Health Care and the Cost Plus Monster
Roger L. Simon
has initiated a thread on his blog that is well worth discussing, but instead of trying to fit a too-long comment, I will write a too-short essay. Additionally, by writing this in Word I can get my spelling checked and claim that I wrote this in 1972 when I submit it to CBS.
Our nation is currently facing a three headed monster with an insatiable appetite. Unlike the mythical Cerberus, though, this beast is not guarding Hades so much as dragging us down there. The first head is the insurance industry, the second is the tort bar, and the third is the medical services industry. These heads feed each other and drive each other's appetites.
The insurance industry makes a profit on the difference between the rates you pay and the medical expenses they pay for. By using actuarial prodigies, they have been able to increase profitability while accepting higher expenses. The key here is that if medical procedures are insanely expensive, insuring the risk of that procedure occurring requires more money. By driving down the acceptance of claims for insanely expensive procedures, they can net additional profits by not matching their actuarial tables to their payment schedules. But the more lucrative and safer method is just to take the same percentage on a larger bet.
The tort bar makes money the old fashioned way, they steal it. There are rural regions of the country where whole jury pools are owned by leading tort law firms. Many corporations settle for extravagant extortion rather than risk the jackpot justice of the rural south. Another magnificent fraud perpetrated is the class-action lawsuit where millions of people in a class receive lunch money and a few law firms get millions. The worst part of this is that there is so much money that long shot frivolous lawsuits are worth pursuing because there is enough venture capital to sustain them. Medical malpractice and drug failures employ tens of thousands of exceptionally well paid parasites.
The medical services industry, ostensibly the most beleaguered, is a connected head. Drug companies just add the expense of additional testing to the price of their product and make more money. In many ways the pharmaceutical giants are research finance groups more than they are research companies. Although lawsuits drive down their profits in the short term, in the long term they just drive up what the drug companies can charge.
These three heads are not at all friendly to each other, but they are connected to the same insatiable appetite that is bureaucracy. The executives in charge of each of these industries still want larger offices, more staff to control, and more institutional security. The key here is not to attack any one head, but to attack the appetite that drives them all. This is the way that Health Care can be affordable in the future.