American Healthcare in Crisis: Problems and Solutions (Part 1)

This is the first post in a four-part series on the American healthcare system.

“It is amazing that people who think we cannot afford to pay for doctors, hospitals, and medication, somehow think that we can afford to pay for doctors, hospitals, medication, and a government bureaucracy to administer it.” – Thomas Sowell


Our healthcare system is in crisis.  While there seems to be agreement among most Americans and policy makers on this point, the debate about what the primary causes are and how to salvage it is ongoing.

At the heart of this discussion are a number of important philosophical questions, such as:  To what extent is society responsible for the health of others, and what power will it be granted to fulfill said obligations?  Will there be exceptions or exclusions to the dispensation of care?  If so, will these decisions be made by the family, churches and charities, insurance companies, local municipalities, the state government, the federal government, or even an international body?  What is meant by “necessary care”, and who is best suited to define this?  If someone is deemed a burden on the healthcare system, should they be denied care?  How will “burden” be characterized, and will metrics such as productivity and utilization be applied?

To better understand why our healthcare system is in crisis, I have attempted to provide an overview of 1) how healthcare in America became so expensive; 2) the impacts of the Affordable Care Act (also known as “Obamacare”) Medicaid expansion; 3) why single payer fails to address the cost issue; 4) a cost-comparison between healthcare delivered “through the system” vs. “self-pay” for common services; 5) the issue of pre-existing conditions and how to best address this; and 6) steps that can be taken using the free-markets to promote affordable healthcare coverage options for all Americans not on Medicare or Medicaid.

How Healthcare Became So Expensive in America

When explaining why healthcare became so expensive to my patients, I often begin by showing them the graph below.  According to Bureau of Labor and Statistics data, between 1970 and 2009, the number of doctors doubled, while the number of administrators increased by over 3,000%.

The addition of all of these administrators over time (made necessary by the never-ending slew of regulations imposed on physicians and hospitals) has produced an enormous upward pressure on costs.  Obamacare exacerbated this overregulation dilemma when it created 159 new government agencies.

This kind of regulatory control over patients and doctors would not have been possible without policy makers and bureaucrats obscuring what they were doing.  We have almost no transparency in healthcare pricing, which is by design.  The true costs of healthcare delivery have been completely unmoored from what the patient thinks they are paying.

Costs have also been distorted by government price-fixing.  For several decades now, Medicare has determined the reimbursement rates for all contracted providers and hospitals.  Private insurers, TRICARE, and state Medicaid programs all base their reimbursement on Medicare rates, and providers are generally paid the same for a given service regardless of their experience and skill.  This arguably discourages competition, and does little to promote excellence.  Moreover, efforts by the government to punish providers with poor outcomes generally backfires, as doctors then tend to avoid taking on “high risk” patients (i.e., the ones who are more sick and complicated).  The lack of meaningful tort reform confounds this further.

Until Obamacare, many of us were oblivious to the effects of this massive overhead.  However, Obamacare resulted in skyrocketing premiums and deductibles, exposing many Americans to some of these formerly hidden costsPremiums have more than doubled since 2013, and deductibles for families have more than tripled since 2008.  Premiums are paid monthly, while deductibles and co-insurance are paid when receiving services.  Attempts were made to hide even these costs by granting subsidies for many consumers’ monthly premiums, structuring it in such a way so that people would not realize how expensive their healthcare is unless they saw a doctor.  Though this should have alerted everyone to the need for reforms to reduce the bureaucracy, many instead panicked and are now calling for more government intervention.

NEXT: Medicaid, and Why Single Payer Won’t Work

“Doc” is a primary care physician in private practice in Colorado.  Read his other posts in this four-part series:

Part 2: Medicaid, and Why Single Payer Won’t Work

Part 3: Comparing the Costs of “Billed Through Insurance” to “Self Pay”

Part 4: Pre-Existing Conditions and More Free Market Solutions

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