Keeping Health Care Costs Down
April 15, 2014
Relaxing health care market rules can drive down prices and ease the rise of health care costs, says Marc Joffe, Principal Consultant at Public Sector Credit Solutions.
Opening up the health care market would inspire greater competition, encouraging innovation that would improve costs alongside improvements in quality. Joffe explores four ways that the health care industry, which has suffered from skyrocketing costs, could see savings:
- Medical tourism: Patients can save between 30 percent and 70 percent by going abroad for intensive medical procedures, such as bypass surgery and knee replacements. Many countries have poured funds into health services that cater to international patients, and some U.S. insurers cover these procedures. Joffe suggests that Medicare could also achieve these savings by covering expenses incurred abroad.
- Greater use of qualified non-physician providers: Many routine services can be performed by nurse practitioners and other non-physician professionals. Not only would this increase the supply of health care providers, but these services can be performed at lower costs by non-doctor practitioners.
- Medical liability reform: Tort reform can curb the growth of medical costs because doctors practice "defensive medicine" to guard against lawsuits, which means running unnecessary tests and providing unneeded treatments. When Texas undertook major tort reform in 2003, including capping noneconomic damages at $250,000, one study found an 80 percent reduction in malpractice suits at one medical center in San Antonio.
- Change in how prescription drugs are sold: 10 percent of health costs in 2011 were due to prescription drug spending. Currently, patents give pharmaceutical companies a 20-year monopoly on drug sales. Joffe suggests that limiting this monopoly could reduce prices without losing beneficial pharmaceutical research.
Health care costs are already one-sixth of the U.S. economy, and they are only expected to rise as baby boomers seek greater medical care. The Affordable Care Act only shifts costs around, but it does not keep costs from rising. These reforms could actually slow down health care costs.
Source: Marc Joffe, "Medical Cost Containment: A Microeconomic Approach," Mercatus Center, April 2, 2014.
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