Review: Priced Out

Priced Out: The Economic and Ethical Costs of American Health Care by Uwe Reinhardt

My rating: 4 of 5 stars

Mantras about the virtues of markets are no substitute for serious ethical convictions.

There are a great many things for Americans to feel embarrassed about. Depending on your politics, you may bemoan the rise of identity politics and the snowflake culture predominating on college campuses; or perhaps you rage against racist policing or our lax gun laws. But I think that, as Americans, we can all come together and feel a deep and lasting shame over our health care system—specifically, how we finance it. According to Reinhardt, our system is so bad that it is routinely invoked in international conferences as a kind of boogey man, an example of what to avoid. And after reading this book, it is easy to see why.

I did not suspect that our system was quite so bad until I left the country. But, in retrospect, the evidence was quite apparent. Virtually all of my friends have expressed anxiety about their health care at some point—high premiums, high deductibles, or simply no health insurance at all. I have seen family members spend weeks negotiating with insurance companies for payment of their medicines (and even after the insurance chips in, the cost is still breathtaking). Meanwhile, in my five years here, I have yet to hear a single Spaniard express anxiety over how they will pay for a medicine or a medical procedure. Here, as in most of Europe, this type of anxiety is quite uncommon.

The U.S. system fails on many different fronts. Most simply, there is coverage. Millions of Americans have no coverage, and millions more have inadequate coverage (such as many of my friends, whose deductibles are so high that they may as well not have insurance). Second is cost. Both medical procedures and medicines are significantly more expensive in the United States. For example, the drug Xarelto (for blood clots) costs $101 in Spain, $292 in the U.S. The average cost of an appendectomy is $2,003 in Spain, $15,930 in America. A third failure— closely related to cost—is waste. Our byzantine payment system requires doctors and hospitals to spend great amounts of time and money communicating with insurance companies, which of course costs money, which of course gets transferred to the consumer.

But most fundamental failure is a failure of ethics. Or perhaps it is better to say a lack of ethical vision. As Reinhardt explains, while much of the debate on health care in America concerns itself with technicalities—risk pools, risk exposure, whether premiums should be actuarially fair or community-rated, etc.—this debate conceals the fact that we have yet to come to a consensus on the moral foundations of health care. Most of the world’s developed nations have established their systems on the presumption that health care is a social good. In the United States, on the other hand, we are sort of muddled, at times treating health care as if it is a commodity, and yet unwilling to face up to the implications of that choice—such as letting poor people die without treatment.

Aside from the ethical issues involved, health care has many features that make it unlike a typical commodity, and thus poorly governed by supply-and-demand. If I want to buy a car, for example, typically I am not in a great rush to do so. I can shop around, test-drive cars, compare prices across companies and locations, and read reviews. I can even decide that I do not want to buy a car after all, and instead buy a train pass. All of this contributes to control the price of cars, and incentivizes car companies to give us the best value for our money.

None of this is the case in our health care system. The demand is non-negotiable and, very often, time-sensitive. Furthermore, most patients lack the knowledge needed to evaluate what procedures or tests are justified or not, so oftentimes we cannot even be fully aware of our own ‘demand.’ Besides that, we have no ability to compare prices or to compare treatment efficacy. And even if we are careful to go to a hospital in our insurance network, there may be doctors ‘out of network’ working there, leading to the ugly phenomenon of surprise medical bills.

Added together, it is as if the car salesman blindfolded me, put a gun to my head, told me I had to choose a car in five minutes, while he was the only source of information about what car I needed (and medical bills can be quite as expensive as cars!). This is the position of the American “consumer” of healthcare.

My own brief experience with emergency medical care highlights the situation. The only time that I have ever been taken to an emergency room, I was unconscious. I woke up after being transported by the ambulance. Luckily, I was quickly discharged, and I also had insurance. But even though my insurance covered the hospital bill, it did not cover the ambulance, which I had to pay out of pocket. Again, I was lucky, since I was able to afford it. Many cannot, however, and have the experience of waking up from an accident, an injury, or an operation in debt. How can you be an intelligent consumer when you are unconscious?

The helplessness of the consumer creates a perverse incentive in our system. There is little downward pressure on prices. Instead, what results is a kind of arms race between health care providers and insurers. Insurers are incentivized to put up as many barriers as possible to paying out, which requires doctors and hospitals to invest ever-more resources into their billing departments, which of course only increases the cost to the patient. In many hospitals, there are more billing clerks than hospital beds; and when you realize that these billing clerks have their own counterparts in the insurance companies, you can get some idea of the enormous bloat created by our financing system.

I think there is a particular irony to this situation, since our American insistence on market values has created a labyrinthine network of incomprehensible rules, endless paperwork, and legions of bureaucrats—the very thing that capitalist principles were supposed to eliminate. Indeed, ironies abound in our system. For example, we endlessly discuss the affordability of government programs, while the tax incentives for employment-based insurance (which costs the federal and state governments an annual $300 billion in foregone revenues) is never mentioned. What is more, while the insurance mandates of Obamacare were roundly criticized as forcing the healthy to subsidize the unhealthy, as Reinhardt points out, the exact same thing occurs in insurance-based healthcare. And as a final irony:

It is fair to ask why, if socialized medicine is so bad, Americans for almost a century now have preserved precisely that construct for their military Veterans, and, indeed, why the latter are so defensive and protective of that socialized medicine system.

After reading this review, you may be excused for thinking that this book is a fiery manifesto about the evils of the system. Far from it. Uwe Reinhardt was a prominent economist and much of this book consists of tables and graphs. The writing is, if anything, on the dry side, and the tone is one of intellectual criticism rather than passionate outrage. Yet, strangely, this is why I found the book so effective. It is one thing for an arm-swinging socialist to condemn the evils of the system, but quite another for a calm economist to go through the data, point by point, and explain how it all works and how it compares with other countries’ performance.

You may also be excused for thinking that, given all this, Reinhardt would be an advocate for a single-payer system in the United States. After all, he was one of the architects of Taiwan’s single-payer system, which costs about 6% of the country’s GDP. (For comparison, America’s system costs us 17% of GDP!) But Reinhardt thinks that such a system would not work on American soil. For one, the libertarian streak in our culture runs too deep for such a system to be broadly acceptable. More importantly, however, Reinhardt thinks that our campaign finance system is so corrupt that the health care lobby would be able to exert a heavy influence on the government, thus canceling the benefit.

He instead advocates for an ‘all-payer’ system. The idea is to consolidate the market power of consumers by having standard prices set either by the government, or by associations of care providers and insurers. This would, at the very least, avoid the wild price variability that can be found in even a single city in the United States. It also helps to bring costs down, as demonstrated in Maryland, which has had an all-payer system for quite a while. Japan’s system is also established on this principle, and spends far less money per capita on its health care system, despite having a significantly older population than the United States.

In normal times, I was not exactly optimistic about the prospect of reforming out broken health care system. But in the wake of this pandemic, it does seem as if major reforms might not only be possible, but inevitable. Employment-based insurance makes little sense if people lose their jobs during a major health crisis, as has already happened to many millions of Americans. And high unemployment may persist for some time. What is more, a major health crisis, resulting in many thousands of additional hospital stays, will put pressure on private insurance firms and lead to a significant rise in insurance premiums. Basically, higher-risk patients create higher cost, and a pandemic puts far more people into the high-risk category. The greater strain on an already teetering system may be the proverbial straw on the camel’s back. We shall see.

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