Health Care: Ask anyone why health costs are so high, and one of the answers is likely to be "technology." But why does technology add costs in health care when it lowers costs everywhere else?
'Why isn't there an Uber of health care?" That's the question that Manhattan Institute health care expert Avik Roy asks in the opening of a must-read paper, "Health Care 2.0: Ushering In Medicine's Digital Revolution."
"Why can't we deploy, in health care, the same forces that are improving quality and lowering costs in virtually every other sector of the economy?"
These are questions that so-called health care experts rarely ask. Instead, they complain about how MRIs are expensive and how breakthrough drugs cost too much and how more government intervention is needed to keep it all in check.
Here's a typical explanation: "Medical advances can help us get well, avoid disease and delay death, but they also drive up spending," says an NPR report. "Patients and doctors often demand the newest treatments, even if there is little or no evidence that they are better."
In any other context, such a statement would be ludicrous. Why would any consumer demand a more expensive product if they had no idea whether it would work?
Roy correctly points to a huge, if largely unrecognized, problem in health care — the rise of third-party payments. The reason patients demand the latest technology, no matter the cost, is that they aren't paying the bills — an insurance company or the government is.
The clearest trend in health care is that steady increase in third-party payments. Government data show that in 1960, insurers and governments paid about half the nation's health care bills. Today, that figure is 89%. By 2024, it's expected to hit 90%.
In most cases, Roy notes, consumers aren't even buying the insurance. "Instead, a third party — an employer or the government — purchased third-party health insurance on their behalf."
This trend is driven almost entirely by bad tax law — which provides an unlimited tax exemption for employer-provided health insurance — and government policy, which is increasingly subsidizing insurance or paying bills directly.
With so few cost-conscious consumers out there, there's little incentive to create cost-saving products and services. At the same time, providers can charge far more than they would otherwise, knowing the direct consumer is largely indifferent to the price.
Roy points to a 20-year-old treatment for multiple sclerosis, Avonex. It costs six times today what it did in 1996, "despite the fact that over the intervening two decades, new drugs have emerged (that are) significantly more effective." That would never happen in a functional marketplace.
At the same time, the government imposes huge barriers to entry, making it nearly impossible for innovative, cost-effective services to emerge.
Food and Drug Administration regulations mean only well-heeled companies can afford to develop new products. "Certificate of need" laws shield incumbents, and strict licensure requirements limit how many medical professionals there are.
"The cumulative weight of these," Roy explains, "makes entrepreneurship in U.S. health care extremely costly."
There is a way out of this mess, but only if political leaders understand how we got into it, and only if they recognize that health care can work just like every other market.
As Republican presidential candidate Carly Fiorina put it in one of the GOP debates: "We need to try one thing in health insurance that we've never tried. We need to try the free market."
