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Comment by sparklingmango | Hacker News Reader

Some standout stats for me:

- Hospitals recorded their most profitable year on record in 2019, notching an aggregate profit margin of 7.6%

- From 2012 to 2016, prices for medical care surged 16%, almost four times the rate of overall inflation

- Last year the average annual deductible for a single worker with job-based coverage topped $1,400, almost four times what it was in 2006... Family deductibles can top $10,000

Facilities charge exorbitant prices for procedures and insurance companies pass more and more of these costs on to patients via higher deductibles and premiums. It will continue to get worse unless there is colossal change.

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Proposed colossal change: a common practice of paying for healthcare out of pocket, instead of through healthcare insurance.

Yes, this sounds unreasonable right now because prices are so high. But bear with me for a second.

Most healthcare in the US is paid through insurance. Insurance creates moral hazard. Insured patients generally don't even need to know the prices of what they're buying, much less negotiate those prices. And here's a dirty secret: insurers don't care much either. They simply add a margin on top of their actuarially-forecasted cost. So healthcare prices rise dramatically over time, because relatively few people are directly exposed to them and push back on them. From this perspective, healthcare insurance is a problem, not a solution.

Don't get me wrong, there are admittedly some obstacles to patients paying out of pocket right now. My point is that we know properly functioning markets set fair prices, and we know our healthcare market is dysfunctional. Healthcare insurance plays a part in that dysfunction.

Patients negotiating directly for better prices eliminates moral hazard and restores market function. Strategically, that would finally restore pressure on healthcare providers, who have become accustomed to raising prices with very little push-back. Without some kind of push-back, providers will continue raising prices - because they can.

> My point is that we know properly functioning markets set fair prices

For frequently-repeated purchases of goods with robust competition for close alternatives where the approximate total infinite-horizon costs and utilities resulting from the decision are both entirely experienced by the participants to the exchange and very clear before or quickly after it occurs so that behavior can rapidly adjust to more optimal alternatives when suboptimal choices are made, in other words where the perfect knowledge assumption underlying rational choice theory is, while it is never actually accurate, at least closely approximated in the relevant market, and there are no externalities making inefficient in the global sense actions efficient from the perspective of participants.

Medical care very much does not fit this pattern.

Yeah, although the negotions between insurance companies and providers theoretically should approach a functioning market.

It painfully obviously does not. It is literally a market with both buyer and seller colluding to raise the prices!

Why? A few reasons. Insurance profit is capped as a percentage of expenditure, so if they think there is more money they could extract from the insurance customers total if things cost more, it is in the insurance company's interest for prices to go up. Providers are not going to balk at getting mopre money.

This is only one of the many ways the system is screwed. The fact that medical billing coders need to customize the codes they submit for the exact same procdure to depending on what insurance company it is being sent to (for example, this is common for a procedure that is not a perfect fit for any standardized codes, or where some insurers are still using the older revisions of the medical coding standards, etc) and other similar nonsense also artificially inflates costs.

Basically everything about the system from top the bottom seems to be designed to prevent market based price discovery from working well.

High deductible health plans are widely available and members pay for most routine care out of pocket (often via an HSA). However in practice this does little to hold down costs. Most patients aren't able to do effective price comparisons, and can't really switch providers just to save a few dollars.

https://www.healthcare.gov/high-deductible-health-plan/hdhp-...

There's pretty much a free open market for cosmetic medical procedures not covered by insurance. But markets can never really work for medically necessary treatments. Demand is essentially fixed regardless of price. Patients who are in pain or at risk of death will pay everything they have and go into debt besides in order to get treatment. On a large scale basis the only effective means of holding down costs is some combination of rationing and price fixing.

Not only are HDHPs widely available, they are widely used! I've seen numbers to where a third to half of all private-industry health insurance coverage is under a high deductible health plan.

These people, me being one of them, are extremely cost-conscious, believe me. It doesn't help for basically the reasons you mention.

Medical patients are not really "consumers" in the normal sense of the word. A patient may be unconscious when they arrive at a hospital and doctors will just start to treat them (as they should). A patient's doctor may refuse to change where they'll do the operation even if it'll save their patient a lot of money. A patient may decide they're going to have a procedure done at a surgery center, a facility that is typically much cheaper than a hospital, but they can't predict if they'll have a complication that will drastically change the cost of their procedure. Patients can't just walk up to a menu and decide that because they have chest tightness they want a stent put in. That's not how medicine works. The doctor typically sets the treatment plan and there's very little veering off that plan. The doctor really isn't even the one that sets the prices. Insurance companies are heavily involved in that and it varies by health insurance and plan.

The cheapest prices in US healthcare are the prices paid by Medicare. There are so many people on Medicare so this leads to a lot of bargaining power. Hospitals would never refuse to treat Medicare patients (because there are so many). So, Medicare decides "We're only going to pay $10,000 for a total knee replacement." And hospitals have to say "Okay, sounds good. Can't really say no to 60 million patients." Insurance companies do not have that type of bargaining power. They say "We only want to pay $20,000 for a total knee replacement." And the hospital goes "Nope, we're charging you $30,000." And the insurance company sheepishly goes, "Okay..." and then sets really high premiums, deductibles, and out of pocket maxes so they don't have to bear the weight of the cost.

Without competition, there is no avenue for "negotiation". And you don't even have to go as far as you've described - simply mandating that providers can only charge uniform prices across all payers (ie end their collusion with "insurance" companies), along with eliminating the laws that allow providers to substantiate bills without needing to form contracts (ie agreeing to prices or shop rates up front), would go a long way towards triaging the immediate insanity.

IMO, your proposal should separate emergency care, "capital investment", cosmetic, and routine healthcare. Cosmetic & routine should be more market-driven. However, emergency care is unplanned by definition (so can't be properly budgeted for). "Capital investment" would cover the range of expensive procedures ranging from "needed within the next five years to prevent an early death from cancer, but otherwise not time-sensitive" to expensive quality-of-life upgrades, such as knee replacements. Emergency & investment services would need something other than pure market pricing.

hm, interesting. Even better: potentially, instead of negotiating prices one on one, we could form some sort of large collective enterprise that was beholden to us so that it could negotiate prices on our behalf. I'd bet if there was such an group that represented a large enough % of us, we could get some pretty good deals. Now, what would we call it...

MDSave?

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