The biggest problem in American health care is one that the Republican health care plans won’t really try to solve. To be fair, it’s one that Obamacare didn’t touch, either.
The biggest problem facing American health care is our prices.
In the United States, we pay outlandishly high prices for our trips to the doctor, hospital visits, and prescription drugs. In the United States, an MRI costs, on average, $1,119. In Australia the scan costs $215, and in Switzerland $503. It is the exact. Same. Scan. (See chart here).
About a year ago, I wrote a story about a family that went to the emergency room, had a Band-Aid put on their 1-year-old daughter’s finger, and then were billed $629 for the encounter. Since then, I’ve gotten countless letters describing other outlandish medical bills. These include:
- A $2,237 bill for liquid stitches and a bandage. This emergency room visit lasted from about 11:30 pm until 1 am, so the hospital billed for two days spent there.
- A $900 bill for four stitches in the emergency room
- A $1,000 bill for a pneumonia vaccination delivered in a health care clinic
The list goes on and on. These sky-high prices are what make health care policy a vexing exercise for legislators on both sides of the aisle. Because our prices are so high and the federal government has a limited budget, the architects of the Affordable Care Act settled on expanding access to largely high-deductible health plans. The Republican plans would drive those deductibles even higher, leaving consumers on the hook to cover the pricey services.
If we don’t tackle high prices, it makes it nearly impossible to imagine ever transitioning to a national health care system to cover all Americans.
High prices have a strong lobby here in Washington. Each dollar spent on medical care goes toward a hospital, a doctor, a medical device maker, or a pharmaceutical company. But until legislators decide this is an issue worth tackling, they will find themselves hard-pressed to deliver a reform bill that Americans actually like.
Americans pay way more whenever we go to the doctor
The reason Americans spend so much money isn’t because we go to the doctor a lot. On average, Americans actually see the doctor slightly less than people in other developed countries.
Americans go to the doctor, on average, four times each year, according to data from the nonprofit Commonwealth Fund. Compare that to Canada, where citizens average 7.7 doctor visits per year, and France, which averages 6.4. The United States averages 125 hospital discharges per 1,000 people annually, which is higher than Canada (83) but lower than France (166) and the United Kingdom (129).
The reason American health care is expensive is because when we go to the doctor, it costs more than when someone in Canada or England or France or any other developed nation goes to the doctor.
A day in the hospital here costs $5,220, versus $4,781 in Switzerland and $765 in Australia. There is a biannual report from the International Federation Health Plan that compares medical prices across countries. It’s hard to find any category where the United States is not the priciest. Here, for example, is what the data on appendectomies looks like (See chart here ).
Other developed countries use price controls in medicine. The government negotiates with drug companies, device makers, and doctors to set lower prices. The government is buying in bulk, and has the power to win those negotiations. These countries regulate medical prices akin to how they regulate the price of electricity or water: a service that everyone needs at a reasonable price but would face significant difficulty bargaining for on their own.
The United States does set medical prices for the 50 million elderly Americans who rely on Medicare. The government-run insurer has a fee schedule that says exactly what doctors can bill for every visit or checkup — and usually ends up with lower prices as a result.
But for the 155 million Americans who get coverage through their employers — and 22 million in the individual market — that task is left to the insurers and customers. We are not very good at it.
I recently spoke with Todd Anderson, a father in the Philadelphia area, who told me about one of those medical bills I mentioned earlier. His son went to the ER late last year after cutting his finger with a kitchen knife.
Todd’s son is a college sophomore; his son’s roommate, a biology major, said that he’d recently used the knife to cut raw meat, and drove him to the emergency room.
The physician assistant at the emergency room examined the son’s finger and treated him with liquid stitches and a bandage. A few months later, Anderson received two separate bills totaling $2,237 — one for $1,032 from the hospital, another for $1,438 from the doctor — for the Band-Aid and its application. The doctor group charged the Andersons for two days in the emergency room, because the late-night visit began around 11:30 pm and ended around 1 am.
