommodate that.

          Try asking your physician about a price for a service he doesn’t provide like an MRI. Most likely, he won’t know. Try asking how much a prescription drug will cost that he wants you to take. Most likely, he won’t know. You make it sound like providing transparency tools would cost tens of billions of dollars. It should be a relatively simple and cheap undertaking. The main thing standing in the way is the confidentiality agreements between insurers and providers that preclude disclosure. We need to get rid of those.

          We haven’t had a free market in healthcare for 50 years. If it’s so great and so obvious that it would drastically lower healthcare costs, why hasn’t somebody implemented it somewhere? Given how much interest there is in reducing the federal deficit, politicians should be more than happy to get on board.

          • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

            Barry, you quote: “Stop telling me that I’m accusing doctors of being dishonest.”

            Let me quote your words with ellipsis just to show who you are talking about.

            “(2) Doctors … if that’s the case, they could offer an honest prognosis”

            To many that means doctors today are offering a dishonest prognosis. I’ve heard words similar to that before and I don’t think blaming physicians by inferring they are dishonest is productive.

            “If a guideline is appropriate 95% of the time, doctors can deviate from them when there are exceptions”

            You are not dealing with the issue I questioned and that is if one gets immunity from following a guideline there is a reasonable fear that the jury might infer that a doctor is guilty if he deviates from the guidelines.That might cause physicians to practice cook book medicine. Remember, it can take a decade to create a guideline while medicine changes almost daily. Therefore though doctors appreciate good guidelines they can’t always be saddled with them or they will be practicing yesterday’s medicine in today’s world. Additionally which guideline should be followed? Sometimes guidelines conflict with one another.

            “Try asking your physician about a price for a service he doesn’t provide like an MRI.” How much more work and blame do you wish to place on the physician? You are right. When I send a patient for a mitral valve replacement I cannot and do not provide the patient with the price of the mitral valve nor can I tell him how much the sutures will cost. We all want transparency, but it’s hard to get transparency when the prices are controlled to such an extent that patients don’t care and won’t ask. Do take note that those without insurance ask those questions.

            Our policies should enhance transparency and enhance the reason patients want transparency. It is not enough to just ask for transparency and then promote policy where all the transparency in the world doesn’t make a difference to the patient.

            You have added to this discussion a discussion on confidentiality agreements.

            You say: “We need to get rid of those.”

            Though I agree that some of the confidentiality agreements should not exist you sound very authoritarian because some confidentiality agreements are reasonable and necessary for a properly functioning business.

            Is you last point an inquiry as to why we haven’t had a free marketplace in healthcare? Left wing policy and propaganda has been pushing us away from free markets to such an extent that even some espousing the free marketplace find support for the ACA and other healthcare policies that are collectivist in nature rather than free market. It’s hard to combat the idea that free care is free to one that focus’s on the words “free for me” and is reluctant to actually play the part of the buyer when medical care is being offered.

            • Barry Carol says:

              Allan –

              Regarding my honest prognosis comment, would realistic prognosis be a better term? I was just trying to get at the issue of holding out false hope in terminal cancer cases because the doc didn’t want to be seen as abandoning the patient and I in no way suggested that his prognosis had anything to do with how much money he makes from the case.

              On tort reform, there is a widespread consensus that our system is too litigious, creates too much unfair risk for doctors and results in lots of defensive medicine which is one of numerous factors driving up costs in our healthcare system. I’ll leave it to the physicians lobby to come up with an approach to tort reform that works for them but still protects patients from clear negligence. An inclination to sue just because the outcome was poor even if the standard of care was excellent and appropriate doesn’t serve our system very well and just placing limits on non-economic damages doesn’t get the job done.

              Finally, my comment about confidentiality agreements only relates to the contract rate paid by insurers to providers for healthcare services, tests, and procedures. It doesn’t speak one way or the other to any other business or circumstance. Of course confidentiality agreements are necessary and appropriate in lots of business contexts.

              • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

                Barry, I agree with you that some docs do too much and some too little and that the word ‘honest’ is a bad word to use in this instance. Even realistic is a poor word because most docs are providing a realistic view to the patient. Some push for shorter life and some for longer life, but for the most part this is not about honesty or being realistic rather the individual perspectives of all the people involved.

                Sloan Kettering can be so aggressive that sometimes I have thought too much so, but then along comes a cure or an increased lifespan with the aggressiveness and I am forced to change my mind.

