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Whenever I hear stories about how some poor American couldn't pay their medical bills due to how obscene the prices are, the subsequent political discussion is always about health care coverage (Obamacare, Medicaid, Universal Healthcare, and all those other buzzwords).

Why?

Why isn't it the privatization (which causes those obscene prices) that is the central issue that people focus on? Wouldn't that target the actual issue more directly?

For example, in my country, we have universal health care. That's great, and I get a lot of stuff for free. But even if we didn't have universal health care, I could still afford most medical bills sent my way, and it would in no way bankrupt me.

For example, not too long ago, I had my ACL reconstructed, for free at a public hospital, but even if I had to do it at a private hospital out of my own pocket, it would cost me about 4500 dollars. I mean, that's a lot of money, but nothing that would bankrupt me, and certainly you ought to have at least that much saved up for emergencies anyways.

On the other hand, an ACL reconstruction in the USA would cost on average 35.000 dollars, and that's not even including the price of medicine, crutches, etc., that are much higher than they are here.

So why do Americans focus so much on coverage of medical bills, when it's the size of those bills that are the main problem?

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    Are you sure those private hospitals aren't just cheap because health care is universal? If there was no public health care, wouldn't many more people go private so that those could raise prices as people have few alternatives? – JJ for Transparency and Monica Mar 31 at 21:38
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    @JJJ: No, they're cheap because they're regulated. As in the price gets negotiated (read: set) by the State. – Denis de Bernardy Mar 31 at 21:48
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    Cynically, because the politicians and lobbyists on both sides have a vested interest in keeping those prices high to keep insurance or bigger government the only realistic way for citizens to deal with them. – IllusiveBrian Mar 31 at 21:53
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    @JJJ: I'm not privy to the details but I wouldn't be surprised if some developing countries do that. At the end of the day a number of them tell big pharma to suck it, and basically stick a gun to their faces saying if you charge more than [price] we'll produce generics without any regards to your patents. (And some do precisely that for AIDS drugs.) – Denis de Bernardy Mar 31 at 21:58
  • @JJJ isn't that the same as saying providers act ad a cartel to keep cost artificially high? Presumably private providers in places with universal public coverage aren't going bankrupt, so should competition between providers in areas without public care just being prices down further? Maybe this then becomes a economics question instead. – Jontia Mar 31 at 22:05
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This is such a broad topic that it's difficult to cover in a SO answer, but the key reason is lobbies, with a pinch of corporate interests and a tint of racism attached.

Healthcare reform efforts in the US have a very long history.

The main reason early efforts were repelled was due to lobbying efforts by doctors (the AMA labeled it "socialized medicine" and continued to do so until much later, but that was just euphemism for wanting to charge whatever they could get away with). The other is that (white) city workers were already getting insurance from their employers.

FDR tried to introduce some measures against a Great Depression backdrop, but failed. In 1951, Truman's IRS made group premiums paid by employers tax-deductible, essentially setting those in stone.

During the Civil Rights era, Johnson got Medicare and Medicaid passed in 1965. Make that only got. Insofar as I understood from following recent reporting on the topic, he reportedly was aiming for far more. But the AMA was ferociously opposed to it. So were insurance companies.

The latter two groups, and big pharma, continually lobbied against in the subsequent decades. There were incremental improvements here and there (including some under Republicans, e.g. Nixon) but opposition by lobbyists was stiff enough that the next big leg up only came under Obama.

By then, the above-mentioned tint of racism was in full swing. Against the person whose name is attached to expanded health coverage, but also against who it affected. It's still around.

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    @agc: I amended your edit because I was actually referring to the early 1910s campaign against healthcare expansion, half a century earlier, and which I wasn't aware of either until I answered this question. The wiki reference would appear to be "Walker, Forrest A. (Winter 1979). "Americanism versus sovietism: a study of the reaction to the Committee on the Costs of Medical Care". Bulletin of the History of Medicine. 53 (4): 489–504. PMID 397839." – Denis de Bernardy Apr 1 at 19:38
  • In short, the whole mess is caused by the conservative (AMA) jungle law moral mindset : it is ETHICAL to profit from somebody pain even with unwanted procedure. Poor medical follow up (to track whether those procedure or medicine are useless or not) in USA is also part of AMA doing. – mootmoot Apr 2 at 9:32
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Why isn't it the privatization (which causes those obscene prices) that is the central issue that people focus on? Wouldn't that target the actual issue more directly?

