This American Life just had two episodes on the health care system — the first on the rising costs of care, the second on insurance — and it was quite interesting stuff! I thought I’d post them here to encourage people to listen to them:
It’s actually sort of a return of the ‘serious’ episodes for TAL, as just before these two there was the also-fascinating ‘return of the giant pool of money’ — a follow up to the episode last year which explained the financial crisis:
They’ve also been talking about health care a good amount on ‘planet money’ these days; there’s a lot of interesting stuff to cover there. Some notes on things that have stood out to me:
— Insurance actively negotiates prices with hospitals, so their customers get a good price. But those negotiations only cover their customers, so if you *don’t* have insurance you might pay $1200 for work that the insurance company would only pay $400 for.
— Only the largest insurance organizations have the size needed to really negotiate good prices: in this sense, a more competitive environment for insurance companies means less ability to negotiate cheap prices with the hospitals.
— Insurance companies introduced copays to expose consumers to the costs of their medicine, indirectly. Nearly equivalent drugs can have orders of magnitude cost differences, and without copays consumers don’t have any direct incentive to choose the (say) $50 one over the $500 one. With copays, consumers have a small incentive — they have to pay maybe $10 for the $50 medicine, or $40 for the $500 medicine. So, say, a $30 incentive, which turns out to be quite effective. Until … the drug companies realized they can just pay for the copay, via a coupon. After all, if the drug company gets $500 from your insurance, what’s the problem with giving just $40 back to cover the copay for you? The drug company still gets $460, and the incentive system is not just deactivated — it’s reversed, the generic is more expensive!
— Health care is practiced very differently from town to town, and hospital to hospital, and efficiency can vary wildly even where effectiveness stays the same — in other words, the level of ‘unnecessary’ care changes quite a lot depending on the location.