                When you highlight an issue too much with advanced directives and the potential cures that we read about sometimes people start to think that there is more out there than actually exists. I would prefer that we direct our attention more to the patient who has control over what occurs. Physicians are there to assist patients in making a decision and then acting upon the final decisions made.

                Of course your recognition of a litigious society is correct and we need to do many things to correct the present imbalance. I, as a physician, however, want the threat of litigation to continue. I don’t want to be forced to compete with a bunch of charlatans. But like you I recognize our present litigation system is grossly flawed and needs a massive overhaul. I worry about some of the solutions because they can lead to harm.

                Thank you for clearing up the confidentiality provisions. You were right to mention them as the HMO’s used confidentiality agreements to prevent physicians from offering appropriate care to their patients. In the end the patient should be our concern. I don’t know, however, if releasing contract rates should be included. I personally would like that to be true, but I don’t know if that is something that should be done.

  13. Bob Hertz says:

    I have one saying that I try to always repeat to myself, whenever I read a discussion (like this one) of medical rationing…

    which is this:

    “First look at the price, and then go back and see if you still need rationing.”

    This is most obvious with drugs. If Sovaldi sells for $1,000 in India and we mandated that price over here, we would not even need to talk about rationing.

    (Sovaldi has so many potential customers worldwide, that its manufacturer would still make money at $1,000 per course of treatment.)

    My saying can also hold true with hospitals. If insurers paid $1,000 a day for intensive care instead of $4,000 a day, there would be less need to ration. End of life expenses would shrink immediately, without the need for tortuous family and physician decisions.

    It is very hard to do rationing with hospitals, though. If we keep a few CHF patients of the emergency room, then hospitals will just raise the rates for car accident victims who will always need to come in.

    Let me put it this way, somewhat crudely. A hospital with an annual budget of $30 million is going to do its best to send out $30 to $50 million in billings each year. If they have fewer CHF patients to bill, they will overcharge someone else.

    This I think is why we have had many, many medical innovations which keep people out of hospital or shorten their stay….but hospital spending keeps growing.

    • Barry Carol says:

      Bob — Hospitals could downsize or close and many have. After World War II, we had about 10 inpatient hospital beds per 1,000 of population. Now the number is about three and the long term secular trend is down. I’ll settle for price transparency so market forces can have a better chance of actually working, especially as more people have high deductible health insurance plans.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      Bob, I think the free marketplace is what helps us determine what prices should be and even if the product should be offered. That is why I believe in healthcare it is so important to have a distinct division line between the free marketplace and anything that is being subsidized. Subsidization can lose sight of costs so one can use the free market side to determine how subsidization is working.

  14. Barry Carol says:

    Last night’s news had a piece on the best price transparency tool and site I’ve seen so far. It’s called Save On Medical — https://www.saveonmedical.com.

    Prices are self-pay rates.

    • Devon Herrick says:

      Interesting! I checked out a CT scan in my zip code and found prices that are highly competitive. As we’ve discussed before, the self-pay cash price often doesn’t count towards your deductible. I wonder if any of the radiology clinics would discuss the BlueCross price for those who may want to have it count towards their coverage.

      Increasingly, more people will use these tools given that deductibles have been rising for a decade and many exchange plan enrollees have very high deductibles.

      • Barry Carol says:

        I also wonder about the extent to which insurers will scrutinize these self-pay rates when they negotiate their contract rates especially if the self-pay rates are currently significantly lower.

        • Devon Herrick says:

          In my opinion, insurers have been too slow to steer enrollees to lower-cost providers. I never understood that. Maybe insurers will tolerate the cash price being lower if they neither have to pay it or count it against the deductible.

          • HD Carroll says:

