Distributing the Costs of Care, Part 3: It’s Already All of Us

So, I’ve asserted (and I hope folks have agreed) that a thing costs what it costs, whether a strawberry or a medical procedure. I’ve also discussed that what makes those things seem affordable to us (at least, to the extent we do find them affordable; but we’ll come back to that) is that costs aren’t really just costs to us: the costs are distributed across a lot of people in the network of the economy. The clear conclusion (and hardly a new one) is that we’re all in this together.

This always gives me pause when leaders in government and business talk about reducing healthcare costs. If I pay attention, it becomes clear that they’re not talking about reducing what a thing costs. They’re talking about reducing what it costs  in one category or another. And, they’re not always talking about the same category. When the political leader speaks about reducing costs, sometimes he or she talks about reducing what I as an individual pay out of pocket; or sometimes about what I pay in premiums; or sometimes about what I pay (and, sometimes, what we all pay) in taxes. And, sometimes when I listen the leader is talking about what a business pays in the process of being accountable (that’s what regulations do, after all); or what the total is paid through taxes, as opposed to how that affects my pocket.

But, note that, as the current system is running (employer based insurance for most, Government-based insurance for the elder and the poorer), those changes are mutually exclusive. To reduce what I pay out of pocket, I end up paying more in premiums; or, conceivably, I could end up paying more in taxes. A thing costs what it costs, and the difference is in how those costs are distributed.

Also concerning to me are those polítical leaders (and, I will say I don’t hear this from healthcare providers or from supply industries) who seem to want to reduce how much I pay for the benefit of someone else (and, really, usually someone elder or poorer or both). Now, as an Episcopal priest I will assert that such an argument is immoral - broadly un-Biblical, and definitely un-Christlike. However, I also want to look back at our discussion so far and suggest that it’s simply unworkable.

A thing costs what it costs. If costs are redistributed, they appear to change, but that’s deceptive. They will still come back to me, but in a different form - and sometimes one that is destructive.

For example, there are ongoing efforts to reduce Government expenditures for Medicaid, both federal and state. The visible consequence as of those are pretty hard. Look at the number of rural and regional hospitals that have closed over the past few years. People lose care. Communities lose jobs. But also, people end up getting care that costs more, traveling farther, needing more intense and expensive care, and dying. Since hospitals cannot by law refuse emergency care (and that is the law), they make up elsewhere what they lose on those patients. Their basic costs structures go up; their negotiations with insurers go up; and my bills go up. The analogy of squeezing the balloon is apt: it may appear to reduce my taxes, and look good for the political leader, but it will still hit me somewhere else.

What can most effectively reduce my personal expenses? To most widely distribute the costs across the most people. Which leads us to Medicare for All.

It wouldn’t surprise anyone who knows me that I think we would all benefit most from a system offering universal access and requiring universal participation. That is, everyone can get care, because this most widely distributes the amortization of costs of equipment and paying for professionals. And, everyone pays something, in some way that is progressive related to economic capacity (considering both income and wealth), because this most widely distributes, and most justly distributes, financial resources in the system.

Now, at this point no one knows what a Medicare for All plan would do, except perhaps these two points; mostly because there is more than one plan proposed under that heading, and they don’t all agree. However, I do want to note that in some ways we already have something for all in Medicare.  

We normally just think of the insurance for folks over 65 and folks with significant disabilities paid for by Medicare. However, that also means Medicare is perhaps the biggest insurer, and so has a great deal of influence in how widely costs are distributed. I’m not on Medicare, but my insurer knows what Medicare is willing to pay, and wants to negotiate my rates accordingly.

Another aspect in which Medicare serves all is that most if not all medical education is paid for in full by Medicare. This certainly applies to the vast majority of medical residency positions. For most medical residents, hospitals are reimbursed in full for the cost of salaries and perhaps for benefits. In addition, Medicare pays in part for many other kinds of clinical education. This includes nurses, therapists of various kinds, and even chaplains. If you get care from a physician who is in or has completed a residency, your physician was provided to you in part by Medicare. For teaching hospitals, this means that a good deal of the budget that allows them to take care of the poor and allows them to keep their equipment current is relieved by Medicare.

