Insuring Higher Healthcare Costs

Do you wanna know how it feels?
Do you wanna know, know that it doesn't hurt me?
Do you wanna hear about the deal?
--Kate Bush

Picking up on a previous post related to the history of health insurance and its ramifications on US healthcare markets, cost-plus health insurance payments ignited hospital capacity expansions that continue to this day. Cost plus payments mean that hospitals do not compete for patients on the basis of price. Doing so would force hospitals to downsize and specialize.

Instead they compete for doctor referrals. Because doctors prefer lots of empty beds to ensure immediate admission and the full gambit of equipment, all hospitals build lots of capacity in the same manner, such that each is configured more or less like other hospitals in the area. This keeps per-patient daily costs on the rise.

Meanwhile, insurers have been paying doctors on a 'reasonable and customary" fee basis. Doctors can essentially bill whatever they want as long as others charge roughly the same. It takes no genius to noodle the collusive effects of this approach on MD prices.

During WWII, employer-paid health insurance made its entrance into the American healthcare system. We'll discuss this in a future post.