            I have been just enjoying the give and take and discussion in this thread since my last post. At this stage, however, I feel the urge to comment again. Barry and Devon – surely you inherently, organically understand why the carrier/networks don’t want lower “prices” from providers. PPO now stands for “provider protection organization.” The large provider chains, and the ABUs (now, it used to be the BUCAHs but with the mergers……) operate like two massive mafia families that occasionally squabble, but generally work under a treaty to carve up the territory for the manufacture/provision of product versus distribution of that product. The government is paid off to look the other way (which is why HHS never pursued the transparent cost/pricing opening that was given them in a little corner of the ACA). The carrier/networks make arbitrage on the flow of money from the true payers in the country (employers and employee/people) to the providers. They are stock driven to show “growth” in revenue flowing through, and these days there isn’t any real risk to cover other than one of cash flow. They make money by taking fees/rents off that flow of money – admin fees, Utilization Management fees, PBM fees, and the biggest, most hidden of all, the “cut” on the differential between what the providers agree with the carrier versus what the carrier says is the “discount” they got from the provider for the benefit of the policyholder (employer/employee/person). If they did anything to endanger that model, they would be cutting their own throats, plus they would piss off their provider “partners” who would threaten not to see their members, etc. The only way to break this feudal system of counterbalanced oligarchy is to force providers to be transparent AND consistent (i.e., non discriminatory) in what they actually charge AND collect for services rendered. This will break the only thing the networks have going for them – that they can claim they get a discount (an unknown discount from an unknown starting point, but a discount that can be manipulated nonetheless), and people are afraid of not having that protection. See, it is a protection racket – be in my network and you are “protected” from balance billing. But balance billing only exists because the bill master is such a piece of unrealistic crap as a true measuring stick for what the true “value” of the medical service is. OK, I’ll stop my rant now.

            • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

              Hurray! HD you hit the nail on the head. The consumer is left out of the decisions and left to blame the insurer, hospitals, physicians etc. While they are blaming the large entities those entities make each other look good. That two – hundred thousand dollar hospital bill makes the excessive premium look good even if the insurer was only charged $10,000. I like your term protection racket.

              On another score I have spoken to some of the entities involved that are smaller in nature. The reason was to work out a better deal for some of my uninsured patients. For instance some will even provide lower rates to the uninsured than to the insurer. The provider calculates what he needs to pay his overhead and keep the business operating efficiently. That bill is sent to the largest providers, the insurers. When the uninsured person is charged everything except disposables is considered profit.

              If you disagree with my assessment blame the providers that told me how they calculated the bills for different groups of patients.

  15. Bob Hertz says:

    HD Carroll’s last post in this series is very revealing.

    Is it time perhaps to note that Medicare has largely banned balance billing for years, to the great relief for seniors….
    and on this basis alone, might it not be time to consider similar legislation for persons under age 65?

    A law might state that no one can be billed over 125% of the Medicare fee for a procedure….or that no one can be billed more than the average of all reimbursements that a hospital collects from all payors…..

    I would back up such laws with specialized health care claim courts, funded by the federal government. A patient with a grievance about price gouging could challenge their bill without a lawyer, and a panel of lay persons and independent physicians could make a binding ruling that could reduce the charges.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      One of the reasons marginal care is so high in Medicare is because balance billing is not permitted.

      I hope you are not asking for such a court if a physician told the patient up front what the costs would be. I think today any patient can challenge a physicians bill in court, but what actually happens most of the times is the provider takes the patient to court, not visa versa.

      • John Fembup says:

        Mr. A, after the successful operation: “Doctor, I can’t pay you, I’m broke.”

        Dr. G: “But didn’t I explain my charges to you?”

        Mr. A: “Yes, that’s true . . . but when it comes to my health I say, money is no object.”

        [From JAMA ages ago.]

        • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

          John, I’m not sure of the point you are trying to make. In this case Mr.A is liable for the bill. Let the creditors hammer away.

    • John Fembup says:

      “A law might state that no one can be billed over 125% of the Medicare fee for a procedure….or that no one can be billed more than the average of all reimbursements that a hospital collects from all payors…..I would back up such laws with specialized health care claim courts”

      Bob, you are advocating price controls on medical insurance. But you haven’t thought it through. Besides, price controls on insurance won’t work now any better than they have ever worked – in other words, never.

      I say it’s time for Congress to face up to Americans’ real needs, and make medical care compulsory.

      I’m not talking about medical insurance. I’m talking about medical care. Medical insurance is not the same as medical care. Who calls their insurance agent when they’re sick or injured? Who calls an actuary? Don’t real people call their doctor or go to the emergency room?

      Yet our so-called leaders go on and on about compulsory insurance as though insurance is what we need – even though it’s obvious that medical care is what we need. The public is being sold insurance when we should be buying medical care. If anything needs to be compulsory, it’s medical care – not medical insurance.