Finally, we can’t undervalue how Medicare has kept many, many seniors out of poverty. Some of us may remember commercials on television before Medicare was in acted, identifying the elderly in urban settings as particularly and acutely poor. Now that I am retired and up on the Plateau, I see that level of financial concern in the rural poor almost every day. Medicare by itself has raised many folks out of poverty and bankruptcy for the two generations we’ve had it.

These are ways in which Medicare currently serves all of us. These are also examples of the value of seeing our healthcare as a social good, and not just as an individual good.

A thing costs what it costs, whether a strawberry or a medical procedure. We are concerned about paying for the healthcare of others, but in fact we are already doing that. We can decide whether that continues to be something that happens outside our view, or if we want to be deliberate and public and all involved in those decisions. To do that, we need to distribute those funds and those costs as widely as possible; and in these United States as widely as possible means all citizens and all residents.

The thing costs what it costs, and we are all always  already sharing those costs, whether we are aware of it or not. Maybe it’s time to recognize that social connection and to see healthcare as a social good, and not just a retail product.

Distributing the Costs of Care, Part Two: More Than Just Me

A thing costs what it costs. That’s as true for a medical procedure as it is for a strawberry.

I started with a new primary care provider recently. That start involved meeting with a new professional provider, and a set of lab studies and tests - nothing exciting, but part of the process.

Now, I will have certain expenses out of pocket for that, but how those charges are determined is, again, a reflection of a slew of costs. There is the cost of the professional’s time; and, trust me: these days any health care business has some idea what to charge by the hour, even if that’s not how the charge is reported on the bill. And then, going into that cost is the cost of educating that professional, which may or may not include education loan debt. There is the cost of the computer system used to keep the records, the software it runs on, and the hardware that holds it. There’s the cost of the malpractice insurance that any professional will have; for after all, a suit can be filed before anybody actually determines whether the facts support it. And of course there are the costs of the facility - rent, utilities, insurance. There are also costs of getting paid: paying someone to issue the bills, to report to the insurance company, to know relevant law and regulation. And, there are the costs of not getting paid. Medical debt has been an important cause of bankruptcy for individuals, even if that’s been reduced under the Affordable Care Act. Sometimes people can’t, or won’t pay.

And that’s a simple new patient visit. Had I needed a procedure, then there would have been more costs: the required equipment, and amortization of that; the costs of nurses and other technicians, including their professional education and expenses; and, again, losses to charity care or refusal to pay. That’s kind of like the dropped box of strawberries: costs are raised and/or shifted to that the institution can cover here what is lost there. The big difference in healthcare of course, is that it’s not a $4.00 box of strawberries, but a $50,000 hospital stay.

All of this affects, but isn’t shown in the bill I will receive. What the bill will show, though, is something about the ways that my out of pocket costs are reduced by the distribution of charges. There are, of course, all the other patients in my new professional’s practice. More important, though, is insurance. Insurance, really, is the ultimate distribution of charges. I’m one of a large group that pays into the insurance company, and so far I’ve hardly ever had to use as much in one year as I paid - or, since so far my insurance is been provided by employer, as much as was paid in on my behalf. The insurance company distributes the costs of any current claim across the premiums paid by all the covered members. Then, again, my employer distributes the costs. The employer negotiates with the insurance company based on a pool of covered employees, figuring that the expenses for any individual employee will be lower. (I’ve written before that the currency of that negotiation is not dollars but “covered lives” - you and me and our family members.)

A medical procedure costs what it costs. For good and ill, though, I won’t see that cost. What I will see is what I pay out of pocket, and also what the insurance company paid on my behalf. Oh, and I may also see the results of the negotiation between hospital and insurance company as a discount or reduction. Of course, that’s what I see. Another patient with another insurer or another employer (or a person not having either) will see different numbers. That’s because there’s a different negotiation with each different company. Oh, and because for any given procedure with any given patient the insurer may renegotiate and pay less - which almost inevitably ends up with you or me paying more out of pocket.

We hear about that a lot now in efforts for “price transparency” for medical procedures. Everybody agrees it would be a nice idea. However, it’s hard in practice. There are differences in negotiations between each institution and each insurer. There are differences in negotiations between each medical practice (and most medical practices are still small businesses). Newer equipment costs more, and takes more procedures to amortize out that older. And, of course, large research and educational health care centers in urban settings take both higher risk patients, who need more resources; and more patients who can’t pay. A procedure costs what it costs; but the various inputs into those costs can vary a lot from setting to setting, as can the various ways to distribute costs as widely as possible. A procedure costs what it costs; and it may well cost more in one place than another.