No, because the mere fact that some aspects of the US healthcare system are private is not the reason why the US spends a disproportionate amount of money on healthcare. As you yourself note in your question, there is private healthcare in other parts of the world that does not have this uniquely American problem of high prices. What is unique to the United States is its conception of health insurance, which despite its name does not actually function the way that other forms of insurance are expected to.

How is insurance supposed to work?

Insurance is supposed to be a financial product that will provide you with money in the event an unlikely but costly future event takes place. It does this by charging you and many other people like you a small premium on a regular basis, and if the bad thing happens to you, you file a claim and the insurance company pays you a lot of money from the premiums other people are paying. The main operating assumptions behind this kind of insurance are:

  • The event you are insuring against is unlikely to happen
  • The event hasn't already happened
  • There are lots of people like you facing similar risks

If you have an event that is likely to happen, then the natural thing to do is charge a very large insurance premium that approaches the size of your loss in advance, because otherwise the insurance company (and by extension, the other people who file claims and need money) will lose money. If the event already happened, then with certainty the insurance plan would need to pay the full amount, so the natural thing to do is to make your premium 100% of whatever that amount is. If there are not a lot of other people like you facing similar levels of risk, then the key thing that allows the insurance company to charge a small premium to pay big claims, that all of you will not need all of the money, is no longer operative and this entire system will fall apart.

None of these assumptions are actually operative in the case of what is called health insurance in the United States.

Political intervention in what is health insurance ought to do has made the first and second assumptions in the US health insurance system non operative. People are and have been encouraged for decades to use health insurance for every health related cost they may face under the theory that certain insurance arrangements in the United States make this beneficial (e.g. the HMO, which I would argue hasn't actually worked out that way). Another term for "an event that has already happened" is "pre-existing condition", something that is an un-popular idea that was recently banned as part of the Affordable Care Act.

The result is a system which, despite being called insurance, doesn't actually function like insurance, but instead acts as a form of pre-payment for possible healthcare services, some of which you and everyone else in the plan certainly will use (you go to the doctor every year, right?). This causes premiums to get really high and everything to become expensive. The natural reaction to having a really high insurance premium (where "really high" could be equal to or greater than rent you pay) is to consider whether or not you really need health insurance, and maybe do without it if you're young and healthy. Which, makes the insurance even more expensive, because old and sick people are definitely more likely to have medical bills than young and healthy people. This is a problem called "adverse selection" and it's why the Affordable Care Act and the Swiss healthcare system have mandates to ensure everybody buys health insurance (though in the US case, the mandate was too weak and has recently been repealed).

I know what you're thinking: this sounds like a giant Ponzi scheme that is in the process of collapsing, why would anyone ever get involved in any of this?

And the short answer is, because many decades ago, someone decided that health insurance benefits as employee compensation should have special tax exempt status, so it became popular to offer it as a form of compensation. When that started happening, people who weren't employed by big corporations wanted nice health plans too. Naturally, they asked their Congressman to make that happen. Then Congress kept fiddling around with the system, with the goal of trying to cover 100% of everyone in the country with health insurance, because that's what was politically popular. Now that all of that is failing because the Affordable Care Act has made the fact that this system is defective obvious (but not the underlying defects of the system, which most people don't actually understand) the new politically popular thing is to blow all of this up and replace it with something else.

  • The last paragraph seems to argue that the system worked fine so long as the "insurance" was paid for by employers (and only large ones at that), but only failed when there was an attempt (by government) to apply it to the general population. The failure modes for the original system, however, involve the fact that small and medium businesses make up a significant percentage of employers; people often move between employers, and are sometimes unemployed; people retire; and with exclusions for pre-existing conditions, any of those scenarios will result in inadequate coverage ... – cpcodes Apr 2 at 20:48
  • ... even if you DO work for a large company. This, to my admittedly under-informed mind, seems like a situation that begs for improvement. Am I misreading something here? – cpcodes Apr 2 at 20:48
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    @cpcodes I don't read the last paragraph that way. More that the tax exempt status was the beginning of the end. – eyeballfrog Apr 3 at 0:10
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    @cpcodes That’s not the way that I intended it. Eyeballfrog has got it right. Basically, the idea that the big employer should pay for insurance, and that everyone else should have insurance the way big employers provide it was the beginning of the descent into madness. The idea that a particular product should be so closely tied to your employment status is just nutty, and all the problems you cite with it are valid failure modes. The problem with the solutions tried in the ensuing 40+ years basically centered around expanding this crazy model instead of dealing with its problems. – Joe Apr 3 at 1:52
  • Thanks for the clarification, that clears things up. I think that the "wanted nice health plans too" phrasing made it sound more like entitlement than necessity, and tainted the flavor of the rest of the paragraph for me. – cpcodes Apr 3 at 16:40
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Look at the interests involved. The following is overly simplified but still somewhat accurate.

