The United States spends 17.2% of GDP on healthcare costs, public and private, almost twice as much as any other developed country, and this percentage is gradually increasing. In today’s New York Times there is a good discussion about these rising costs (see below).
My recent post, “Fixing Obamacare Rather Than Replacing It,” discusses a comprehensive new healthcare reform proposal by Avik Roy of the Manhattan Institute. Mr. Roy’s plan both expands health insurance coverage beyond ACA levels as well as reining in the huge costs of healthcare. As Mr. Roy says “Among the industrialized member countries of the OECD, the average hospital stay cost $6,222 and lasted 7.7 days in 2009. In the United States, the average hospital stay cost $18,142, despite lasting only 4.9 days. In other words, the average daily cost of a hospital stay in the U.S. was 4.6 times the OECD average.” Mr. Roy goes on to show that it is hospital system consolidation which is especially responsible for driving up the cost of health insurance.
There is a clear example of this situation in Omaha NE where I live. There are three hospital systems here: Catholic Health Initiatives, the Nebraska Health System and the Methodist Health System. As stated by the CEO of Blue Cross and Blue Shield of Nebraska in the Omaha World Herald on August 28, 2014, “Our experience in addressing health care costs is precisely what led us to our current negotiations with Denver-based Catholic Health Initiatives. CHI’s Alegent Creighton Health network of hospitals and physicians charges our members up to 30 percent more than other providers in Omaha for the same services. … These numbers reinforce a simple truth: We cannot allow one provider group to charge our members more for the same services they can receive elsewhere.”
We are fortunate in Omaha to have a choice of three different hospital systems and an insurance company with sufficient clout and integrity to fight price gouging by one of these systems. But not every community is as fortunate as Omaha in this respect. This is just one simple example of why cost control needs to be at the center of healthcare reform.
It Does Not Add Up 
Jack, let me share 30 years of working in the health insurance field, including several years as supervisor of the Market Conduct audit section of the Nebraska Department of Insurance. Within my insurance industry experience I spent some 20 years reviewing and responding to complaints received from consumers and their legal representatives and from most of the state insurance regulatory agencies. In spite of that experience, however, I think I have a good idea of the perspectives from which both you and Mr. Roy have correctly examined the increasing cost of health care.
In the 1970s, the insurance industry was loosely regulated except by those states in which there were elected insurance commissioners. Now being loosely regulated in itself does not imply anything negative. In the 1980s states begin to adopt more strenuous insurance regulations that begin to consider more stringent oversight on premium increases with only a part of that oversight geared to actually monitor the underlying costs of health care then beginning to drive up insurance premiums. And many of those “unchecked” costs were being impacted by legislation coming out of states that were quickly learning that insurance policies restricting coverage or denying coverage on the basis of a policy contract were becoming easy political targets for political gain. What could be more popular than for a state legislator to wave the “bloody red flag” over the denial of a claim for someone’s mother or father or baby brother? In one specific case, wigs were specifically excluded from coverage. But the interested legislator, the son of the policyowner, became the leading advocate to have wigs covered by government fiat without allowing for an increase in premium to cover the resulting claims for wigs.
And, yes, I did work quite closely with the Kansas Department of Insurance and its erstwhile director, a certain Kathleen Sebelius who never saw an insurance policy that could not be improved by having fraudulent claims paid or requiring coverage for pre-existing illnesses or having claims paid for items for which there was no established efficacy for medical diagnosis and care. Unless, of course, a medical doctor or a state regulatory agency deemed it so.
By the 1990s, premium costs were spiraling out of control to keep up with the regulatory demands and at the same time medical care was increasing leaps and bounds over what had been required for most conditions just a few years before. Primarily, health care providers and their liability insurance carriers were seen as the new “golden calf” for both patients and trial attorneys. This drove up the cost of malpractice coverage and that drove up the cost of remaining in practice.
At one time before the 1990s, America had the most efficient health care delivery and reimbursement system in the world. But once government regulators became involved, and their advocacy was directed to political gain more than medical care, and once trial attorneys saw the endless stream of income from both the medical profession as well as insurance carriers, and once the politicians in the state capitals and in Washington DC saw the political value of denigrating the insurance industry and health care providers all that remained was a very sad attempt at national health care via Obamacare.
Granted that Obamacare in its current form is not the solution to our healthcare problems, what do you think of Avik Roy’s proposed changes? Will they move us in the right direction?