Norway vs. US

The other day, I got involved in a Reddit discussion about healthcare, prompted by a person who got a bill for $52,000 for an emergency appendectomy. The patient’s insurance company denied the charge, questioning the medical necessity (of an emergency procedure!)

The simple bottom line is that the asking cost of anything in the US is merely a point of leverage. Normally it’s used to negotiate with the government. This technique doesn’t work as well with private insurers, who know what the market is. Here, it’s being used to leverage the patient. From the insurance company’s point of view, the hospital is not the customer, they are a vendor. Screw em. The patient is the customer, far as the insurance company is concerned. Here, the hospital is putting pressure on the patient to blow up the insurance company’s phone lines, basically. Evidently it’s working.

A responder from Norway was aghast, justifiably so. How is this legal? Her question led to a discussion about what Norway is doing right, and we are doing wrong.

Some of it has to do with system integration. A lot has to do with financing; people in the Scandinavian countries don’t play the free lunch game. They understand, if you want something nice you have to pay for it. A glance at a typical citizen’s tax bill shows what such a system costs.

One thing Norway is doing right, I would submit, is that every citizen is covered. That makes libertarians’ heads explode when I say that. But the simple reality is, if you’re trying to manage risk, the bigger the pool the better. The biggest pool of all is “everybody.” And there’s nobody quite like the government when it comes to “encouraging” everybody to do something.

Government has two problems, though.

  1. It doesn’t have any resources.
  2. It doesn’t know anything.

As for the first, government sponsored healthcare is expensive, and there just isn’t enough of other peoples’ money to pay for it. Thus, in Norway in particular, tax revenues are about 40% of the GDP — which is saying something, they have a great economy — and this is primarily financed by the average citizen in the form of income and value-added taxes.

As for the second, the marketplace knows a little something the government doesn’t know. Primarily, what the going rates are. There is no way to know a priori how much an appendectomy “should” cost. How much the surgeon’s time is worth, how much the anesthetist’s time is worth, how much the nurses’ time is worth. There are no shortcuts, you have to haggle that stuff out. Insurance, or rather more specifically, health maintenance policies, haggle stuff out every day. That’s what they do. It’s partially that, and partially the core insurance function of underwriting. Being able to look at a population and figure out how much to charge it for insurance.

Evidently, no government in the world has any idea how to underwrite anything. They all wind up losing money. On any given day we can read stories about Canadians or Brits struggling with healthcare budget over-runs. That’s even true in the Scandinavian countries, much as I admire their approach. For that reason, cutting private insurance out of the loop is foolish.

In the US, private insurers save big money for the state-run Medicaid program, which provides care to children and poor people. We haven’t seen as much in the way of cost savings for the federally administered Medicare program, which provides care to the elderly. Interesting question as to why that might be. Medicare deserves credit for doing some things right; but one suspects there are some adverse incentives built in as well. More on that later.

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