US health care prices

The US spends twice as much per capita on health care as other developed countries, and it is not because Americans are notably less healthy, nor do they visit doctors, clinics and hospitals more frequently. The main reason for the outrageously high expenditure, writes Princeton economist Uwe Reinhardt, is that prices are outrageously high. Moreover, prices in the United States are not uniform. They vary markedly, and the patient typically has no idea of what the bill will be until after a service is provided.

In most other countries, prices for health care goods and services are not negotiated between individual health insurers and individual physicians, hospitals or drug companies, as they are in the private insurance sector in United States.

Instead prices there either are set by government or negotiated between associations of insurers and providers of care, on a regional, state or national basis. ….

[Americans pay high prices for health care because] the payment side of the health care market in the private sector is fragmented, weakening the bargaining power of individual insurers, especially vis-à-vis the increasingly consolidated hospital sector, although other factors, including malpractice premiums, play a part as well.

To endow the payment side of health care with more market muscle, I have proposed an all-payer system based on the models used in Germany or Switzerland or in the state of Maryland. In these systems, government does not dictate prices. Instead, health care prices are negotiated at what Europeans call a “quasi market” level.

… [T]he variation of prices for identical items within the United States – even within a single city – dwarfs the cross-national variation in prices for the same item. That phenomenon has begun to attract attention in the news media only lately.

As Consumer Reports noted in an illuminating article, “Health care prices are all over the map, even within your plan’s network.”

Uwe E. Reinhardt. “U.S. Health Care Prices Are the Elephant in the Room“, Economix, New York Times, 29 March 2013.

There is much more in the full blog. Read it to become informed, especially if you reside in the United States.

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