In the book Overcharged, authors Charles Silver and David Hyman identify a number of problems with the current health care system. Third party payment under a fee-for-service system means that providers have an incentive to provide more rather than less care. Further, because the people receiving the services (patients) are not the ones who are footing most of the bill (employers/insurers/government), fraud is common. The authors spend the first 270 pages or so detailing how overuse and fraud occur in this third party payment system. The authors do a good job of documenting the size of the problem using peer-reviewed research and anecdotes, but to be honest one could have cut this section down by half and the reader would have understood the key points.
Identifying problems in the current health care system is easy to do; the more important question, however, is what is the solution?
Silver and Hyman first advocate for high-deductible health plans (HDHPs). The benefit of HDHPs is that they lower premiums. HDHPs are also supposed to make consumers shop for more high value care. The downside of course is that more of the risk for adverse health events is shifted to patients. While HDHPs are promising in theory, in practice, patient’s do very modest amounts of price comparisons and cost savings are likely to be low. Further, the highest cost to the system are patients who will have already hit their out-of-pocket maximum, so HDHPs don’t help there. The authors do argue that a modest increase in HDHPs may not be as effective as large scale take-up of HDHP as supply sides are more likely to occur in a general vs. partial equilibrium setting. By 2018, however, 26% of all workers are were enrolled in a health plan with a deductible of $2000 or more; among individuals in small firms this figure is 42%.
The authors also advocate for the use of non-traditional health care providers such as CVS’ Minute Clinics and Costco. While these options may provide more convenient, more efficient services for standard well visits, check-ups and minor problems, more serious (and costly illnesses) in the near term at least likely will still be treated at physician offices and hospitals.
Another proposed solution is to have patients travel abroad for care, where cost are less expensive. This approach works for expensive surgical interventions as long as the quality of care is maintained. Also, if the patient is too sick, travel may not be feasible. Further, recuperating away from a network of family and friends is problematic. Again, this solution is likely confined to relatively low-risk surgical interventions.
The authors also advocate for prizes for pharmaceuticals. While a good idea in theory, in practice these are often problematic. If you offer a prize for a cure for cancer, what happens if a drug cures 90% of cases? Do they get the prize or not? Also, some pharmaceuticals will treat conditions for which prizes are not available. I discuss the prizes vs. patents conundrum in more detail here. The Netflix pricing model for pharmaceuticals is one approach that is between the prize/patent approach.
In short, the policies argued for here likely will be helpful to bring the market to health care. These measures, however, work best for people who are moderately ill and are able to price shot in their HDHP, use outpatient retail clinics and potentially travel abroad for care. The cost of paying for innovative new treatments, and caring for more severely ill patients with multiple comorbidities, however, is a more complex issue and one that is likely not adequately addressed in this book.
- Silver, Charles, and David A. Hyman. Overcharged: Why Americans Pay Too Much for Health Care. Cato Institute, 2018.
Thanks for reviewing the book. I’m glad to have your thoughts and will share them with my coauthor and the publisher.
Has anyone explored the idea of Doctors themselves providing insurance? In other words, eliminating the middlemen? Not meaning to pick on insurance companies but the high cost of health, life, property and vehicle insurance is a big chunk of many people’s budgets. (Different subject, but why couldn’t car dealerships provide the insurance for the cars they sell and repair?) There are too many opportunities for others to benefit financially from our everyday transactions.