The Real Reason Behind High Health Care Costs

Justin Haskins Heartland Institute
Published December 2, 2015

Consumer Power Report #484

On November 30, The Washington Post published a story by Lena H. Sun detailing the rise in online mental health services that provide specialized care without forcing patients to travel long distances to meet with professionals in-person. The story highlights the lack of mental health services across North Carolina, especially in rural parts of the state, and explains how online services provide a cost-effective, time-efficient way of matching mental health professionals with a wide array of patient populations.

“North Carolina suffers one of the country’s most acute shortages of mental health professionals,” wrote Sun in the article, citing information she gathered from experts in the field. “Nearly half of its 100 counties have a single psychiatrist at best. That means primary care doctors are the ones seeing, and trying to treat, the bulk of patients’ often serious behavioral health problems.”

Sun says in response to the lack of available mental health services, Carolinas Healthcare System, along with other health care providers across the country, has implemented a program that allows patients to meet with mental health professionals over the Internet while receiving treatment from primary care physicians in a local office.

Sun reports early results suggest the program has been quite successful. “The ‘telemental health’ effort began in March 2014, and more than 50 of Carolinas’ 200 physician practices are now participating in some aspect,” wrote Sun. “They’ve seen scores on depression and anxiety screenings fall by nearly half, according to officials.”

The Post article claims the Affordable Care Act (ACA) is the reason for the increase in innovation. Providers are “rewarded” for improving patients’ health under ACA, and federal law requires “insurers to provide mental health benefits at the same level as benefits for other medical care.”

While it’s true provisions in ACA and other federal laws may help motivate private health care providers to offer increased mental health services using innovative methods such as telemedicine, giving credit to the federal government for improving health care is akin to calling someone a hero for setting a city on fire and then suppressing the flames in one building.

Sun explains in the article, “Until recently, there has been little or no financial incentive for such integration [of online services and health care],” but she never explains why there’s been no financial incentive. Telemedicine services allow health care providers to reduce costs by centralizing care, reducing the number of buildings and capital needed, and limiting the number of administrative staff required. If health care providers are able to offer more services for their patients at lower costs, all while expanding a market base, why wouldn’t there be a financial incentive to adopt telemedicine?

The reason we don’t see more programs similar to these is because any market’s success hinges on competition among businesses and industries. U.S. health care is a heavily regulated, anti-free-market system in which innovation is frequently stifled and health services monopolies are supported and created by government agencies.

In a study for the Mises Institute, Mike Holly writes, “The U.S. ‘health care cost crisis’ didn’t start until 1965. The government increased demand with the passage of Medicare and Medicaid while restricting the supply of doctors and hospitals. Health care prices responded at twice the rate of inflation. Now, the U.S. is repeating the same mistakes with the unveiling of Obamacare (a.k.a. ‘Medicare and Medicaid for the middle class’).”

As Holly explains, important federal and state laws implemented over the past century have created a system that artificially restricts the number of services and doctors. One of the most important flaws in the current system was first created in 1910, when the American Medical Association (AMA) “lobbied the states to strengthen the regulation of medical licensure and allow their state AMA offices to oversee the closure or merger of nearly half of medical schools and also the reduction of class sizes,” said Holly. “The states have been subsidizing the education of the number of doctors recommended by the AMA” for more than 100 years.

Although many Americans don’t realize it, the number of medical schools, doctors, and even the number of physicians in specific medical specialties are all artificially designed by AMA. Largely funded by its member doctors, AMA does not have an incentive to decrease costs or improve innovation for patients. Its primary goal is to ensure doctors’ salaries remain high, a mission best accomplished by keeping the supply of doctors ridiculously low.

This is why for more than a decade less than half of all medical school applicants matriculate into a medical school each year, despite the fact the quality of the average medical school applicant and the need for doctors have been rising rapidly, according to data by AMA. Further, even though the number of applicants to medical school increased by 42 percent from 2003 to 2014, the number of students actually enrolled in medical school rose by only about 23 percent.

In a truly free market, if the demand for doctors increases, the quality of the average medical school applicant increases, and the number of medical school applicants increases, the size of the graduating medical school class each year would also rise at similar rates, but that’s just not happening. The government and AMA are clearly to blame for preventing true marketplace competition.

Restricting the number of doctors is just one piece of the puzzle. State and federal government agencies manipulate the health care industry in myriad ways. For instance, 36 state governments use certificate of need laws to force medical providers to get special permission from the government to make important business decisions, such as expanding the size of facilities, choosing to offer additional medical services, and buying important medical equipment. In some states, nursing homes aren’t even allowed to increase the number of beds provided without getting government approval.

