Our third-party health insurance system has created a two-tiered pricing system for consumers; low out-of-pocket cost if your provider is “in network,” and steeply higher if you choose an out-of-network provider. As New Jersey Star-Ledger columnist Tom Moran wrote in Killer medical bills, and how we all pay the price:
April Kuzas woke one morning to find her three-year-old son gasping for breath and shaking uncontrollably. She rushed him to the nearest hospital, terrified.
Her boy was fine, as it turned out. After 90 minutes in the emergency room at Christ Hospital in Jersey City, she took him home, relieved that a CAT scan showed no brain abnormalities. It was a false alarm.
Then she got her bill: $20,000.
"They charged us $13,400 for the room alone!" said Kuzas, a divorced mom. "I just thought, 'Oh my God, this can't be happening.'"
“Yes, April,” writes Moran, “it can.”
Kuzas, as Moran explains, had insurance. But the emergency room she brought her son to was not part of her insurance provider’s network of doctors and hospitals. So her insurance wouldn’t pay, and the hospital billed her directly.
Undoubtedly, Kuzas’s ordeal is an extreme case. But it’s true that people who have insurance are often stuck with large medical bills whenever they stray outside of their insurance company’s approved network of providers.
Moran blames greed, in part (of course). That’s the simplistic and childish explanation. But Moran acknowledges a deeper cause:
[I]t does get a tad more complicated than [greed]. The hospital executives who nailed April are targeting a small group of patients that amount to about 7 percent of their caseload.
They are aiming at that group because they can under New Jersey law, and because they feel they are being shortchanged by big insurance firms like Horizon, which dominates the market, and by government programs like Medicaid, which sets its own rates by fiat.
Moran does give the hospital a chance to defend itself:
"I'm trying to keep my hospital open," says Dennis Kelly, CEO of CarePoint Health, the for-profit chain that owns Christ Hospital. "This is the only way we have come up with to offset the underfunding."
Moran labels Kuzas’s situation—an insured individual straying outside of her insurer's network—a “loophole.” “Loophole” is the statists’ “anti-euphemism” for an area of the economy still free from government control; in this case, an area of healthcare not price controlled by government. As Moran notes, 93% of healthcare pricing is controlled by government programs or government-controlled, market dominating insurance companies.
Providers like Christ Hospital, Moran writes, “are aiming at that [7%] group because they can under New Jersey law.”
Yes, the government-dominated health insurance system caused Kuzas’s debacle. The solution is to begin undoing the cause through progressive free market reforms. But not as Moran, a statist on healthcare, sees it. Moran supports a bill currently working its way through the Nj legislature to control the kinds of billings that Kuzas faced. This is a typical statist reaction to problems caused by government controls—another law with more government controls.
But even that’s not enough for Moran. He concludes:
What's striking about this to me is how irrational all this is, and how much time and effort is invested in cost shifting. Imagine if these players were focused instead on care.
. . . It would make far more sense to have a simple national system like Canada's, where the government provides insurance for everyone and pays providers at rational rates. Think of it as Medicare for all.
Someday, I predict, we will get there. Once we have exhausted all the alternatives.
I left these comments, edited for clarity:
Yes, the cause of these price distortions are government programs like Medicaid, Medicare, and a government-controlled health “insurance” industry that operates more like an arm of government than a private, competitive industry. So the obvious solution is not more government control, but less. Unshackle the insurance industry from government controls and mandates. government controls foster the growth of market-dominating behemoths like Horizon. Also phase out Medicare and Medicaid.
Price controls, an integral part of government interference into healthcare, always creates distortions, which then become an excuse for statists to push for more controls. (Price controls can come in two forms; overt, as with Nixon’s policies in the 1970s, or covert, as when government establishes institutions, such as Medicare, with coercive monopsony power.) The market price mechanism works only when all participants—consumers, providers, insurers—are free to contract voluntarily to mutual advantage in a free market; i.e., a market absent aggressive government coercion. It makes no sense to now give government total power over healthcare to fix the problems caused by almost total control as the solution to problems like the outrageous Christ Hospital billing; not for anyone actually looking for a solution, rather than an excuse to expand government controls.
The market price mechanism works to rationalize costs because it is based on the total cumulative voluntary decisions of producers and consumers, which is based on the moral right of all participants to contract voluntarily. The price mechanism has been increasingly unfree to work in healthcare as government programs and controls have proliferated over the decades. The result has been, predictably, exploding costs. And the result of the exploding costs is that government tries to control costs by pressing down on one segment of the market, which has the effect of forcing up prices on the remaining uncontrolled portions, like pushing on a water bed. It’s ludicrous to now blame whatever private scraps are left in the market—which in regards to pricing amounts to only 7% of the market.
It’s also ludicrous to say that a free market, where prices are set by the voluntary choices of millions of individuals, is not rational—but that a 100% government controlled “insurance” system, in which a handful of government bureaucrats dictate prices, is rational. It’s precisely this type of centralized control that is behind April Kuzas’s ordeal.
Government interference in healthcare began in the 1930s and 40s, when insurers were given tax-free status and wartime price controls led to the third-party-payer system. Government interference has been increasing steadily ever since. The predictable result; healthcare spending rose from 5% of GDP to 18%. The last paragraph of this article—“we will get there. Once we have exhausted all the alternatives”—should read, “We have exhausted all government options: It’s time to restore the liberty of private individuals to manage their own healthcare affairs without government interference.”
American Healthcare's Great and Powerful Oz