What’s to Blame for High Health Care Costs?

You can’t blame Obamacare for this one. During the decade before it was enacted, health care costs rose so quickly in the United States that they wiped out most of the gains in income that workers received during that time. That’s the finding of a new report by researchers at the Rand Corporation.

We pay those higher costs in larger insurance premiums, greater out-of-pocket spending for items that insurance doesn’t cover, and more tax dollars devoted to health care. Between 1999 and 2009, these expenses left American workers with almost no extra money in their pockets despite earning higher wages.

Health care spending rose under both private insurance and public programs, like Medicare and Medicaid. That means we can’t place blame on either the market or on the government alone.

Why is American health care so expensive? A second recent study gives one answer. We pay our doctors a lot more than other countries do. In 2008, per capita spending for physician services in the United States was over four times the average for the rest of the developed world.

And payments were higher under both private and public coverage.

Part of the spending goes to cover higher expenses for running a practice. It costs more in the United States to hire staff, rent an office, and pay for malpractice insurance. It also costs a lot more to go to medical school, so many doctors carry huge debt burdens after they finish.

But even after these expenses were taken into account, the study found that doctors in the United States still earn substantially higher incomes.

Does this mean we should start paying our doctors less? Unfortunately, it isn’t that simple. Practice expenses would still remain high, so many doctors would face a financial squeeze. And we don’t want to impose cuts that would discourage top students from going into medicine.

What we can do is to start paying doctors differently. In the United States, most are still paid on a fee-for-service basis, meaning that they earn more by performing more services. Most European countries have begun including other elements in their payment schemes, like bonuses for meeting quality benchmarks and incentives for managing chronic disease patients efficiently.

If we changed our payment system, we could let doctors earn more by providing care that is more effective. That would keep us healthier and less likely to need expensive treatments later on.

We could also start to close the gap between payments for primary and for specialty care. The difference in income between primary care doctors and specialists is larger in the United States than anywhere else. By paying more for specialty care, we encourage treatment that is often less efficient. Primary care doctors have complained for some time about receiving lower payments and have started pressing the Medicare program to change its payment methods.

Obamacare encourages experiments in these directions. But these are only first steps. Major changes in our payment system will be needed if we are to have a chance at getting health care costs under control.

What we do know is that the problem didn’t start with Obamacare, and whatever the fate of health reform, we need to pay it serious attention.

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