- The Washington Times - Saturday, August 8, 2009

ANALYSIS/OPINION:

Five of the most important reasons why private health insurance costs so much are:

c Improvements in medicine and medical technology. We’ve gotten spoiled by computers and cell phones, which have gotten cheaper as they’ve gotten better. This isn’t true with most things, and it certainly isn’t true with drugs or with new diagnostic equipment. And because they work so well, people who otherwise would have died live longer and consume more health care. A Kaiser Family Foundation paper in 2007 estimated about half the increase in health care costs since 1970 is due to improvements in medical technology.

c Frivolous lawsuits. Under our current system, plaintiffs can win enormous judgments against doctors and hospitals on the basis of specious evidence. According to the consulting firm Towers Perrin, the tort system imposed $252 billion in costs on the U.S. economy in 2007.

These costs are imposed in three ways. The first is the cost doctors must pay for malpractice insurance, which is passed on to you whenever you visit the doctor. Obstetrician-gynecologists in New York pay about $200,000 a year in malpractice insurance premiums. For neurosurgeons, it’s about $300,000.

The second is the cost of litigating medical tort claims, which in 2007 was $30.4 billion, a 100 percent increase from a decade before.

The third — and most expensive — is defensive medicine, ordering tests and procedures that aren’t really needed to guard against a lawsuit. In a 2005 survey by the Journal of the American Medical Association, 93 percent of high-risk specialists in Pennsylvania admitted to the practice.

These costs would decline sharply if plaintiffs who file frivolous lawsuits were required to pay the legal costs of the innocent defendants, as is the practice in most of Europe. But though Democrats are eager to impose limits on how much doctors may earn, they are unwilling to impose limits on how much ambulance-chasing lawyers may earn, since trial lawyers are major contributors to Democratic candidates.

c Health insurance mandates. State governments require insurers to provide certain benefits and to include some high-risk patient populations. These mandates increase the cost of basic health insurance coverage from about 20 percent to nearly 50 percent, depending on the state, according to a 2005 estimate by the Council for Affordable Health Insurance.

c Cost switching. Medicare and Medicaid don’t reimburse doctors and hospitals for the actual cost of providing health care services to these patients. This causes doctors and hospitals to charge patients with private insurance more to make up the difference. Milliman, a consulting firm, estimated consumers paid an additional $89 billion a year in private health insurance premiums in 2006 and 2007 to compensate for federal underpayments.

c But the most important reason private health insurance costs so much is that it really isn’t insurance at all. It’s a baroque form of third-party prepayment.

I have insurance on my car, not because I expect to get in an accident every week, but so I won’t be wiped out financially if I do.

My auto policy doesn’t cover oil changes, tune-ups, tire rotation and other aspects of routine maintenance that I’m expected to take care of myself. If health insurance were more like that, it would be a lot cheaper.

I cheerfully pay the costs of routine maintenance on my car because I know it saves me money in the long run. I don’t have the same attitude about health insurance, because it’s my company, and not me, that gets most of the bill.

Our reliance on employers to provide health insurance is a product of World War II. Because of wage controls, companies couldn’t offer higher pay to attract workers. So they offered health care instead.

This has been bad for two reasons. Losing a job becomes a real calamity, because you lose your health insurance, too. But the bigger reason is because we’ve lost the incentive to be smart shoppers when it comes to health care.

Tort reform, a relaxation of health insurance mandates and fair reimbursement for Medicare and Medicaid would lower dramatically the cost of private health insurance. But the most important reform would be to transfer from our employers to us the tax deduction for health insurance, and the responsibility for obtaining it.

Jack Kelly is a columnist for the Pittsburgh Post-Gazette.

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