As everybody knows by now, medical expenses have been skyrocketing and are now a large part of government spending, both at federal and state levels. The republicans want to reduce them by reducing government payments. This doesn't work, and it results in ever more people not being able to get medical care. This kills at least 45,000 people a year (and here). So then, what are the causes of the rise in medical expenses?
One of the big areas could fairly be described as gouging. This happens for several reasons, some reasonable, some lame, some opportunistic. By law, Emergency Rooms are not allowed to refuse to care for anybody, including those who can't pay. Moreover, ER care is the most expensive--patients are sicker, equipment, doctors and nurses can't be scheduled (so they have to keep a surplus on hand). Since every medical provider has this huge hole in their budget, they have to shift the cost to elsewhere. Charge higher prices everywhere else. One of the places this happens is spectacularly lame. Every provider has a deal with the insurers they work with often. Generally part of this is an across-the-board price cut, often as much as 40%. Knowing they're going to do this, they raise the prices of the individual services to compensate. Folks who haven't negotiated this deal don't get the cut. This includes insurers that don't do enough business with that particular provider (e.g. they're from a different part of the country) and uninsured customers. If you know to ask for it, they'll typically give you an "Uninsured discount" if you pay promptly or in advance, but this is more often only 25%. But if you don't ask or can't pay promptly, you pay the full price. Of course since there's this radical decoupling between actual costs and list prices, there's lots of opportunity to gouge further.
By increasing the number of people who have insurance and can thus get scheduled care for non-emergency issues, the new health care law should substantially reduce ER costs, and it should allow more people to participate in the "negotiated" price breaks. But notice that the insurance companies managed to convince congress to put this off until 2014 and are now trying to kill it.
Drugs are another big cost. For example, drug companies are able to gouge for new drugs that are still under patent, but not for generics, where the free market applies. A major bit of cynicism is the continual development of new drugs that are really the same as older drugs only different enough to be able to patent. For example, new statin drugs like Lipitor and Crestor are only trivially more effective than older statins like Lovastatin and Simvastatin, but they're able to charge 10 times as much. Doctors and medicare are aware of this but enough still prescribe the more expensive options that it's a profitable scam.. The drug companies have another big cost that is totally unnecessary but is a huge part of their costs: TV advertising. They spend a LOT more on this than they do on R&D. The return from this is small, but significant. If one company stops doing it, they'll lose market share, so they can't. The only way to stop this would be for the government to stop it all. I'm fine with drug companies advertising in medical journals and other doctor-specific promotions. But it should be banned in mass media, like TV, newspapers and general interest magazines.
Another big cost is profit taking and wasteful overhead on the part of insurance companies. A certain amount of waste is unavoidable, but we need to keep tabs on this. One recent study puts this at 20-30% of total costs. Meanwhile, Medicare and the VA are able to keep this under 6% This extra 14-24% goes on top of all other costs, including all of that gouging.
One huge cost that I haven't seen discussed much is offshoring. When Walmart (for example) buys from a Chinese manufacturer rather than a US, the price goes down. When they pay workers less, the price goes down. The standard measures of inflation, such as CPI, consist of a "basket" of products, some of which are reducing in costs this way, and some of which are not. If half the things in the basket are going down in price, and half are going up, then the inflation we measure is somewhere between. Medical care is one of the things that can't be offshored much. Even if medical care were remaining as a constant share of GDP, this would make it seem like it was inflating faster than nearly everything else. But people get sick whether their wages are high or low (in fact, low income people tend to be a little sicker). Inflation-corrected wages for more than half of the population have been close to flat for over 30 years, so those people--the majority--are less and less able to pay. Their wages are being held down, in effect, by offshoring. My solution here: we need to recognize this effect and raise wages for the bottom 80% or so. We can do this with small changes to the tax code--not really redistribution, but the effects are similar. This will be good for everybody and really not hurt those at the top.
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