Thursday, August 30, 2007

A Comment on Health Care Pyaments and the Disincentives Currently in Place

I though this comment just about sums up all that is wrong with current health insurance models:
Right now, a lot of hospitals and physician groups are lobbying for expanding insurance. The problem is, health care financing is now largely driven by the reimbursement doctors, hospitals, and other providers look for the procedures that pay the most. Whole industries have developed to maximize charges...I call it "code farming," sort of like farm subsidies.
In a normal marketplace, a competitor would enhance productivity, reduce costs, and pass that savings on to a customer. If you sold one widget for 100 dollars, your production cost might be 75 dollars, but after you sold 100, your production cost might drop to 50$, a savings which would be passed on to garner more business yet still make a profit. In health care, whether you do one procedure or 100, the reimbursement is fixed. There is no real reward/incentive for a provider to cut their prices...except in those areas of medicine where people pay out of pocket...check out cosmetic surgery and lasik.
If you add in the factor that most people don't know how much care really costs (as opposed to what they pay out of pocket or notified by insurance what was paid), you can get a good idea why providers what expanded insurance--they benefit from it without having to really respond to market forces.

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