      Once this concept is understood, it’s clear what must be done to compel each person to have medical care. First, all medical care professionals become employees of the Federal Government, paid a living wage from public funds. Second, hospitals, clinics, labs and other facilities are nationalized and their admin staffs also become employees of the Federal Government. Fair compensation is paid to the former owners just as for the condemnation of any other private property for public use. Third, the Federal medical care professionals will examine any person who wants medical care, and issue medical care orders to anyone who is determined to actually need medical care. Fourth, it is illegal to seek or receive medical care from anyone who is not a Federal health care professional. Fifth, everyone in the country is included in the plan; however the full cost (plus an administration fee) for non-legal aliens’ medical care is charged back to their home country via the home country’s foreign exchange account maintained at the U.S. Treasury. Finally a system of regional Federal Medical Tribunals will be established.

      The Federal Medical Tribunals are empowered to impose heavy fines upon individuals who shirk their civic duty to follow medical care orders, including refusal to alter lifestyle when so ordered (e.g., exercise, stop smoking, lose weight). The Tribunals also have authority to order medical shirkers confined until treated. Depending on the seriousness of the condition, the confinement may be in a hospital or if hospitalization is not required, to (a) the Governors’ mansion, (b) the home of any elected State or local official, (c) any residence maintained by a member of Congress, or (d) any private home larger than 2,500 square feet.

      The Tribunals also have the power to order a provider who refuses to deliver care that is ordered by a regional Federal Health professional, to perform unpaid community service within the Tribunal’s region.

      Refusal by a medical care shirker or a medical care provider to comply with an order of a Medical Tribunal will carry penalties similar to contempt of Court and may involve fines or imprisonment or both.

      Making medical care compulsory would address actual need. Public funds to pay for compulsory medical insurance would not be wasted on “insurance” but would be spent directly for medical care. Everyone would then be healthy, happy, and handsome, and all our children would be smarter than average. Within a few short years, our life expectancy would be the highest in the world and infant mortality would be zero.

      I call on the next Congress to scrap the clumsy insurance mechanism called Obamacare, and proceed forthwith to craft legislation making medical care compulsory.

  16. Devon Herrick says:

    A law might state that no one can be billed over 125% of the Medicare fee for a procedure….or that no one can be billed more than the average of all reimbursements that a hospital collects from…

    I’m not in favor of extending the Medicare price controls to other payers. Doctors, like other businesses, should be able to charge what they believe the market rate is for their services. However, I might support a rule banning providers from balance billing more than a percentage of what they had agreed to in writing prior to the service. If they had no agreement, well, 10%, 15% or 25% of zero is still zero Alternatively, as we discussed before, may be a safe harbor with binding arbitration making it much harder to collect ann outragious fee unless it is been agreed to in advance.

    I’m just thinking out loud, but public policy should encourage agreements — not reward providers (or patients) for avoiding making an agreement.

    • Barry Carol says:

      It’s likely that doctors won’t know the cost of services, tests and procedures that are not performed by them in their own office. They are unlikely to know the cost of hospital based services or those performed by specialists. They probably won’t know the cost of prescription drugs either or which tier it’s in on the patient’s insurer or PBM formulary.

      Another problem is that if diagnostic tests are needed to figure out what’s wrong with the patient, a hospital won’t know the cost because it can’t know all the tests that may be required to determine a diagnosis and treatment plan. At the very least, I think it would be helpful if the hospital priced its services as a percentage of Medicare as well as specific dollar amounts.

      If there is no meeting of the minds on price ahead of time, then perhaps there should be a default price like 115%-125% of Medicare or something in that range. Court proceedings can be expensive. Collection agency tactics can be way too aggressive and credit ratings can be needlessly damaged.

      On the other hand, if there is a definitive meeting of the minds on price between the patient and the provider before services are rendered, that’s fine. Most of the time, though, there isn’t one as far as I can tell. On the positive side, new companies like Save On Medical may be able to provide patients with local self-pay rates that can serve as a useful benchmark when the bills arrive.

      • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

        “It’s likely that doctors won’t know the cost of services, tests…”

        If perchance you develop Diabetes and come to see me would you prefer me to know as much as I could about all the diabetic medication I might use for you or would you like me to know all the prices?

        I believe you are overly distraught about damage to credit ratings. That happens because a lot of people try not to pay their hospital bills. I believe credit agencies have to be very careful not to damage one’s credit if there is a legitimately disputed bill. If they wrongfully cause harm they can be sued for damages.

