Episode: 2375
Title: HPR2375: Competing Interests
Source: https://hub.hackerpublicradio.org/ccdn.php?filename=/eps/hpr2375/hpr2375.mp3
Transcribed: 2025-10-19 01:56:36

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This is HPR episode 2,375 entitled, competing interest.
It is hosted by AYUKA and in about 16 minutes long and carrying a clean flag.
The summer is, we look at the marketplace and see how everyone's interest clash.
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Hello, this is AYUKA, welcoming you to Hacker Public Radio and another episode in our little
mini series on healthcare policy in the United States.
This time we're going to take a look at the competing interests of various actors in this little drama that we have.
Now, in the United States, as we've said, our health insurance is privately provided through a marketplace.
And one of the things when you want to understand a marketplace is you've got to look at all the different participants.
And, you know, what they are incented to do and what their interests are.
So, here's a not exhaustive but pretty good list.
We have doctors.
We have hospitals.
We have insurance companies.
We have employers.
We have the government.
And we have individuals.
Now, each of these participants has constraints on what they can do.
Insurance companies need to cover all of their costs and make a profit.
So do doctors.
And many hospitals, even the ones that are nonprofit, still have to cover all of their costs.
They have to keep their revenue up sufficiently.
Employers, government and individuals are in various ways getting squeezed by rising costs and finding health care more expensive to provide.
Now, helping one group is likely to harm another unless the provisions are finally balanced.
So, how do each of these groups try to improve their own situation?
Now, doctors face a basic problem in common with service providing industries, which is that they cannot improve productivity easily.
Most productivity increases come from automation.
And that is not the way to provide quality health care.
What all of us would love is to go to the doctor's office and have a long quality interaction with a caring, highly trained professional.
And that is expensive and doesn't get any cheaper over time.
What most practices are doing now is using so-called lesser professionals like nurse practitioners to take over a lot of the routine interactions.
One thing that is getting more attention is moving more of the routine stuff out of the doctor's office into clinics.
Some of the larger pharmacy chains see this as a growth area.
And they are routinely offering services like influenza vaccinations.
I tend to get mine at my drugstore and have for a number of years now.
Hospitals face many of the same pressures as doctors since nursing care and award is also hard to automate.
But in addition, they face increasing costs for advanced medical equipment.
Imaging, for example, is wonderful.
We used to hear the phrase exploratory surgery, which meant cutting you open just so you could take a look and see what's going on.
You never hear that anymore.
And the reason is we have so many better, marvelous ways of imaging what is inside of you without cutting you open.
But those CAT scans, PET scans, MRIs, and so on all use very expensive equipment.
In some states, they try to hold down costs by limiting which hospitals can purchase this equipment.
In many states, for instance, there is a process to require something called a certificate of need before a provider can spend significantly on plant and equipment.
My own state does this for those very scanners, right?
CT scanners, MRIs, PET scanners, blah, blah, blah, blah, as well as for certain units for adding more capacity and so on.
And I'll put a link in the show notes to a Michigan document that you can take a look at and see how that works.
Now, we're also seeing increased consolidation in the hospital sector with mega chains developing by merging in smaller competitors.
This is clearly a way to gain increased market power, although it has never overtly presented this way.
Oh, insurance companies, they face or at least may face competition that limits premium increases, which suggests that increasing competition may be a good thing.
In fact, in economics, it usually is a good thing and I'm inclined to agree with that.
But if the costs they face from doctors and hospitals go up, they could theoretically be squeezed if they cannot raise premiums they have to reduce payments.
And this is where things like pre-existing conditions become relevant.
That is simply a way to say there are certain things they won't pay for because you came in with this problem.
So, you know, I'm diabetic.
So what would happen if I went to get health insurance and they said, oh, we'll cover you for anything that does not have and is not related to diabetes or we won't cover you at all because you're a diabetic.
That would not be good.
The other thing they love to do is negotiate package deals with providers to get lower rates.
So insurance companies will create something they call a network and the network is all of the providers that they negotiated good rates with.
So when you get your health insurance, you may not be able to use the doctor that you're used to using if that doctor is not part of their network.
Or they may say, okay, you can use that doctor but you're going to pay more.
Your copays and so on are going to be higher because that's an out of network doctor.
There are stories in this country you wouldn't believe some of this stuff.
Because someone goes to a hospital and the hospital is in networks.
So they think great and covered and then they get a, you know, $6,000 bill from a doctor who did something, maybe an anesthesiologist or whatever.
And they say, well, wait a minute, what's this all about?
Well, that doctor was not in network and so therefore we're going to stick you with the bill.
So this network thing is important.
If a provider is out of network, they can refuse to pay services.
Now another technique insurers use to shift some of the costs onto the individual through copays and deductibles.
So if you're in the United States, the next time you get an explanation of benefits notice, read it carefully and you'll see how this works.
