Time tells the truth: stop the presses.

Wow! I can't say I expected to find a column on economics in Time that I agreed with, especially one on health care.

Barbara Kiviat says she went to a doctor and "and asked how much my office visit and X-ray would cost. Staffers told me that they didn't know and, since I have insurance, I shouldn't care." That's it! That is one of the main reasons for spiraling health care costs in nutshell. As Kiviat wrote: "We are left with the same opaque system of perverse incentives—paying providers for more tests and procedures, not necessary effective ones. And we lack even the most basic element of the free market: price information."

I will take a minor disagreement. Kiviat says that the lack of price information for most health care consumers means we lack the most basic element of a free market. True, but more broadly, we lack one of the two basic feed-back signals in economics. The other being profits. Prices and profits are the two feedback loops that send signals to consumers, in the case of prices, and producers, in the case of profits. Socialism attempted to abolish prices and profits both, in other words, it attempted to abolish economics entirely. Socialism was never an alternative economic system—it was the abolition of economics entirely.

Kiviat notes that in field after field consumers shop around and this drives innovation and lower prices. But this is not the case in health care. Of course not! Most consumers don't pay directly for their care so they don't both with prices. I pay for my own care and I am very price aware.

When I had a bad tooth ache two years ago I went to a local dentist who started telling me that I first had to have an examination. Then they would send me to specialist who would outline a treatment plan. Then I would return to the detist who would perform a root canal and put a crown on. As he rattled off numerous needless steps I saw dollars flying out the window. So I asked for cost estimates. I was told that altogether I should expect to pay $2000. And it would take at least two weeks to finish everything. And, no, in the meantime I was not allowed any pain killer sufficient to dull the awful aching in my mouth—we have to protect people from drugs you know.

I was not intending to suffer needlessly due to the asinine war on drugs nor was I going to wait two weeks or pay $2000. I called one of my readers here, who is in Mexico, and he arranged a dental visit for me. The next day I flew down. I was in to see the dentist that afternoon. He did all the analysis on the spot and began the root canal. It would take 24 hours for the crown to be prepared so I had to come back the next day to finish up. And he was happy to prescribe a good pain killer which allowed me to eat for the first time in days. Total cost for the care was around $400. Add in the airfare and hotel and it still comes in well under $700, compared to the $2000 I was expected to pay in the US.

If more health care operatives had patients leave for other, less expensive services, prices would come down. Those health care outlets that didn't do that would go out of business, or work exclusive for government funded patients, who never care what something costs.

I've also used some of these drop-in health clinics and found them quite affordable. Why is that? Because most of their patients are not covered by insurance. I had a lung infection that didn't want to clear up. The practitioner nurse prescribed the medication I needed and then spent 10 minutes checking for low price alternatives. After she found a low priced alternative she also suggested I cross the street to buy it, instead of in the pharmacy where this clinic was operated, because on this drug the competitor was half the price.

I sent an employee in there to have a problem looked at and he had the exact same sort of price searching done for him. Apparently this is routine because the patients in this clinic care very much about prices since they are paying directly out of their own pockets.

But most Americans have insurance and they pay a flat rate each month regardless of what care they receive. They tend to be lazy and uncaring when it comes to prices. They might want cheaper insurance rates but they don't particularly care about cheaper health care. Whatever the cost, they reason, the insurance company pays for it. This is true of all systems where payment is separated from consumption—people will over-consume and not worry about prices.

This is one reason that forcing more Americans to buy insurance won't help bring down health care costs—no matter how many times Obama tells us it will. The newly insured, who will be forced to buy insurance by Obama, will have the same perverse incentives as the already insured. And because fewer people will be paying out of their own pockets for care, few people will pay attention to the actual costs of the care. That means fewer questions will be asked.

Imagine you are diagnosed with a problem. The physician says that the tests show it to be very likely that you have this particular problem. But he will have some additional, more expensive and more accurate tests done "just to be sure." Are these tests really necessary? If you are paying out of your own pocket you might ask that question. If you are "insured" and someone else pays the bills you may not only NOT ask that question, but you may well demand some further unnecessary tests as well.

Obamacare forces millions of uninsured people to buy insurance. In doing so it moves them from being price conscious consumers to working with the same lack of price information and the same perverse incentives as the rest of the population. So adding more people, who are not price conscious, to the health system can only help drive up costs even more.

Consumers who pull out coupons at the grocery line, in order to save $1 on coffee never bother to ask the costs of various medical care they receive. They never ask for information on less expensive alternatives that might exist. They tend not to query if a cheaper, generic prescription is available. But they will cross town to buy a gallon of milk for ¢50 less than normal. But then none of us pay at the grocery store with our "food insurance" coverage. So we shop around to save a few pennies here or there when it comes to food, and then spend as if were Bill Gates when it comes to our health care.

