What you pay? Hard to say when it's health care

  • Article by: D.J. TICE , Star Tribune
  • Updated: April 18, 2014 - 7:16 PM

It’s not like the other shopping you do — and no one who could change that is really trying to do so.

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In a normal marketplace, complexities translate into a simple price, prominently displayed.

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It’s tempting to despair over America’s chances of ever controlling the health care costs that are eating our economy — especially as one ponders recent news on the subject alongside real-world experiences.

In early April, in what the Washington Post hailed as “a breakthrough … for health care transparency,” the Obama administration released voluminous data on Medicare’s payments to doctors in 2012 (over the docs’ longstanding objections). It turns out that almost a quarter of $64 billion in payments went to just 2 percent of some 880,000 physicians.

Transparency is always good. Yet analysts assured us that these payment patterns are impenetrably complicated, involving prescription-drug reimbursement rates and differences among medical specialties and regional disparities and on and on.

I was out grocery shopping as I reflected on what one could possibly do with all this new transparency — which presumably isn’t altogether new to the Medicare administrators who actually make these payments.

As I thought about this, I noticed that the supermarket was offering the bite-sized prunes I favor cheaper in the larger size, but that the chocolate chip mini cookies were no longer on sale. More for economic than health reasons, I loaded up on prunes and skipped the cookies.

Driving home, I saw that gas prices (proclaimed in oversized numbers) had risen at the station I usually visit. So I decided to wait on my fill-up and hope to spot a better deal.

Now, the fruit, chocolate, grocery and energy businesses are all fantastically complicated, with prices affected by everything from global weather and politics to local property taxes and teen labor market conditions. But a consumer doesn’t have to ponder any of that. In a normal economic marketplace, real “transparency” translates all of those complexities into a simple price, prominently displayed. And then the consumer, spending his or her own money, does what I did — buys some things and not others, and shops around for better deals.

Many millions of consumer choices send equally clear, simplified messages back to producers and distributors.

But we’ve evolved a health care system far too lacking in this genuine kind of transparency and feedback — one where people seldom spend (or withhold) their own money in response to clear prices. Instead, vast bureaucracies, public and private, allocate trillions according to arcane formulas and closed-door negotiations that try to penetrate all the complexities.

The primary hope for controlling health care costs these days seems to be the idea of “payment reform” — adjusting the formulas to give health care providers more incentive to offer “better care at lower cost.” Supposedly, the health care industry is all for this.

But America’s health care “costs” are ultimately the health care industry’s revenues. Can any arrangement, however complicated, really give that industry as a whole an incentive to voluntarily reduce its own revenues? It’s like expecting McDonald’s to help cut America’s hamburger costs.

In the end, controlling costs will require something like passing up the cookies and stocking up on the bargain-sized prunes — and letting the providers worry about the complexities.

As it happens, something like that was supposed to occur under Obamacare. The Affordable Care Act mandated cuts of some $200 billion over six years in a program called Medicare Advantage. It’s a managed-care alternative for Medicare recipients, run by private insurers, originally established in hopes of, naturally, reducing costs.

Instead, it turned out to cost the government about 10 percent more than traditional Medicare. The idea of the cuts was to bring spending on the program in line with the rest of Medicare and let insurers figure out how to deal with the complications.

But several weeks ago Medicare officials surrendered to a different brand of complexity — political this time — and backed off this year’s cuts. The industry had launched a loud lobbying campaign against the reductions, and hundreds of members of Congress from both parties weighed in with letters backing the industry’s concerns.

Among the protesting pols were seven members of Minnesota’s congressional delegation — Sens. Franken and Klobuchar, and Reps. Paulsen, Kline, Ellison, McCollum and Peterson. Nearly half of Minnesota seniors are enrolled in Medicare Advantage, the highest participation rate in the nation.

The moral? The political marketplace isn’t working to control health costs, either. If politicians understand one thing, it’s the complexities of their own “business.” They know that if these cuts went through it would deeply displease the insurance industry and seniors seeing premium hikes or benefit cuts. Meanwhile, the average taxpayer hardly sees what’s happening, never mind the transparency breakthroughs.

Health care spending now consumes more than 17 percent of the U.S. economy, up from less than 14 percent a decade ago. And while it’s true that the pace of increase has slowed over the past decade, the reasons for this are unclear and the chances of its persisting unknown.

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