It’s easy to get disoriented when delving into terms like “premium,” “insurance,” and “co-pay.” Most people have at least heard of these terms thrown around in conversation, but do all of us truly understand the broader implications of such discourse in our healthcare system at large?
Navigating the sea of media coverage and research on the topic of US healthcare is an art in and of itself. But with a simple explanation of the semantics surrounding these terms, we as future consumers and potential contributors to our public health architecture can become more informed, methodical users of a seemingly convoluted process.
There are several reasons as to why the United States has been suffering in its mission to strong-arm a perfect model of healthcare coverage. Whereas typical free market exchanges involve a bilateral exchange between suppliers and consumers, healthcare economics features providers, patients, “payors,” and employers. The presence of third-party agents complicates the equilibrium typically found in most economic calculations of the free market system, introducing a new variable altogether. If typical economic issues are analogous to algebraic equations, then healthcare is like a multivariable Calculus problem.
Deeper introspection of this process, however, reveals a very simple and coherent narrative. I will refrain from providing partisan views that may implicate my own identity to the best of my ability, for my goal is simply to describe the framework for healthcare through an objective lens.
This is how the narrative is structured:
- Healthcare providers -hospitals, physicians, and pharmacies- provide health care to people, “patients” or “consumers.
- Someone has to pay for such provisions. The entities that pay for the service are termed “payors,” and they include private insurance companies and governmental insurance companies, such as Medicare.
- As we all know, economics isn’t so simple. “Payors,” aren’t inherently motivated by an altruistic desire to see their beneficiaries improve; someone must pay them first in order for them to pay for the healthcare provision. This is where the population of consumers comes in. Some people may directly buy an insurance policy through an insurance company by paying “premiums.” Others working for a business may have employers who negotiate insurance plans on their behalf in exchange for a portion of their salary. For example, instead of earning $100,000 per year, a person may make $70,000 but have the remaining $30,000 go towards an insurance plan. For government-provided insurance (Medicare), the people pay the government through taxes.
There’s a slight problem in this free flow of money called the “moral hazard,” where people may just end up unnecessarily using a medical service because others are paying for it. To create a disincentive for such freeloaders, hospitals might charge a patient a small sum of money termed a “co-payment,” or “co-pay.” The “co-pay” prevents freeloaders from utilizing healthcare resources they may not always need. For example, charging a patient $50 for a checkup may preclude unnecessary checkups, thus preventing freeloading off the money provided by the “payor.”
Essentially, there exists a triangular flow of funding: providers supply care and are funded by the “payors,” which are funded by the people of the United States via premiums, salary compensation, or taxes. The “co-pay,” then, is a natural regulatory mechanism that serves to discourage freeloading. Easy, right?
Not so fast. If the semi-triangular circulation of medical service payments were such a pristine model, then why would there be so much polarization surrounding the issue of healthcare coverage, and in turn, the controversial interventions that come with it? Why do headlines frequently feature fallacies of our public health system, most notably the idea that healthcare in the United States is far more expensive than that of any other peer country?
Todd Hixon of Forbes Magazine explains comparative analyses of health care costs from the New York Times, HealthAffairs.org, McKinsey, and several professors from prestigious universities, who point to a multitude of reasons to why healthcare costs in the US are so high:
“1. Spending on physicians is about five times higher than other countries. This problem manifests because insurance companies and the U.S. Department of Human Services, which establishes Medicare/Medicaid rates, pay significantly more for specialist services than for primary care services relative to peer countries…. [This means, for example, that neurologists in the United States may be paid much more money than a pediatrician when compared to the French counterparts.]
2. Doctors in the US often engage in more wasteful discretionary medical decisions involving higher-cost services -a problem that began in the 1940s. This translates to medical spending waste, where patients may be unnecessarily referred to specialists, CAT and MRI scans, etc….
3. The pharmaceutical industry in the United States is predicated on an exorbitant pricing system, often unnecessarily so….
4. The added administrative functions that result from our multivariable medical structure creates higher costs relative to single-payer models found in Australia, Canada, Taiwan, etc….
5. Greater malpractice lawsuits and tort laws drive up spending….”
There are countless more factors, but the crux of the issue rests in a profound yet obvious enigma-the enigma of more care. US healthcare architecture has reflected trends of exorbitant spending, and sometimes, the treatments provided have been not only unnecessary, but also undesirable.
As a nation gifted with expensive diagnostic equipment and revolutionary procedures and research capabilities, it is vital that we strive for utmost efficacy in our implementation of medical practices. Although the United States has made significant strides in its development of a more utopian healthcare model, significant drawbacks remain. In light of ongoing discourse about our public health system, I hope that I have partially imbued you with a greater awareness and passion for the status quo health policy model. I highly recommend a further reading of the current state of our medical architecture, the major interventions crafted that attempt to fix them (e.g., Medicare/Medicaid and the Affordable Care Act), and the lingering issues with our interventions and with future hypotheticals.
Allen C. Ashley “Countries spending the most on health care.” USA Today, July 7, 2014 Web. http://www.usatoday.com/story/money/business/2014/07/07/countires-spending-most-health-care/12282577/
Berwick, Donald M., and Andrew D. Hackbarth “Eliminating waste in US health care.” Jama 307.14 (2012): 1513-1516.
Chua, Kao-Ping. “Overview of the U.S. Health Care System.” American Medical Student Association. February 10, 2006.
Hixon, Todd, “Why Are U.S. Health Care Costs So High?” Forbes. March 1, 2012. Web. http://www.forbes.com/sites/toddhixon/2012/03/01/why-are-u-s-health-care-costs-so-high/
US Bureau of Labor Statistics. “Definition of Health Insurance Terms.” N.d. Web. http//:www.bls.gov/ncs/ebs/sp/healthterms.pdf