Of course, we may also be willing to pay those costs. If I need a procedure, I may be willing to pay more for the professionals and the institution that have more experience - literally, that have offered that procedure more times to more patients. Professionals and institutions with more experience get better results. Or, I may be high risk myself for one reason or another. So, I may well be willing to pay for an institution with more resources. I don’t know I’ll need them; but if I do need them I don’t want to have to go somewhere else.

Then, of course, there is emergency care. If it’s really an emergency, I’m not about to start haggling over prices. I want to be where the right people and the right equipment are available for a good outcome, not a lower bill. And, I want those resources available 24 hours a day, whether I’m using them right now or not. “Just in time” may work well enough in having the right parts at the car plant for assembly, but I don’t want to trust “just in time” staffing for my emergency room. “Just in time” staffing may not be just in time to save me.

But, still, the biggest issue with price transparency, and one of the biggest things shaping what I pay out of pocket, is the sheer number of different insurance companies negotiating with the number of different health systems and institutions, and professional practices; and that includes the two biggest insurers, Medicare and Medicaid.

Once again, that sheer number is also part of the distribution of costs. My out of pocket expense feels small because the insurer distributes all my expenses across the premiums of all of us who are members; and because my providers, professional and institution alike, distribute my expenses across all the patients cared for using that expertise and equipment. A thing costs what it costs, whether a strawberry or a medical procedure. It can just feel less expensive to me because of how a lot of other people participate in paying those actual costs; and that will be the starting place for part Three.

Distributing the Costs of Care, Part One

Can we begin with a simple premise, that a thing costs what it costs?

I know that sounds trivially true, but in fact most of the time, most of us don’t think that way. That is, we note what we pay out of pocket for an item, but don’t think about all the costs that went into what we pay.

I bought some strawberries yesterday morning. What that box of strawberries costs is the result of a whole slew of expenses. What did the farmer pay for the land, and what is the measurable (if tiny) incremental cost of one strawberry in light of those and other costs of production - water, fertilizer, labor, etc? What is the cost of processing and shipping that strawberry; of warehousing it for the wholesaler; of having it in my local market? Just because we don’t think about that strawberry’s contribution to paying the electric bill of the grocery story doesn’t mean that it isn’t there and fixed. When we remember that a thing costs what it costs, we can look beyond just what we pay out of pocket.

And, of course, we can remember that those costs are shared with others. If my box of strawberries were priced so that my purchase would sustain the market, I wouldn’t be able to afford them. If I alone were paying the fuel charges of the trucker and the labor charges of the wholesaler, that box of strawberries would be far out of reach. I can only afford those strawberries because a whole host of folks participate in distributing the costs of those expenses. That’s the difference between the economy of a large society and -  well, really, any society. Once upon a time, perhaps, there was an individual working an individual plot of land and providing only for himself, and so paying personally all the costs of having a strawberry; but once folks started living in communities and sharing resources and exchanging (even in barter), costs started getting distributed.

That’s particularly true when we find a “bargain.” If I find my box of strawberries on sale, it might be that the farmer somehow produced for less, or that diesel was temporarily down. Or, it might be that these strawberries are getting close to the end of their shelf life, and the store loses less by selling them at a reduced price than by letting them get old and not selling them at all. And, after all, the store can take that decision, not out of the goodness of anyone’s heart, but because the store can adjust prices somewhere else, and so better distribute those costs. Someone else paying a dime more for apples allows me to pay a dime less for strawberries. It costs less out of my pocket, but it didn’t cost less in the real costs of production. J, at each stage of production, one of the costs that gets distributed is losses. If one field fails, that’s going to raise the price (not the cost) of the strawberries from fields that succeed. If someone drops a box in the store and all those berries are ruined, you can be sure that the store has some calculation of how that loss can be made up elsewhere. In a market economy, those losses get covered, or the person at that level can no longer produce or provide.

A thing costs what it costs, with all those costs of production figured in, and with all those distributions of costs worked out. What it costs out of pocket is a combination of all those costs, and how all those costs are distributed.  It’s true of a strawberry; and it’s true of a medical procedure. And that’s a thought that I will explore in Part Two.