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THIS is Why Health Care Is So Expensive

By Charles Sizemore⋅ September 17, 2009 ⋅ ⋅ Post a comment

In a prior post on the subject, I noted that health spending in the United States is vastly higher than anywhere else in the world. Our government, via Medicare and Medicaid, spends roughly the same amount as a percentage of GDP as Canada and the UK. How is it that we spend as much on the elderly and the poor as the Canadians and British spend on their entire populations? Meanwhile, private insurance,which most Americans use, roughly doubles the total money spent.

The question remains: WHY?

Among the reasons we offered were the out-of-control tort system that raises the cost of malpractice insurance to ridiculous levels and the fee-for-service model that encourages doctors to perform unnecessary procedures. But perhaps more than any of this is the sickening amount of waste in the system.

The New York Times ran an article that should infuriate every taxpayer and insurance buyer in the country: “For Speech-Impaired, Insurance Fights Remedy.”

In telling the story of a woman suffering from Lou Gehrig’s disease, the Times writes,

A couple of years ago, she spent more than $8,000 to buy a computer, approved by Medicare, that turns typed words into speech that her family, friends and doctors can hear [like that used by physicist Stephen Hawking]. Under government insurance requirements, the maker of the PC, which ran ordinary Microsoft Windows software, had to block any nonspeech functions, like sending e-mail or browsing the Web.

Dismayed by the PC’s limitations and clunky design, Ms. Lynn turned to a $300 iPhone 3G from Apple running $150 text-to-speech software.

Only the government could think of ways this ludicrous to waste money. In order for a device to qualify for Medicare reimbursement (which most private insurance companies use as their guide), it cannot have any functions not specifically related to the medical treatment at hand. This means that time and money must be spent making a productive machine less productive!

The woman featured in the article, Kara Lynn, should be given a medal by the President. Because she had the gumption to seek a cheaper alternative — something that the government and the medical insurance companies seem incapable of doing — she has saved American taxpayers and insurance payers more than $8,000 in direct costs and untold amount of money in indirect administrative costs (How many government paper pushers does it take to screw in a light bulb…or fill out a series of unnecessary forms…or do anything, for that matter…)

In words that should be embarrassing, the Times quotes Peter Ashkenaz, a spokesman for Medicare and Medicaid: “We would not cover the iPhones and netbooks with speech-generating software capabilities because they are useful in the absence of an illness or injury.”

Heaven forbid the government fund something useful!

This is the problem with our system, and it is a problem that ObamaCare does not address. Digitizing medical records and offering insurance subsidies will do nothing to eliminate these kinds of utter wastefulness. If you want real health reform, it starts with firing everyone in charge of Medicare and Medicaid and starting over.
Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

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Discussion

9 comments for “THIS is Why Health Care Is So Expensive”

One of the major issues of out of control costs is the makup on services. Approximately 30% of our medical costs go to the insurance Companies for their service. Medicare charges 3%. Why the 27% difference? For this the insurance companies pick and choose and deny coverage rather than insuring a pool like the car insurance companies. Health insurance companies by definition are not insurance companies…they are business brokers or middle men. They make less money if costs are lowered. As a Nation we are at a competitive disandvantage when the population is not healthy. We will not have aging boomers who can work longer in order to matain consumption. Why are we defending the insurance companies rather than holding them accountable.

Posted by Richardo | September 17, 2009, 7:43 am
Charles
Nice post. This is exactly why more gov run health “insurance” will bankrupt the US. And it doesn’t matter if it’s a “public option” or private run under rigid gov control. The newest bill from Baucus sounds great unless one understands the ramifications of the restrictions and controls put on private health insurers. Anyone who believes they can insure millions more people, take all comers (prior medical condition) and not charge more for those with serious conditions is completely ignorant of insurance and business. This is nothing more than a hidden tax on the currently insured middle class as the real costs will result in much higher premiums. Or worse, if the rate controls are too severe (likely), private insurance will simply dry up and disappear replaced by the “public option”. The cowards in DC don’t have the guts to levy a tax, so as usual they will force private enterprise to collect the hidden tax for them and then demonize those same businesses. Actually, that sounds like a great plan for a socialist who can’t get the “public option” passed the American people now.
As early retirees we will likely benefit from all these social programs, but our children will pay a terrible price. The US is behaving like the worst of the borrow and spend folks who got us in this mess. The outcome will be the same, complete and total bankruptcy. Who will bail out the US, China or India? Has the US’s time as a world power passed? Is DC’s borrow and spend policy the new “bubble”? What will happen in the 2010 mid-terms? We can hardly wait to get up each morning and watch the high drama!!
Keep the great articles coming.