Government mandates and regulations related to the health insurance market passed as part of ACA have led to skyrocketing health insurance premiums across the nation, including truly shocking price hikes in states such as Oklahoma, where 2016 premiums for the Obamacare benchmark silver plan rose by an average of 36 percent.

Yes, some telemedicine programs have been implemented because of Obamacare, but they – and countless other innovations – would have been put into place long ago had it not been for other government regulations that deliberately keep prices high to appease special-interest groups and increase government control over every aspect of Americans’ lives.

— Justin Haskins



Stymied by legislative inaction, Medicaid expansion advocates are launching a petition drive to put an amendment on the 2016 ballot that would let voters decide the issue.

If at least 60 percent of the electorate were to approve the amendment, the Republican-controlled Florida Legislature would be required to accept and spend $52 billion worth of federal Medicaid expansion funding.

Under the Affordable Care Act, Washington is obligated to pay at least 90 percent of the cost of expansion, which would cover roughly 800,000 uninsured Floridians who are unable to afford private health insurance but aren’t poor enough to qualify for Medicaid currently.

The petition drive, organized by the Florida Health Solutions political action committee, is being spearheaded by U.S. Rep. Corrine Brown (D-Jacksonville), who is promising a flurry of organizing between now and Feb. 1, the deadline for the committee to submit nearly 700,000 signed petitions in order for the amendment to qualify for the 2016 ballot.

SOURCE: By Troy Kinsey, Bay News 9


A judge has ordered Illinois to pay more than $13 million to cover the cost of health insurance for home health care workers.

SEIU Healthcare Illinois took legal action against Gov. Bruce Rauner and Comptroller Leslie Munger earlier this month to force the payments.

The union says nearly 5,000 health care assistants could lose insurance Dec. 31 if the state doesn’t pay.

Rauner’s office said there wasn’t spending authority to make the payments because of an ongoing budget impasse. But, a St. Clair County Judge ruled Wednesday that Illinois can’t violate its contract with the workers because lawmakers can’t agree on a budget.

He ordered the state to pay within 10 days.

SOURCE: By Associated Press


In defending his decision to expand Medicaid in Kentucky, Gov. Steve Beshear has repeatedly cited what he calls an “undisputed fact” – that the program has already added 12,000 jobs to the state’s economy.

“These numbers are not Gov. Beshear’s political talking points,” Beshear told reporters at a Nov. 13 press conference. “They’re not my hopes and my dreams. It’s real data. … It happened. “

But the numbers were projections – not actual data – and the job growth Beshear has touted hasn’t materialized.

Beshear has been referring to an estimate – included in a state-funded study – that all of the new Medicaid money flowing to hospitals and doctors would generate 12,037 new jobs in 2014, the first year of expanded Medicaid eligibility.

But the figure does not represent actual employment statistics, which show that healthcare jobs in fact declined in the state last year.

For example, more than 3,000 jobs were supposed to be added at hospitals alone in 2014 as hundreds of thousands of newly insured people got services under Medicaid, according to the study’s estimate.

But instead, hospital employment in Kentucky declined by 2,660 jobs, to 72,760, in 2014, according to government data.

SOURCE: By Chris Otts,


Many primary care practitioners will be a little poorer next year because of the expiration of a health law program that has been paying them a 10 percent bonus for caring for Medicare patients. Some say the loss may trickle down to the patients, who could have a harder time finding a doctor or have to wait longer for appointments. But others say the program has had little impact on their practices, if they were aware of it at all.

The incentive program began in 2011 and was designed to address disparities in Medicare reimbursements between primary care physicians and specialists. It distributed $664 million in bonuses in 2012, the most recent year that figures are available, to roughly 170,000 primary care practitioners, awarding each an average of $3,938, according to a 2014 report by the Medicare Payment Advisory Commission.

Although that may sound like a small adjustment, it can be important to a primary care practice, says Dr. Wanda Filer, president of the American Academy of Family Physicians. “It’s not so much about the salary as it’s about the practice expense,” she explains. “Family medicine runs on very small margins, and sometimes on negative margins if they’re paying for electronic health records, for example. Every few thousand makes a difference.”

Doctors in family medicine, internal medicine and geriatrics are eligible for the bonuses, as are nurse practitioners and physician assistants.

Medicare generally pays lower fees for primary care visits to evaluate and coordinate patients’ care than for procedures that specialists perform.

SOURCE: By Michelle Andrews, North Carolina Public Radio