John Goodman of the NCPA has a great article about how the current healthcare system is heavily distorted by government policies that result in people making decision with other people’s money (or at least what they perceive as other people’s money). The excerpt below is a good summary of John’s key points, but I’ll add a couple of rhetorical questions. What do you think would happen if government created a tax break that made it attractive to expand auto insurance to cover the cost of oil changes and trips to the gas station? Would that make that market more efficient or less efficient? Would Jiffy Lube and Sunoco charge higher prices or lower prices? What would happen to administrative costs?
Almost everyone believes there is an enormous amount of waste and inefficiency in health care. But why is that? In a normal market, wherever there is waste, entrepreneurs are likely to be in hot pursuit — figuring out ways to profit from its elimination by cost-reducing, quality-enhancing innovations. Why isn’t this happening in health care? As it turns out, there is a lot of innovation here. But all too often, it’s the wrong kind. There has been an enormous amount of innovation in the medical marketplace regarding the organization and financing of care. And wherever health insurers are paying the bills (almost 90 percent of the market) it has been of two forms: (1) helping the supply side of the market maximize against third-party reimbursement formulas, or (2) helping the third-party payers minimize what they pay out. Of course, these developments have only a tangential relationship to the quality of care patients receive or its efficient delivery. The tiny sliver of the market (less than 10 percent) where patients pay out of pocket has also been teeming with entrepreneurial activity. In this area, however, the entrepreneurs have been lowering cost and raising quality — what most of us wish would happen everywhere else. …Wherever there is third-party payment, the goal of innovation is to produce more products that qualify for reimbursement, even if the effects on patient outcomes are only marginal. Wherever there is no third-party reimbursement, innovators are focused on ways to lower cost and raise quality. Take cosmetic surgery. Over the past two decades there has been an enormous amount of innovation in the field — all of the cost-lowering, quality-raising variety. That explains why the volume of cosmetic surgeries grew six-fold over the past 20 years, while the real price declined by more than one-third. Similarly, there has been remarkable innovation in LASIK surgery — another area where third-party payers are not. Yet the real price of LASIK surgery has declined by 25 percent over the past decade. The same principle can be seen at work in the international marketplace. For example, India has a potentially huge market for medical care. But 80 percent of health care spending in that country is private and there is very little health insurance. So some of the companies that make expensive technology for the developed world are now finding ways to produce the same services for a fraction of the price. GE Healthcare, for example, has introduced a portable electrocardiogram machine into the Indian market that will perform the heart exam for 20 cents (compared to a normal price of $50). Siemens (another maker of high-end, expensive equipment) has built mobile diagnostics units for the Indian market with X-ray, ultrasound and pathology systems.
[…] the main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other people’s […]
[…] By the way, it’s not my intention to defend the employer-based system, which largely exists because of a foolish loophole in the tax code. As far as I’m concerned, that system is a convoluted and inefficient mess that has contributed to the health care system’s third-party payer crisis. […]
[…] main symptom of all that intervention is pervasive “third-party payer,” which is the term for a system where people buy goods and services with other […]
[…] After all, never forget that our real healthcare crisis is a giant government-caused third-party payer problem. […]
[…] Reality check: CRFB’s analysis is correct, though it would have been nice to see some discussion of how third-party payer is the problem. […]
[…] The only real solution is to restore a free market. That means not only repealing Obamacare, but also addressing all the other programs and policies which have caused the third-party payer crisis. […]
[…] subsidies and price controls. One of the worst manifestations of this type of intervention is the system of third-party payer, which occurs when government policies artificially reduce the perceived prices of goods and […]
[…] subsidies and price controls. One of the worst manifestations of this type of intervention is the system of third-party payer, which occurs when government policies artificially reduce the perceived prices of goods and […]
[…] Health care? Nope. […]
[…] Health care? Nope. […]
[…] But I will say (assuming you actually want to solve the problem) that at some point you have to deal with the government programs and interventions that have given us a third-party payer crisis. […]
[…] Regular readers know that our healthcare system is screwed up by bad government policy. More specifically, spending programs such as Medicare and Medicaid, combined with tax preferences and regulations that encourage over-insurance, have created a giant third-party payer problem. […]
[…] And that means not only repealing Obamacare, but also addressing all the other programs and policies which have caused the third-party payer crisis. […]
[…] And that means not only repealing Obamacare, but also addressing all the other programs and policies which have caused the third-party payer crisis. […]