        • Barry Carol says:

          Medication knowledge and drug pricing aren’t necessarily mutually exclusive. At least drug prices are discoverable before they are purchased and if your recommended drug turns out to be too expensive, you may be able to offer a second choice that’s almost as good but far cheaper. I would expect doctors to know which drugs they commonly prescribe have generic equivalents.

          • John Fembup says:

            Technology is making it easy for anyone to know the full retail price of any medication, at the pharmacy counter. No need to oblige physicians to know this.

            Specifically, there are now several free “apps” available for your smartphone that will tell you the current price at each pharmacy in your own area, for every drug the pharmacy sells. The one I happen to use is called “GoodRx”.

            My primary physician often knows which drugs are “pricier” than others, but I don’t expect Him to know the dollar price of every – or even any- medication he prescribes. I look it up.

            • Barry Carol says:

              Thanks John. I just put the Good Rx app on my phone.

              • Devon Herrick says:

                I don’t have the app on my phone but we’ve used GoodRx to price drugs on several occasions. A chain pharmacy that charged my wife $52 for one drug was $8 at our local grocery pharmacy.

          • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

            “Medication knowledge and drug pricing aren’t necessarily mutually exclusive.”

            Barry do you know how much reading physicians do along with how many hours they work? How do you think the physician gets the knowledge of drug pricing? The time spent doing that displaces the time spent reading up on diabetes. You have the same attitude as government bureaucrats and hospital administrators most of whom don’t work terribly hard. They have a tendency to dump on doctors like you are suggesting be done and then they wonder why physicians don’t respond in a positive manner.

            • Barry Carol says:

              Now that I have Good Rx on my phone, I can take care of the drug pricing issue myself. Maybe the docs can help spread the word, at least for patients who have smart phones.

              • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

                Before the smart phone there was always a telephone where a patient could call all the pharmacies and get the best price. He could also call all the hospital, MRI centers and physicians to get the same price as well.

                What happened was the suddenly prices started to vary tremendously and patients were paying for them themselves. The payment method (patient pay) quickly brought us more transparency.

      • Devon Herrick says:

        Barry, my dermatologist’s office is quite capable of pulling out the BCBS or Aetna book and giving me an estimate. By contrast, my internist told me I couldn’t pay the bill until is office filed with Blue Cross. But, even then I would not be balance billed; I’d get the in-network price. The only situation when balance billing might occur is when a doctor is not in your network (or in any network). I do believe in those situations, doctor and patient should come to an agreement if there are no existing negotiated prices through an agreement a health plan.

        Maybe 125% of Medicare is a reasonable price. Of course I don’t know that since it probably varies by both procedures and specialty. However, the terms need to be such that encourages both parties to seek an agreement.

  17. Bob Hertz says:

    Good comments, thank you.

    I erred by not stressing that my anger about balanced billing is directed at hospitals, not doctors.

    I would let doctors operate on a free market basis, since almost all doctor visits are voluntary.

    I would control hospital prices, since almost all hospital stays are involuntary.

    Doctors can be trusted in almost all cases to be honest and considerate of patients when it comes to billing.

    On the other hand, hospitals have taken on so much debt and so much in salaries, and have so much unreimbursed care, that they are forced to be mean and ruthless unless someone supervises their billings.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      Bob, I appreciate your distinction between hospitals and doctors.

    • Devon Herrick says:

      As we’ve discussed before, hospitals and hospital ERs tend to do a poor job on price transparency. Most of the doctors I’ve met are usually willing to provide an idea of what they will charge or are in a network (in which case they may not know but it is possible to find out).

      Where I really get annoyed is situations where hospitals (or doctors if they do this) purposely avoid providing prices until the service is performed — in which case they (somehow) can easily tell you the price. An example of this is when patients are told “Oh yes, we accept your insurance! Don’t worry about it.”

      Then you discover you are out of network or the price is much higher than the facility down the street. This has happened to my wife.

      • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

        I had that happen more than once with a hospital I sent people to for various OP studies. When the CEO was not responsive in ridding the patient of the bill I told him I would testify in court for the patient. They never saw another patient from my office. It is that type of action that opens transparency up, but everyone is intent upon placing the burden on the physician or someone else and is unwilling to do any leg work.