No one should have to choose between health insurance and booze

I've been doing some shopping on health insurance. I could get a policy that covers me, and I'm no spring chicken, for anywhere from $110 to $220 per month, depending on the deductible and co-payment. Most day to day health care is relatively cheap. It is really on the major problems, which get covered by the higher deductibles, that ought to cause people to worry. So why don't people have that?

A few, but very few, don't have that sort of basic policy because of finances. But it is rubbish to say that the X million of "uninsured" don't have it due to costs. That is a lie. Reason TV's satirical commercial used footage from interviews they did with people about why they don't health insurance. And many of the people, as you see here, were quite candid. They don't have health insurance because they prefer to spend the money on booze, clubbing, cigarettes, fancy jeans, etc.

How many of the uninsured smoke? I would bet it is a good percentage of them. Yet, if one smokes one pack per day that is enough money to buy major health insurance for any catastrophic illness. If they smoke more than one pack of cigarettes per day, and many do, they could buy health insurance and still buy some neat things. They prefer to smoke. But then, why shouldn't they? The message that Obama is sending these people is this: "I don't care if you don't health insurance because you prefer to spend money on other things. I want to make sure that government steals from people who are more sensible, and give it to you so you can have insurance."

The advocates of state medical care claim that 46 million Americans are without health care. The census report they base that on admits that about 10 million of them are immigrants who are here illegally. Many "illegals" fear buying insurance of any kind because they don't want to be in the system. I'm not sure that the Left wants to argue that the US ought to provide health insurance to anyone in the country illegally. That brings us down to about 36 million Americans without health insurance. Of those an estimated 14 million are eligible for various government medical programs but simply have not signed up for them. They are, in essence, rejecting health coverage they are eligible for. That leaves something like 22 million.

But we also discover that almost 18 million of these people have annual incomes exceeding $50,000 a year, and half of them have incomes over $75,000. Budgeting for catastrophic health insurance is not difficult on an income like that. It is also true that many of the people without health insurance are young workers who could purchase health care but have decided it is not worth it. Their view is that they are young and healthy and unlikely to need it. So, they prefer the other things they can purchase instead. About half of the uninsured are under age 34, an age when insurance would be relatively inexpensive—yet they don't want it.

It should be noted that the US government also makes it hard to buy health insurance for many people. For instance, if you have insurance through an employer then the premiums are tax free. But if you own the policy and pay it yourself, as I would, you are taxed on that money. Tying insurance to specific jobs was pushed by the unions. But it hurts workers. Lose your job and lose your insurance. You have keep starting over again. That's stupid. Workers should be able to keep their policies when they change jobs but federal law discourages that.

Instead of trying to have government involved in the insurance business shouldn't we start with the reforms that get government roadblocks to health insurance removed?

Health innovation, providing care to the uninsured young.

One of the problems in health care is that the industry has been so regulated and controlled that one often doesn’t see innovation in the provision of services. And there is precious little price competition.

The reality is that most patients don’t pay directly for any services they use. They pay a monthly premium and then get “their money’s worth” once they’ve spent their deductible. This encourages over-consumption of care. It isn’t that people seek care just for the fun of it -- though a very small number do. It is more that they seek care when it is not necessary or spend money on services “as a precaution” when the situation doesn’t warrant it. What they rarely do is shop around and check prices. That one clinic has a specific test for $200 while another charges $75 doesn’t concern them anyone much.

The way health care is set up there is a perverse incentive for patients and doctors to overspend. The result is consumption of more care than is necessary making health care very expensive. All the extra care that is purchased doesn’t add very much to the health of the average person. And if it were their money it wouldn’t matter. But most health spending, even in the United States, is paid by third party payers. That there is this tendency to overspend is one reason that socialized care providers ration care. Of course if U.S. care tends to overspend the reality is that socialist systems underspend, often grossly so.

When Mitt Romney pushed through coercive/mandatory insurance laws in Massachusetts 90% of the public was already insured voluntarily. And of the 10% who were not insured most are still uninsured. They are ignoring the law and say they are willing to pay the fines for being uninsured. And many of these uninsured are young, working individuals who don’t feel that they need insurance. In fact two-thirds of the uninsured in the US are under 35 years of age.

And this makes sense. They are doing what insurers do -- they are playing the odds. And the odds are that someone under 35 or 40 won’t need much medical care at all. This is why the young shun insurance and why politicians and insurers want to force them to buy it. For the young the insurance costs more than it is worth. That leaves those more prone to illness in the insurance pool, pushing up rates for them. If you can spread the risk to people who are almost no risk you can subsidize the care of people who are at higher risk.

Don’t be fooled about politicians and health care providers whining about uninsured young people. They aren’t actually concerned about the young person in question. They are merely trying to force them into a system to subsidize the care of others who are at risk. What they care about are the premiums, or taxes for state care, that these low-risk individuals provide. When it comes to mandatory health insurance the young are a means to the ends of others, they are not ends in themselves.

