Ryan (2008) reported that the explosive growth in healthcare spending in the
U.S. is not a sign that the healthcare market has somehow failed. Rather, rising cost
is a predictable outcome of vast distortions imposed on the market over decades,
driven primarily by the federal tax code. a One reason U.S. citizens are unaware of
what healthcare actually costs is the federal tax exclusion for employer-provided
coverage which incentivized most Americans to rely on their employer for health
coverage (Ryan, 2008). a Ryan (2008) noted that another major distortion in the
market is the huge amount of spending by the government on Medicare and
Medicaid. Over half of health care spending in the U.S. in 2019, approximately $1.4
trillion, was government spending through the Medicare and Medicaid programs
which cover thirty eight percent of the population (Congressional Research Service,
2021). In contrast, health care spending in the private sector, covering sixty nine
percent of the population, totaled approximately $1.2 trillion (Congressional
Research Service, 2021).
Whether privately or publicly insured, people are separated from
understanding the full cost their healthcare because they are only exposed to small
portions of it at a time. For example, people can generally quote what their copay is
for a doctor visit or what their deductible is. a However, those values are only the
portion they pay. a The remaining balance is paid by someone else, and pricing is
opaque. a Insurance companies negotiate rates with providers and rates can differ
between insurance carriers. For example, Cigna may negotiate a rate of $125 for a
primary care visit with a doctor. a That same visit with that same doctor may be paid
at a rate of $110 by another insurance carrier. a Medicare and Medicaid price
services at a certain level but depending on where the provider is geographically
located, their reimbursement rate may be adjusted up or down from the national
baseline. Further veiling costs for publicly funded insurance is the government
budgeting process. a Not only is the budgeting process itself complicated, but the
math on Medicare reimbursement to providers is convoluted. The public does not
have line of sight to how the Centers for Medicare and Medicaid Services sets rates
for provider reimbursement.
Finally, most people do not fully understand health insurance. As noted
above, most people can quote their copay for office visits, or their deductible, but
Kliff (2013) explained that most people do not know what terms like copay,
coinsurance, deductible, max out of pocket mean and how they relate to the total
cost of health care. It is difficult for people to understand because it is inherently
complicated, and, even if understood, it is still difficult to figure out the actual cost
(Kliff, 2013). a DataPath (2022) wrote that with other industries, customers can easily
access comparisons of features, benefits, and costs to guide their purchasing
decisions, but the healthcare industry presents a huge array of confusing choices,
contact points, and service flows without any upfront pricing information. a To make
better decisions, healthcare consumers are increasingly expecting more
transparency, better information, and a partner relationship with healthcare
providers, versus the historical paradigm of a one-way dialogue from provider to
patient.
References
Congressional Research Service. (2021). U.A. health care coverage and spending.
Washington, DC: Congressional Research Service. Retrieved February 13,
2022, from https://crsreports.congress.gov/product/pdf/IF/IF10830
DataPath. (2022). What is healthcare consumerism and how does it affect
healthcare? Retrieved February 13, 2022, from DataPath:
https://dpath.com/what-is-healthcare-consumerism/
Kliff, S. (2013, August 8). Do you understand health insurance? Most people don’t.
Retrieved February 13, 2022, from Washington Post:
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/08/do-you-
understand-health-insurance-most-people-dont/
Ryan, P. (2008, February 26). Health Spending: The problem is government, not the
market. HealthAffiars, p. digitial. doi:10.1377/forefront.20080226.000333
WhiteHouse.gov. (2021, May). Budget Concepts. Retrieved February 13, 2022, from
WhiteHouse.gov: https://www.whitehouse.gov/wp-
content/uploads/2021/05/ap_6_concepts_fy22.pdf