[…] to deal with the larger government-caused problems in our healthcare system, all of which lead to third-party payer and undermine the efficiency and low costs that exist when there is a genuine free […]
[…] to deal with the larger government-caused problems in our healthcare system, all of which lead to third-party payer and undermine the efficiency and low costs that exist when there is a genuine free […]
[…] had a healthcare system that was plagued by excessive government intervention, which led to a third-party-payer crisis and massive […]
[…] States had a healthcare system that was plagued by excessive government intervention, which led to a third-party-payer crisis and massive […]
[…] puts people on waiting lines and causes needless deaths, America’s big-government approach causes third-party payer which cripples the free market and leads to high prices and […]
[…] people on waiting lines and causes needless deaths, America’s big-government approach causes third-party payer which cripples the free market and leads to high prices and […]
[…] including the IPAB “death panels,”maybe we’ll have the worst of both worlds. The inefficiency and expense of American-style third-party payer and the clinical cruelty of British-style […]
[…] including the IPAB “death panels,” maybe we’ll have the worst of both worlds. The inefficiency and expense of American-style third-party payer and the clinical cruelty of British-style […]
[…] including the IPAB “death panels,” maybe we’ll have the worst of both worlds. The inefficiency and expense of American-style third-party payer and the clinical cruelty of British-style […]
[…] Unfortunately, that will be very difficult precisely because people like the illusion that they don’t pay (even though they do bear the costs in the form of lower take-home wages and higher taxes). […]
[…] a video on the fiscal nightmare of Obamacare and written several times about the serious problem of government-caused third-party payer – including just as few days ago while nit-picking about an otherwise […]
[…] is missing the point. The reason we have “spiraling health costs” is because of something called third-party payer. As the chart shows, nearly 90 percent of health care costs in America are financed by someone […]
[…] President was not talking about solving the problem of government-caused third-party payer in health […]
[…] President was not talking about solving the problem of government-caused third-party payer in health […]
[…] of the worst manifestations of this type of intervention is the system of third-party payer, which occurs when government policies artificially reduce the perceived prices of goods and […]
[…] This new video, based in large part on the good work of Michael Cannon, explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem. […]
[…] because this distorted system leads to ever-higher costs, the increase in total compensation for lower-income and middle-income people does not translate […]
[…] because this distorted system leads to ever-higher costs, the increase in total compensation for lower-income and middle-income people does not translate […]
[…] because this distorted system leads to ever-higher costs, the increase in total compensation for lower-income and middle-income people does not translate […]
[…] how about government healthcare subsidies driving up the price of healthcare, which then leads politicians to decide that there should be even more subsidies because healthcare has become more […]
[…] how about government healthcare subsidies driving up the price of healthcare, which then leads to politicians deciding that there should be even more subsidies because healthcare has become more […]
[…] This new video, based in large part on the good work of Michael Cannon, explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem. […]
[…] never pretended the American healthcare system is perfect, largely because of massive government intervention and control. And even a laissez-faire system doubtlessly would generate some horror […]
[…] This new video, based in large part on the good work of Michael Cannon, explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem. […]
[…] This new video from the Center for Freedom and Prosperity explains why Medicaid should be shifted to the states. As I note in the title of this post, it’s good federalism policy and good fiscal policy. But the video also explains that Medicaid reform is good health policy since it creates an opportunity to deal with the third-party payer problem. […]
[…] In other words, Berwick’s column accidentally teaches us an important lesson. When consumers are in charge and responsible for paying their own bills, markets are very efficient and costs come down. But when government policies cause third-party payer, consumers have little if any incentive to spend money wisely – leading to high costs and inefficie…. […]
[…] In other words, Berwick’s column accidentally teaches us an important lesson. When consumers are in charge and responsible for paying their own bills, markets are very efficient and costs come down. But when government policies cause third-party payer, consumers have little if any incentive to spend money wisely – leading to high costs and ineff…. […]
[…] In other words, Berwick’s column accidentally teaches us an important lesson. When consumers are in charge and responsible for paying their own bills, markets are very efficient and costs come down. But when government policies cause third-party payer, consumers have little if any incentive to spend money wisely – leading to high costs and ineff…. […]
[…] In other words, Berwick’s column accidentally teaches us an important lesson. When consumers are in charge and responsible for paying their own bills, markets are very efficient and costs come down. But when government policies cause third-party payer, consumers have little if any incentive to spend money wisely – leading to high costs and ineff…. […]