“I feel like I’m being told to pay the hospital and the doctor for the exact same service, and no one has been able to explain to me why it can possibly cost this much,” Anderson says.
These types of bills just don’t happen in other countries, where the government negotiates with providers to set a reasonable fee for what a Band-Aid delivered in an emergency room can cost.
“The issue of prices needs to be put on the table,” says Drew Altman, the president of the Kaiser Family Foundation. “A lot of the effort right now is aimed at reducing volume of care, not price of care. But what people are more concerned about is their out-of-pocket costs.”
Health care prices aren’t part of the American health care debate. But they need to be.
The Affordable Care Act did not aim to regulate health care prices in the United States. Instead, it emphasized reducing the volume of health care in the United States. It tried to get rid of the financial incentives of a “fee for service” system that pays doctors for every test or procedure, regardless of whether it’s actually necessary.
Obamacare had dozens of experiments that aimed to move the health care system to a “pay for value” system, where doctors would be rewarded for making patients healthier — not just providing medical services.
Some of these experiments have been successful. Unnecessary readmissions to hospitals, which the health care law began penalizing in 2013, have plummeted. There is some evidence that these programs have led to slower health care cost growth too.
None of these changes put the United States on the path to having health care costs more in the neighborhood of Canada or France or other developed nations. That’s just really hard when an MRI costs twice as much here as in Switzerland — or four times as much as in Australia. We can only get so far cutting down on the number of MRI scans. At some point, to really lower health spending, we have to cut the price of the scan itself.
Regulating health care prices was never a serious part of the Affordable Care Act debate. The Obama administration made a conscious decision, at the start of its health care effort, to get all major industry groups to stand behind the law — or at least not work against it. Regulating health care prices would have meant that hospitals, doctors, and pharmaceutical companies would all earn less. The idea was a nonstarter.
But America’s high health care prices are at the core of what Obamacare enrollees dislike about the program. High prices mean high premiums and big bills when customers remain in their deductibles, the two parts of the law that get the lowest favorability ratings from those who rely on the marketplaces for coverage.
Donald Trump initially showed some interest in regulating health care prices, particularly in allowing Medicare to negotiate drug prices, but so far has not followed through.
In any case, any serious effort to constrain health care prices would likely need to go far beyond pharmaceuticals, which make up 10 percent of American drug spending annually. To prevent $629 bills for Band-Aids, you’ve have to tackle the rest of the health care system — and that is not something either political party has proposed.
“It’s the cost issue that will continue to drive us crazy,” says Bill Hoagland, a vice president at the Bipartisan Policy Center who previously worked as budget director for Sen. Bill Frist (R-TN), said at an event I attended late last year. “I don’t know how Republicans put together a package that reduces the deficit that doesn’t focus on price. Doctor costs, hospital costs — that’s where we have to focus our attention.”
The Republican plans put the burden of high prices more squarely on patients
Republicans put together a package that reduces the deficit but not by controlling prices. Instead, their bill would leave medical prices roughly the same and shift more out-of-pocket spending to consumers.
Both Republican bills are estimated to reduce premiums in the individual market, but make no mistake, that does not translate to lower prices or happier enrollees. For one, the Republican bills lower premiums in part by making coverage prohibitively expensive for older Americans, who would be expected to drop out of the marketplace and leave behind a younger, healthier population. Those older enrollees do not, obviously, disappear, nor do their health care needs magically resolve. Instead, they’d be expected to join the ranks of the uninsured.
Second, the Senate bill in particular would lower the generosity of individual market plans. It would peg federal subsidies to health plans that cover an average of 58 percent of consumers. Obamacare tethered its subsidies to plans covering 70 percent of costs.
This means that enrollees would be more exposed to the actual costs of their care. And with nothing in the bill to control prices, they can expect those costs to be awfully, frustratingly high.