Better coverage:

  • Good for hospitals, because more bills get paid.
  • Good for pharma, because more sales.
  • Good for insurers, because more customers (assuming private insurers remain part of the system).
  • Good for poor people because they get treatment.
  • Irrelevant for rich people.

Cheaper treatment:

  • Bad for hospitals, because less profit.
  • Bad for pharma, because less profit.
  • Bad for insurers, because less profit.
  • Good for people, because they keep more money.

Given the above, there shouldn't really be anyone fighting against better coverage (in practice things look slightly different). That makes it convenient to tackle better coverage first.

But why not simply do both at the same time? Politics. The interests that might be convinced to become political allies in the fight for better coverage have incentives to oppose cheaper treatment. If you end up pushing for both in one big package, you risk losing these political allies.

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    Your answer completely ignores the fact that the two main ways to reach the top part of your answer are: 1) Massively raise taxes across the board, or 2) Extreme government regulation of the industry. There's no magic answer where you get everything in the top at no cost. – AHamilton Apr 2 at 9:43
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Because it's not the privatization that causes expensive treatments. It's the insurance.

In the United States, my employer typically buys my insurance from an insurer who pays a hospital, clinic, or doctor's office which pays a doctor and some nurses to actually provide care to me. I only know my price, called a copayment. So I have no incentive to choose the cheapest doctor for the insurance portion of the price. And the insurance, rather than trying to hold prices down, negotiates discounts. So the official charge for the procedure will be twice as much as what the doctor actually receives.

If US healthcare were actually privatized so that patients could pay caregivers directly, it would be cheaper.

Now, you might say that single-payer healthcare can also be cheaper. And it can. But it does so by doing things that insurance can't do as well. For example, because it is a monopoly and a monopsony, it chooses the prices and whether an individual can receive care. It also avoids malpractice insurance. And single-payer healthcare has a rich/poor distinction. Poor people have to use the single-payer healthcare. Rich people pay directly for their care, bypassing the monopoly (possibly in a different country; e.g. rich Canadians get their healthcare in the US).

It's also easier to get care if you have a large employer. Because you can go to Human Resources and tell them when your care is denied. Then HR can call the insurer and threaten to get another insurer. So you get your expensive and unnecessary care.

With single-payer, you would call your political representative. But your political representative cannot make a change alone. It requires a majority. So the single-payer department can ignore most of these requests. And so representatives ignore most such voter requests, as they know they can't do anything.

A side issue is purchasing power parity. If you live in a country where $4500 is a year's salary, then everything is going to be cheaper. Healthcare. Cost to build a hospital. Everything. In the US, where a year's salary is more like $60,000, it should be unsurprising that everything else is more expensive.

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    Please elaborate on why "the insurance, rather than trying to hold prices down, negotiates discounts." Can't they do both? What makes one preferable to the other? – agc Apr 1 at 18:31
  • @agc Because then there's not as much incentive to get insurance. – JAB Apr 1 at 19:39
  • "And single-payer healthcare has a rich/poor distinction." This seems somewhat irrelevant, as the same applies even when there is no insurance (and also for the US's current health care model, for that matter, insurance doesn't cover everything). Even when payment plans exist, not everyone can afford them, and while it's possible to simply not pay if the prices are negotiated after treatment, that can have other consequences on credit score and the like. – JAB Apr 1 at 19:46
  • It's the insurance . Apparently you are talking about the USA version of healthcare insurance. OTH, many universal health care also involve insurance, but it is more towards public hospital and heavily regulated. Useless diagnostic procedure are FREQUENTLY carried out by private hospital, after all , it is all about profit, duh!!!! OTH, insurance company want to PROFIT and make cutting on some treatment even it is necessary. So the profit tug of war of INCREASE COST than reducing it. – mootmoot Apr 2 at 9:10
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    "So the official charge for the procedure will be twice as much as what the doctor actually receives." I had to giggle at this one. In the medical bills I've plumbed for their secrets, the official charge is far greater than twice the final amount. I'd argue that the official cost simply has no relationship with the actual cost. They're simply unrelated. – Cort Ammon - Reinstate Monica Apr 3 at 2:40

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