Every time you put in a claim, the insurance company will evaluate that claim and they'll come back and tell you, well, this much is what we will pay and this much is what you will pay and you can see how all of that works.
Now employers are primarily concerned with the premium costs of the insurance that they buy.
Costs are the employer just another line item in the cost of having employees along with wages, payroll taxes, other benefits, etc.
Employers add all of these up to determine the cost of hiring people.
If labor markets are tight, there may be competition among employers to offer better quality of insurance.
On the other hand, if unemployment rates are high and it's a buyer's market for labor, they can dispense with all of that and say, you know, we can get all the people we need without offering any of this stuff.
Now government has two primary concerns, but they go in opposite directions.
One concern is to provide good services to citizens, which can lead to higher bills because good services tend to cost money and the better the services, the more money.
But their other concern is to reduce the tax bill, which can lead to reduced services.
Finally, individuals face conflicting concerns.
Everyone wants high quality medical care, which is expensive, and everyone wants low cost medical care, which is not high quality.
So this takes us to some useful principles.
In the first one, all medical care is rationed.
I'm going to repeat that. All medical care is rationed.
This one sometimes takes people by surprise, but all it means is that we do not have the resources to provide maximum medical care to every single person.
You know, I used to do some very simple projections when I was teaching the economics of health care to my students in college.
And one of the things we could do with a very simple straight line projection was say, well, somewhere around the year 2050, we will have excellent medical care for everyone and will be naked and living in trees.
Well, you know, obviously that's not going to happen.
So there is rationing of now the question is what kind of rationing and how we do that has implications.
Providing medical care cost money, food, clothing, transportation, housing.
I mean, all of those things cost money as well. And there's only so much money.
So there has to be some way of finding the right balance.
And since I'm an economist, you should not be at all surprised to hear me say that that means cost benefit analysis.
And that's one of the things that you really have to do to figure this out.
So how in practice do we ration medical care generally in one of two ways.
We ration through price and income.
All right. Now in a market system, this is very common. Every bit of care has a price attached.
And then you decide which ones you want to spend your money on.
Even if you get it as a benefit, there is a cost as well.
You know, it's the cost of the insurance.
Now, I saw this very explicitly for a while. I was working as a contractor rather than employee.
And the company I was working through basically said we've got two hourly rates.
You get one hourly rate if you want health insurance and another higher one if you don't.
So, you know, as I said before, employers, this is just another wine item in the cost of hiring people.
And so this was a very explicit case of saying, well, if you don't force us to incur this cost,
we'll give you a little more money in your paycheck.
So in a case like that, maybe your spouse and for a while that was the case for me was that my wife had a good job with benefits.
You know, when she lost that job, then things got a little more interesting.
So that's the one kind of rationing.
Now, this is the most common rationing in the United States, okay?
Even with insurance, the question is, well, who has insurance? Well, people who can afford it.
Well, what if you can't afford it?
Okay, we could provide it through the government, but then that means passing it to the taxpayers,
and then they'll come back and say, well, we just can't afford it. Sorry.
You get to do without.
Now, another one is called rationing by benefit. This is the other.
And this is sometimes very controversial, and often sounds like the old runaway trolley problem.
If you've ever known the runaway trolley problem is a classic in ethics.
And basically it's something like this. The setup is, you know, a runaway trolley is going down the track,
and it's going to plow into a group of people and probably kill 10 people.
But, you know, you could switch it onto another track and avoid those people,
but doing that will almost certainly kill someone that is on that other track.
So what do you do? If you do nothing, you kill a bunch of people.
If you take an active step, you'll save those lives, but you kill someone else.
So, interesting problem in ethics.
When healthcare, what do we mean? Well, do we spend money on providing basic care for large numbers of younger people,
for instance, prenatal care, or on organ transplants for elderly people?
If there's limited money, that is one of those things you end up arguing about.
For instance, if you're an alcoholic, you may be turned down for a liver transplant
on the not unreasonable grounds that you are likely to destroy the new liver just as you destroyed the old one.
Another thing, statistics show that a very large proportion of healthcare spending comes in the last few months of your life,
and may not even prolong life by much at all.
Should we spend so much on this? And who's going to decide that?
Well, in a democracy, ultimately, that probably becomes a political decision of some kind.
And, you know, this is one of those things where you can demagogue very easily, as happened with Obamacare,
and the so-called death panels, which was stupid, but was attractive to a certain group of people.
So, most other forms of rationing end up resolving into one of these two types.
And, again, it's clear this problem cannot be avoided.
There is no way to say healthcare is a right that should never be rationed and turn that new viable policy choice.
Now, one of the major drivers behind the Obamacare plan was the rate of increase in healthcare costs.
This fundamental problem has to be addressed one way or another, and that will be our next topic.
So, this is Ahuka signing off, and as always, reminding you to support FreeSoftware.
Bye-bye.
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