The nature of the health care debate is grounded in a simple principle that is at the core of the problem -  it has escaped the grasp of policy makers and the political class as they tinker around the edges of the central issues and focus on the structure of the governmental compensation system. Health care in this country is primarily based on unaccountable expenditures paid by third parties to hospitals and health care providers.  It is an unholy alliance between parties who have no interest in keeping prices or expenditures down, ensuring a qualitative outcome, or preventing rising costs which are far out of proportion to the services provided.  The cycle of reinforcing economic interests between the insurance industry and the health care providers is bankrupting government and the citizenry, and absorbing ever greater proportions of the gross national product.  At the core of the Medicare and Medicaid debate is this fact: as the baby boom generation retires and Medicaid is expanded, expenditures become unsustainable because swelling numbers of people receiving health care are billed at levels that will bankrupt both the system and the country.

No one denies that health care is an expensive proposition, and the spillover into uncontrolled costs for Medicare and Medicaid has its root in the third party insurance payer system for those not on Medicare and Medicaid. Those who have medical insurance don’t think twice about the cost of their medical services or hospitalization because ”they’re covered”, so when the hospital bills their insurance company $40,000 for a hip replacement, or $5000 a day for a hospital stay, the bill is paid, and the individual doesn’t think twice. To pay for these exorbient prices, the insurance companies raise premiums on everyone, the hospital continues to charge what it wants, and the system absorbs the costs. It’s a snowballing cycle.  To compare, when a Medicare procedure pays 70 cents on the dollar for the same procedure covered by private insurance, the hip replacement costs $28,000, the hospital stay costs the public $3500, and the taxpayer foots the bill. Then when Medicaid only pays 50 cents on the dollar, and the hip replacement costs $20000, and the day in the hospital costs $2500, the health care provider cries foul that they are “only” getting $20000 for the hip replacement they usually bill out at $40,000, “only” getting $2500 a day for a hospital stay, and the taxpayer pays the bill. 

At the core of the problem is that the private insurance system has pegged costs and procedures at extremely high levels with little competition in pricing, no recourse from individuals, and billed through the self-reinforcing alliance of insurance companies and health care groups.  The profit margins are enormous, and the bill gets paid, because “we’re covered”. In fact, for those with insurance, whether purchased individually, provided by your employer, or as part of a public employee coverage program, we don’t care what a hip transplant, or a heart attack, or a stroke costs our insurance company because of this system and health care providers know it. As long as someone else is footing the bill we consume health care and are billed for it at levels that have no mechanism for cost control and no incentive for hospitals, health care providers, doctors, or insurance companies to keep costs down, because as long as someone else is paying the bill, while we may roll our eyes and bemoan the $40000 hip replacement, we don’t care. We’re entitled. When Medicare and Medicaid are factored in, it is widely assumed that they are “ripping off” the health care system by “only” paying 70 % or 50% of the billing levels assumed by the private insurance mafia, as if $2500 for a day in the hospital is a paltry sum, or $20000 is not enough for an artificial hip.  Those on Medicare and Medicaid don’t care either, because “they’re covered”, or even worse, “they’re entitled”, and again, the taxpayer foots the bill.

Factor in prescription drug costs, covered in the same way as health care in general, and we face the same dynamic, with pharmaceutical companies charging basically whatever they want for prescription drugs, because they know they will be paid by the insurance companies, and then Medicare and Medicaid are forced to pay their respective percentages for the inflated drug costs. We don’t care because “we’re covered”, and our primary driving factor is getting our health care, and that is understandable. When you are sick, you want treatment. When you have a heart attack you want treatment. You don’t care what it costs because you have insurance that you paid inflated premiums for and you expect it to be paid. Medicaid recipients, whose costs are covered by State governments, have even less incentive to care about costs. Medicare recipients are “entitled” to their benefits, and don’t care what anything costs because someone else, the taxpayer, is paying, and the costs of procedures are effectively not their problem.

This is the system we have and until the dynamic at work is altered then health care costs will continue to take larger shares of national GDP and continue to drive rising health care costs, federal deficits, and the national debt. Obamacare only makes it worse, adding millions of people to public health care rolls without controlling costs, and further bankrupting the system, while adding impenetrable layers of additional costs with a government health care bureaucracy that only adds regulatory morass without improving health care delivery one iota. The answer lies in separating the most essential components of health care from the most expensive proportional costs. Health care expenditures on primary care and basic prescription drugs make up a significant portion of billable health care costs, and are billed at levels far higher than necessary. An X ray costs less than $2 but is routinely billed at $200 - $500. An electro cardiogram costs less than 50 cents to conduct, but is routinely billed at around $500. The same applies with an ultrasound, which is routinely billed at around $300. Why? Because they can, and they do. No one denies that surgical procedures and advanced care for serious illness is both necessary, and expensive, or that America has, for all its flaws, the most advanced health care system in the world. But catastrophic illness and primary care are two ends of the spectrum, and reducing the costs of primary care, which is 40% of health care costs, would go a long way to restoring solvency, particularly if combined with a catastrophic health care insurance policy system that addresses the legitimate expenses of the most critical health care delivery.

To accomplish this we need a system of primary care similar to the boutique medical care movement that is growing rapidly in this country. Patients pay a fee of $500 - $1000 per year to a physician group for all primary care, including  x-rays, lab tests, and unlimited doctor visits. A doctor group with a patient base of say 2000 people, not all of whom will be sick or need medical care at the same time, provides a base of $2 - $4 million dollars to the doctor group to more than meet their costs and provide  primary medical needs. Concurrently, catastrophic health care policies, whether individual, employee based, or government funded, would cover essential critical care at lower premium costs, since primary care would not be in the cost mix, and would allow prescription drug coverage along the lines of the same principle. Competition and openness in pricing would set fees for procedures, from hip replacements to cancer treatment to MRI’s, at levels that, while still substantial, would “bend the cost curve”. Quality of health care would be maintained and systemic corruption of the unholy alliance, while not eliminated, would be more reasonable. While too complicated to solve in 6 paragraphs, the point is that the root cause of health care costs must be addressed, and with it the solvency of Medicare and Medicaid, and its implications for the federal debt and annual deficit. Until these factors are addressed all attempts to solve the health care problem in America will be merely paper mache over a festering sore. The problem with health care costs isn’t that “we’re covered”, it’s that the system doesn’t address how we are covered, and how we pay for that coverage.