        • Barry Carol says:

          We need a version of Save On Medical that can provide contract reimbursement rates for all insurers the market. To do that, though, we need to get rid of the confidentiality agreements between insurers and providers that currently preclude disclosure of contract rates. An easy to use online transparency tool that can be accessed by a smart phone as well as a computer or tablet would take care of the problem without the docs needing to get involved. They could, however, use their lobbying power to push for patient friendly transparency tools.

  18. HD Carroll says:

    My own modest proposal in this regard was essentially laid out in a 2010 essay contest entry (only good for third place, but hey….) by the Society of Actuaries Health section. I admit that I relied heavily on the apparently clearly successful experience of the “all payer” system used for hospitals in Maryland (please note the complete distinction between “all payer” and “single payer”). The feds have done an excellent job of tamping down any enthusiasm for replication because it is essentially an admission that Medicare doesn’t, overall for facilities, pay enough to avoid significant cost shifting to non-Medicare payers – in other words, they would have to increase spending in all the other states to achieve the same kind of success (success is measured by overall hospital cost increases necessary for Medicare to be less than what they are elsewhere). While not perfect, an all payer system allows truer free market competition and innovation to take place in the absence of the artificial barriers and distortions created by the “favored payer” mechanisms in existence now (perhaps PPO stands for Preferred Payer Organization, instead of Protected Provider Organization? Perhaps it is a hybrid?). At any rate, years of dwelling on the problem leads me to believe that all providers should be allowed to “true-price” emergency services (until the person can be medically and reasonably moved) at some higher percentage of Medicare (perhaps 180% based on current levels), and in exchange, all qualified health plan payers (let’s say, legal ACA minimum essential coverage plans, which all health insurance and self-insured plans now have to be to avoid a special employer penalty that has nothing to do with the usually discussed A and B penalties) MUST agree to “allow” as a plan expense this same percentage of Medicare for the aforementioned class of emergency services. Other than than, providers are free to charge (and formally required to collect without associative discounting – this is non-discriminatory pricing) a transparent, posted, and standardized (within some variation) master price list that applies to all comers, meaning patients. Insuring entities would price their coverages (within the requirements of certain qualified rules) based on some assumed limitation (or not) on what is considered an “allowed charge” for their plans. Patients would then be armed with two lists to compare – what their plan allows, and what their chosen provider possibilities charge, and know they have to make up the difference. Caveats: I assume that probably a standardized format for services and charges would be used, including whatever variables as to “convenience” and speed of payment might apply, and that a given provider would still have the right to forgive portions of cost sharing and balance billing due from a patient, so long as that is done solely on a basis that is “after the fact” of knowing what those pieces are, and that it must never be done “automatically” because of some affiliation of the patient with a particular payer. I.e., absolutely no discounts for Blue Cross, the government programs, etc. Quality and efficiency of care will now become variables of actual value calculation since we will now know what the blankety price actually is – something we don’t know now. Are there issues and potential problems with such a system? Absolutely, but the underlying organic problems that arise from not knowing the actual cost won’t be there anymore, and it will create an environment where innovation and creativity can be applied by payers (networks where the payer agrees to the provider’s charge, not where the provider has to agree to what the payer is paying – so value will be important), administrators, insurers, because they can compete without the big ABU and government gorillas throwing their weight around taking rents without providing any value. Thanks for your patience.

  19. Bob Hertz says:

    Quick note to Al:

    Your comment on March 6 that…

    “I think today any patient can challenge a physicians bill in court….. ”

    does not jibe with my experience as a patient’s advocate over medical bills. I can also find legal citations of quite a few cases where provider bills were essentially unchallengeable.

    I wish you were right but I fear that you are not…..

    Quick note to HD Carroll…

    I appreciate the effort that you undertook in the interest of honest fee schedules.

    However I read some comments from you about providers being forgiven to provide discounts….

    What a hard subject this is. Until Medicare basically, doctors were expected to be private sector socialists…i.e. collect full charges from the rich, and give discounts to the poor. My uncle Dr. Myron Hertz ran his practice like this from 1946 to 1964.

    Medicare and Medicaid made this unnecessary for part of the American public.

    Given the agonizing efforts since then to find the right fees, I sometimes wonder if we should again encourage this practice for those under age 65 and not in a federal program.

    • Allan (formally Al), but due to the lefts propensity to disrespectfully and disruptively alter facts I will now refer to myself as Allan and the former Al Baun can keep his newest name. says:

      Bob, how many times have you gone to court over an issue of this nature?

      If the answer is none then that explains your fear.