Competition and Choice, Part A: Why Is Care So Expensive?

February 10, 2018

Exploring the Common Ground Principles: Health Care

Principle #3: A competitive and accountable health care system would help control costs by (i) ensuring that consumers pay a portion of the cost of medical services and products; (ii) allowing consumers to shop competitively for health insurance coverage or contract directly with health care providers for services, as they choose; and (iii) leaving room for health care providers, insurance companies, and the states to experiment with different methods for delivering services and reducing costs.

Americans spent over $3 trillion last year on health care, a number that just about everyone agrees is unsustainable. Still, after decades of hand-wringing, we have had little success agreeing on a prescription that would lower the cost of our health care system. One reason is that we have not found broad consensus on a diagnosis. Indeed, there is no single explanation for why health care costs are so high. Here’s an list of theories, admittedly incomplete.

  • Health insurance distorts prices and keeps patients from acting like informed consumers (Willem G. Cornax).
  • Widespread unhealthy lifestyles contribute to high rates of expensive-to-treat chronic diseases (Steve Shortell).
  • Pharmaceutical costs are outrageous and ever-growing (Scott J. Knoer).
  • Hospitals load patients up with unnecessary and duplicative procedures (Atul Gawande).
  • The American Medical Association sets artificial limitations on the number of new doctors, allowing the profession to keep prices high (Matthew Iglesias).
  • Pricing lacks transparency (Sarah Kliff).
  • Hospitals are administratively bloated (Elisabeth Rosenthal).

In reality, it’s probably a complex combination of several or all of these factors that account for the high price of care.  It is easy to see how some of these factors impact others. For example, hospitals without effective administration may be authorizing unnecessary and duplicative procedures not to make money, but because they lack the internal controls needed to do better. ,

Addressing our health care pricing woes will require action along multiple fronts, but there are a few shifts that would have a major impact. Read on to explore them in Parts B through E of this series: