Why have the costs of health care risen?

The first reason is that Obamacare has led to increasing monopolization of the provision of health insurance.

The second reason is that Obamacare has led to higher premiums for health care insurance.

And the third reason is that hospitals are ripping us off:


Some hospitals are marking up treatments by as much as 1,000 percent, a new study finds, and the average U.S. hospital charges uninsured patients three times what Medicare allows.


Part of the problem is the convoluted U.S. healthcare system. Medical costs can be paid by private insurance companies, directly by employers, by government-funded systems such as Medicare or Medicaid, and directly by patients. (This is a big part of the problem.  All of these entities bounce the charges around, because even they don’t know who is responsible for payment.)  Hospitals negotiate different rates with different payers. (This is price discrimination, which is technically illegal and has been since Congress passed The Clayton Act in 1914.)

Then there are in-network and out-of-network rates. And patients often don’t know until after they’ve received a treatment whether their insurance will pay for it, or for the doctors who delivered it. (So first you get the service, then someone in a large bureaucracy somewhere determines how much it will cost you and who will pay).


“These hospitals have markups (ratios of charges over Medicare-allowable costs) approximately 10 times their Medicare-allowable costs compared to a national average of 3.4,” Bai and Anderson wrote.

They explain what that means. “On average, U.S. hospital charges were 3.4 times the Medicare-allowable cost in 2012. In other words, when the hospital incurs $100 of Medicare-allowable costs, the hospital charges $340,” they wrote.

But many hospitals mark up prices far, far more than that.


Hospitals did not used to mark up their charges so much.

“The increases began in the late 1980s and started to accelerate in 2000,” Bai and Anderson wrote. “In 1984 the average charge-to-cost ratio was 1.35. In 2004 and 2011 the average charge-to-cost ratio was 3.07 and 3.30, respectively. The markup in 2012, therefore, represents a 10 percent increase from 2004, and 3 percent increase from 2011.” (This is about the time that the federal government got involved in the health care system, starting with the Health Maintenance Organization Act of 1973.):

In 1970, the number of HMOs declined to fewer than 40. Paul M. Ellwood, Jr., often called the “father” of the HMO, began having discussions with what is today the U.S. Department of Health and Human Services that led to the enactment of the Health Maintenance Organization Act of 1973. This act had three main provisions:

  • Grants and loans were provided to plan, start, or expand an HMO
  • Certain state-imposed restrictions on HMOs were removed if the HMOs were federally certified
  • Employers with 25 or more employees were required to offer federally certified HMO options alongside indemnity upon request

This last provision, called the dual choice provision, was the most important, as it gave HMOs access to the critical employer-based market that had often been blocked in the past. The federal government was slow to issue regulations and certify plans until 1977, when HMOs began to grow rapidly.


Bai says states can and should regulate what hospitals charge.

Here’s an old adage that I created: just because you can do something, doesn’t mean that you should do something.  Government has created the problems, so of course uninformed/ignorant people like Ms. Bai say that government should solve the problem.   Except that government has been solving the problem of rising health care costs for over 40 years now, and the result is that health care costs have skyrocketed over that same time period.

Health care costs

Of course, to liberals who support Obamacare, Medical costs went up 5%, and that’s good news:

The good news is that the cost increases are getting smaller for the 171 million Americans—more than half the country—that get health insurance through their employers. The bad news is that health-care costs are still increasing, and faster than the cost of everything else. That means they are eating up an ever bigger chunk of workers’ salaries and company budgets.


Economic Schizophrenia at its finest.


Categories: Economic Illiteracy, Economic Schizophrenia, Healthcare, Obamacare, Oops

Tags: , ,

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