Vertical Integration and Overuse of Resources
Two unrelated topics, but my infinitessimal attention span has me tiring of this line of discussion. So deal.
By vertical integration I speak primarily about ‘approved providers’. This is one where I simply haven’t done the legwork as to understand its origins completely. But I can say with confidence that without the massive sized corporations created by barriers to entry and employer-insurance coupling, such things would not have been possible. Just think about Halliburtion. They routinely received no-bid contracts (which I disagree with) from Clinton, not just Bush. Why? Because they were a vertically-integrated juggernaut. They were the only one stop shop that could provide all the services sought by the contract. They had no competition, so government decided not to bother with a bidding process (again, I don’t agree with that logic completely).
When I was rear-ended all four times, State Farm did something that no HMO or PPO in the history of mankind has ever done. They cut me a check based on reasonable repair cost (that was actually reasonable), gave me a list of recommended repair shops, and then told me I could take it to whomever. Repair shops thus had to compete for insurance-based business. One of the benefits of getting a check for a set amount is that these repair shops can ‘buy’ my business by leaving money left over. Discounting, in a sense. I can do with this money what I wish, such as keeping it. Or, as many gearheads choose to do, invest the extras in performance and appearance parts to be installed during the repair and so eliminate future labor costs or driveway wrench-turning.
The end result, as prices are driven down by competition, is that insurance companies can lower payouts and hopefully pass it on to the consumer. As a future doctor, it’s probably imprudent to say many specialties are compensated at a level incommensurate with the amount of work, but many specialties are overcompensated. A radiology resident recently remarked that the lowest offer he’d gotten was 350,000, right out of training. I’ll be training longer, with similar (higher than average) malpractice insurance costs, and in a considerably more stressful specialty, and if I’m lucky I’ll make about half that at my peak. If radiologists and imaging centers had to compete it might look a bit different.
As for overuse of resources, comprehensive insurance plans encourage you to seek medical care when it may not be necessary ‘to get your money’s worth’. If you’re spending 3,000 to 5,000 dollars on health insurance, you might as well see the doctor 10 times in a year, none of them for anything resembling serious. You already paid for it right? Problem is, as I said in an earlier post, these premiums are based on average consumption. The more often you go, the more premiums will rise.
Prescription drugs now make up 10% of our total healthcare costs (compared with 20% for doctors, and 30% for hospitalizations) and that is slated to continue to rise. How much of this is really medically necessary? How much could be eliminated by simply manning up, altering behavior, or otherwise? Of course, this meteoric rise is rooted in Big Pharma’s advertising drive, which has quintupled in just 5 years.
But one must ask how effective this would be if we didn’t see health insurance as ‘already paying for it’? If we had emergency and critical care insurance, but had to pay for such garbage as sleeping pills, antidepressants (truly therapeutic in a minority of patients), and anti-fat pills, what would be the result?
In order for consumers to make informed decisions they must be able to recognize the costs and benefits of a given action. When these are concealed through multiple mechanisms, consumers lose the ability to make rational decisions. Markets become inefficient, and consumers waste resources where there is no need for such. This waste is pocketed by the suppliers.
