Controlling Costs Through Making the Price Lower

Monica Potts on health care costs:

But the assertion that too few employees pay enough toward their plans to realize the full cost of their medical activities is true for fewer and fewer Americans. It’s not as if employers are completely footing the bill as insurance premiums continue to rise astronomically; more and more employers are asking employees to chip in higher amounts. And higher numbers of employees can only afford plans with deductibles or co-insurance for every procedure but annual physicals, so people are paying something for each visit, more so than they were in the ’90s. It also ignores the fact that health-care consumers in many European countries pay little to nothing per doctor visit, and overall their medical costs are much lower than in the U.S.

I’m a believer in the promise ofprogressive cost-sharing to reduce medical expenditures on needless health care services. But as Potts implies, this is hardly the only path to cost control. But in the United States we go to extremely lengths to talk around the fact that the main way jurisdictions around the world control health care costs is by regulating prices.

In the US, we do a little of this. Medicare doesn’t pay doctors and hospitals as much as private insurance does. Because Medicare is such a big client-base, most providers deem it worthwhile to treat Medicare patients anyway. But some doctors are able to have a nice business while eschewing Medicare clients. If we adopted a Universal Medicare system (or a robust public option) we’d drive costs way down primarily because we’d be paying less to health care providers. This would have the effect of driving most private insurance companies out of business, but they’re hardly the only interest group who’d squeal at the possibility. Alternatively in Europe both the systems that rely on private insurers (e.g., Netherlands) and those that rely on a government insurer engage in systematic price controls to contain costs.

In Singapore, where they have probably the lowest health care costs, they do both. The country is often invoked as an example of successful cost-sharing, which it is, but it’s also a place where “actively regulating the supply and prices of healthcare services in the country” plays an important role.

You can argue that there are downsides to adopting this approach and there’s an argument to be made that most of the world is free-riding on innovation driven by the ultra-profitable US market, but the fact of the matter is that this model—controlling costs by making the price lower—is in place almost everywhere, even as the insurance model varies dramatically from place to place.