But it is true that the young tend to have little coverage. And one physician who figured this out saw a potential, lucrative market that was going untapped. Jay Parkinson is a young physician who has created a practice geared only for the young -- particularly the uninsured young. He basically charges $500 per year for care. What that gives the patient is unique however.

First, you don’t come to his office. You can’t. He doesn’t have one, though he is thinking about it. He comes to your home or office. He does a routine exam and asks lots of questions to get an idea of your general state of health. And from that moment on you have unlimited access to him -- sort of. You can call him anytime on his cellphone for advice. You can e-mail him as well. If you want to show him a problem use your computer cam to do it. You get two personal visits a year but as many e-visits as you want or need.

And it appears that for a huge percentage of patients e-visits are just as effective. And other U.S. physicians are now looking at the service as well but charging a fee per on-line visit ranging from $20 to $30 each. Certainly if more physicians copy the Parkinson model those rates will be coming down.

Most the problems that the young have are of a minor nature. Parkinson knows this. For major problems you go to the hospital but for day-to-day care this may be the best deal around, provided you are under 40. Over that age and he says the health profiles change dramatically and he’s not geared for that.

Parkinson figured out the basic economics of health care. And he realized that high costs are due to the fact that most patients actually have insurance. He says: “Since so few patients who regularly visit physicians have no insurance, they don’t concern themselves with their fees. Physicians also don’t care about competing for self-paying patients because there are so few of them. The secret is…physician prices for self-paying customers range absolutely all over the board. I am taking advantage of this fact to save you literally hundreds of dollars per interaction with the health care system.”

Having figured out that third-party payments drive up spending and reduce price competition Parkinson offers another service to his uninsured clients. He price shops for them. He said: “I called one radiologist and found he’d do a chest x-ray for $75 and another would charge $300. For cash-paying patients the prices are all over the place.” By collecting this information he helps keep the other medical costs for his patients low. While quality is important, when there is equal quality he sends his patients to the lower cost provider.

Studies of physicians found that few of them actually have any idea what the costs are for specific services they recommend to their patients. They simply don’t know. They have no incentive to know, or to care. And since 80%+ of their patients have third-party payer insurance the patients don’t care either. When most the customers in a field of business don’t care what the prices are it is not surprising that costs skyrocket. It would be surprising if they didn’t.

The same is true for medications which can vary in price from pharmacy to pharmacy. Parkinson says: “I personally visited hundreds of pharmacies in Manhattan to get you the lowest price on medications. I also know the most reputable internet sites that charge the lowest prices for prescription medications.”

Basically Parkinson treats the day-to-day concerns under his $500 per year policy. And for patients who need more than he offers he acts as a consultant to help keep their prices down.

Parkinson has lots of it right. Some of it he gets wrong. He says that “the health care industry profits largely by keeping cost information from you.” But that is not typically the case as Parkinson himself already has stated. The main reason that the information is hard to find is that no one in the system cares about the costs except the minority of patients who are self-insured. Parkinson’s patients care. Most other patients don’t.

That is the dilemma of third-party insurance for health care. The insurer cares and tries to keep costs down but if they act to ration care there is a outcry from patients and others who charge them with lacking compassion. There is a large number of individuals just waiting to find any excuse to attack private health care providers at the slightest provocation because they ideologically opposed to it. And often politicians step in and try to force the insurer to provide the care regardless of the costs.

There is very little price comparison because third party payment plans make price comparison unnecessary. Patients don’t compare the costs of physicians or medication, physicians don’t compare the costs of various tests and other services, such as x-rays.

Parkinson may see himself as offering a service that “greedy profit-making” companies don’t offer. But his service is an example of the market at work, whether he knows it or not. He is offering a service to individuals who are basically cut out of the system that the politicians have forged when they wrote the laws that so completely regulate health care provision. And no doubt Parkinson profits from offering his service -- if he didn’t he wouldn’t do it, or do it for long. I hope he makes lots of profits from it since this will encourage other physicians to follow his example.

I would also note that Dr. Parkinson is sitting on a gold mine if he utilizes it correctly. If he has visited hundreds of pharmacies and called various clinics and specialists to gather price information he has amassed some valuable information. Instead of merely offering that information to his patients he could offer it to the wider community through a subscription web site.

I could see a site that allows you to put in your location in the city and what medication you required For a one time fee per medication the site then prints out the list of the 10 cheapest service providers within a certain distance from your home or workplace. And for comparison it might provide the five cheapest providers in the entire city. It could do the same for things like x-rays. With something like 4 million residents in the city the numbers willing to buy the information is far in excess of the 1,000 patients Parkinson wants to have on his books.

He would only be selling the price information not providing medical care. But it could help hundreds of thousands of people to dramatically reduce their costs, even people he couldn’t take on as patients. Markets do work when they are allowed to work. And Dr. Parkinson exemplifies that. He is a medical entrepreneur and a profit-seeking capitalist in the best sense of the word even if that might make him frown.

Who are the uninsured in Ameica?

A 9 minute film on what groups in American comprise the uninsured.



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