David A. Hyman, MD, JD, and Charles Silver, MA, JD, have written an insightful book that examines the numerous problems with the United States’ health care system. They do not merely document the problems, however; they also propose some potential solutions.
The fact that they have thoroughly researched the topic is clearly evident: the “Notes” section at the end of the book contains more than a hundred pages’ worth of citations. They provide the reader with a plethora of interesting facts and figures. Here are two examples: “In 2016, Americans spent $3.4 trillion on health care. In 1960, we spent only $27 billion. That's an average increase of 9 percent per year. Had health care spending grown at the same rate as the general economy, it would have been about $220 billion in 2016, just under 7 percent of the figure it actually was." (p. 7) & “Between 1997 and 2015, the pharma sector ‘donated’ $3.3 billion (in nominal dollars) to congressional campaigns—43 percent more than the second-largest contributing industry. Hospitals and nursing homes contributed another $1.4 billion. Physicians and other health professionals added still another $1.2 billion. All in, that works out to about $735,000 per legislator per year.” (p. 144)
Hyman and Silver exhaustively demonstrate that it is government intervention in the health care industry that has caused the astronomically high costs that we have today. Consumers have no incentive to care about costs when Medicare or Medicaid is paying their bill. Hyman and Silver write, “To get [Medicare] enacted, President Lyndon Johnson and Congress effectively gave doctors and hospitals the keys to the federal treasury. At the outset, there were no controls on the prices providers could charge, the services they could perform, or total funding for the program. Medicare even guaranteed that hospitals would be profitable, and that as their costs rose their profits would increase. No one should have been surprised that prices and spending quickly spiraled out of control.” (p. 9) A few pages earlier, they offer this relevant quote from a source: “‘In the first year of Medicare’s operation, the average daily service charge in American hospitals increased by an unprecedented 21.9%.’” (p. 7)
In a complaint against a hospice company that had defrauded Medicare for millions of dollars, the Department of Justice wrote: “‘Because it is not feasible for the Medicare program, or its contractors, to review the patient files for the millions of claims for payments it receives from hospice providers, the Medicare program relies upon the hospice providers to comply with the Medicare requirements, and trusts the providers to submit truthful and accurate claims.’” (p. 199) No wonder Medicare and Medicaid fraud are so rampant! The government estimates the annual toll of Medicare and Medicaid fraud to be $100 billion; Hyman and Silver cite an expert who estimates that the actual amount of fraud might be more than three times the government’s figure (p. 226). When waste and abuse are added, the figure amounts to more than $1 trillion, a third of the total spending on health care in the United States. Hyman and Silver detail many individual instances of major medical fraud and wasteful practices such as unnecessary procedures in the book.
Hyman and Silver also note that Medicare is a Ponzi scheme. They write, “A typical one-earner couple can expect to receive Medicare benefits worth $427,000 after paying in only $70,000. A two-earner couple fares slightly worse. They get $427,000 in benefits at the price of $102,000 in Medicare taxes. But that's still a bonus of $325,000." (p. 302). Where does this additional money come from? Young people’s taxes. What makes this especially appalling is that the average net worth of older individuals is five times greater than the average net worth of younger individuals. The poor are being taxed to pay for the health care of the rich. (p. 408)
Private insurance is also a problem because it reduces a consumer’s care about cost to a deductible or copay instead of the total cost. For example, if John Doe has a deductible of $2,500, then it doesn’t make any difference to him that hospital A charges $70,000 for a knee replacement while hospital B charges only $11,000 for the same procedure since he is responsible for $2,500 either way; this means that there is little incentive for health care providers to compete on price. (By the way, those radically different prices for the same procedure are real; see p. 399-400.) Once again, government intervention is to blame; by providing tax exemptions for medical insurance, the government has incentivized people to purchase it. The “Affordable” Care Act (a.k.a. Obamacare) made this even worse by mandating comprehensive coverage. Also, individuals were further incentivized to purchase medical insurance due to the skyrocketing costs created by Medicare and Medicaid.
Hyman and Silver describe additional problems, but I want to turn my attention to some of the solutions they present.
They are excited by the recent development of the retail sector entering into the health care market. Companies like Costco, CVS, and Walmart have started providing basic medical services at lower prices than traditional providers offer. These companies are competing with each other and also providing some competitive stimulus to traditional health care organizations. Hyman and Silver hope that regulators do not stifle this development.
Medical tourism is another recent trend that Hyman and Silver see as a positive force. Individuals travel to other countries to have procedures performed for a dramatically lower price. The quality of these procedures is often as good as (and sometimes even better than) the quality available in the United States. In addition to traveling out of country, many individuals are traveling to other cities or states to have a procedure performed since costs can vary wildly over even short distances. Also, threatening to travel elsewhere can sometimes spur a nearby provider to match the price.
Hyman and Silver propose eliminating tax exemptions for medical insurance so that people shift from using comprehensive coverage to catastrophic coverage (since it has lower premiums). Other types of insurance (such as car insurance and homeowner’s insurance) focus only on catastrophic coverage. People don’t use their car insurance to get gasoline or an oil change. Having consumers pay directly for the majority of their routine medical care will make them price conscious and force providers to compete for lower prices. On a related note, Hyman and Silver note that in some cases making a cash payment directly to a health care provider results in a lower cost for the consumer than if insurance had been utilized.
They propose giving fixed, monthly cash payments directly to Medicare and Medicaid recipients since this would eliminate the majority of the fraud and waste that plagues those programs. Also, by again having consumers pay directly for health care services it would incentivize health care providers to compete on price.
I don’t agree with everything that Hyman and Silver propose; for example, I strongly disagree with their proposal of replacing prescription drug patents with prize payments from the government to companies that develop new drugs. While Hyman and Silver are in favor of reducing government intervention in health care, they are not in favor of a fully laissez-faire system like I am. But while I disagree with them on this, I still highly recommend their book because they do a masterful job of detailing all that ills that ail our current health care system, and most of the remedies they propose would move us a few steps closer to laissez-faire health care.
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