The Cause of High Health-Care Costs

Why do health-care costs in America keep spiraling upward? Dr. Mark Earnest offers his view in a letter to the Rocky Mountain News (January 10):

Steve Hyde’s commentary article of Dec. 29, “An unhealthy cure,” might have stumbled on an appropriate diagnosis (the soaring cost of health care), but offers only a self-serving placebo as the cure (high-deductible health plans).

If increased cost sharing for patients lowered health-care costs, America would have the cheapest health care in the world. Currently, Americans pay far more out of pocket for their health care – both in real dollars and as a percentage of the total cost – than citizens of any other country, and yet our health care is the most expensive in the world. …

Health care in this country has become an industry filled with countless layers of middlemen who earn millions by finding new ways of coming between patients and their care. If we’re really serious about lowering the cost of health care, we should
design a system that cuts out superfluous overhead and pays for care rather than executives and administrators.

Earnest is wrong that “Americans pay far more out of pocket,” according to a January 17 letter by Michael Darnel

In his letter of Jan. 10, “Cut out health-care middlemen,” Dr. Mark Earnest states that Americans pay far more out of pocket for their health care as a percentage of the total cost than citizens of any other country. This is not supported from data in the current, Jan. 1, issue of Annals of Internal Medicine.

On Page 64 is data for 27 countries from 2004. Only 4 countries paid less, and 22 countries paid more out of pocket than Americans. Average out-of-pocket costs were 19.8 percent, while in the U.S. it was 13.2 percent. Examples include Switzerland (31.9 percent), Italy (21.0 percent), Japan (17.3 percent) and Canada (14.9 percent).

Yaron Brook further details the figures for America: “For every dollar’s worth of hospital care a patient consumes, that patient pays only about 3 cents out-of-pocket; the rest is paid by third-party coverage. And for the health care system as a whole, patients pay only about 14%.”

Earnest believes that the problem is the high costs of overhead, administration, and middlemen. Yet the cause of those costs is precisely the system of employer-paid medical “insurance” that covers nearly every expense. When a patient pays a doctor directly, there is no middleman. Employers and insurers have nothing to do with the transaction. Furthermore, the patient has a much greater incentive to seek the best care at the most affordable price. As I have argued, this is the proper model for routine and low-cost care. High-deductible health plans by their nature mostly cut out the costs that Earnest protests, yet Earnest dismisses such insurance out of hand, without bothering to explain how else such costs might be reduced.