Posted by mkern | September 17, 2009, 8:47 am
Mr. Sizemore is obviously not an attorney. And he obviously has not researched this topic of healthcare reform to any competent degree. The cost of medical malpractice litigation is less than 1% of the total cost of healthcare in this country (source: Money-Driven Medicine by Maggie Mahar). If tort-reform was the answer, those states that already have tort reform would have less healthcare costs. That’s the theory and argument. In reality, it doesn’t work that way. The savings are not passed onto the patient or the taxpayer. Instead, the profit is pocketed by the doctors and insurance companies and they go on charging what they were charging and more. The AMA and insurance companies have done a fantastic job of redirecting the public’s attention away from their profits and onto attorneys. I sincerely hope Mr. Sizemore gets better educated about healthcare reform before he blogs again on this topic.

Posted by georgenelson57702 | September 17, 2009, 9:38 am
This is amusing. A personal injury lawyer chastised me for my comments about the tort system and malpractice insurance.

Can’t really say I’m surprised…the tort system keeps ambulance chasers in business.
CLS

Posted by Charles Sizemore | September 17, 2009, 10:44 am
Ricardo, I agree that it is a mistake to defend insurance companies. At best, they can use the defense that they follow Medicare’s guidance, but honestly, that is a weak excuse. Still, reform of Medicare would go a long way toward reforming insurance companies as well.

Mkern, thank you for your nice comments. Indeed, Medicare will singlehandedly bankrupt us without real reform. And no one in Congress wants to touch it!

CLS

Posted by Charles Sizemore | September 17, 2009, 10:49 am
I took the time to read the original article in the NYT. I then googled the quote “useful in the absence of an illness or injury” No surprise, that is the LAW in NY according to New York State Medicaid guidelines for durable medical equipment. Link follows: http://www.emedny.org/ProviderManuals/DME/PDFS/New_York_State_Medicaid_Hospital_Bed_Guidelines.pdf on page 1 General Definitions
This is a great example of what is wrong with government intervention in health care. The worker bees at NY Medicaid were merely following the LAW that governs this situation. So, if we are to fire everyone in charge of Medicare and Medicaid, it would have to start with the US Congress and President. Sounds like a good idea to me, but it would solve nothing, because they would be replaced with more of their ilk. Rules and laws do not make for good medicine. Health insurance is already one of the most heavily regulated industries in the country. Do you like the end result? So more regulation is the answer? I’m am not wise enough to know the answer, but I’m pretty sure more of a bad thing does not equal a good thing.

Posted by mkern | September 17, 2009, 7:17 pm
Mkern, thanks for the link. It just makes you a little sick to your stomach to read this nonsense. Just once, it would be nice if ANY member of congress from either party would propose fixing this. Alas, the “cure” for bad regulation seems to be more bad regulation…

Posted by Charles Sizemore | September 18, 2009, 7:44 am
Tort law creates increases in the haealth care system that are not directly linked to lawsuits. Appropriate Tort reform could eliminate some waste of testing and procedures.

In addition, The Health care system will only bankrupt the Country as long as the Country is paying for it. I promise you that it wll not bankrupt me when I pay formy own as I do now. I can not guarentee myself unlimited quantities of medical care, but pretty decent care.

Hhillary got it wrong. It doesn’t take a village. It takes a group of individuals - who care. Surround yourself with those who seek to be excellent and it wll raise your quality of life

Posted by rankin.douglas | September 19, 2009, 1:12 pm
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