Deep Dive: The Affordable Care Act and Why Health Care is So Expensive 

This week has brought a return to the Senate publicly taking up a bipartisan approach to strengthening the Affordable Care Act marketplaces, while in the shadows, Republicans have been working to repeal the ACA.

Why Does This Matter

In 2013, before the ACA went into effect, about 41 million Americans did not have health insurance. The ACA increased the number of people eligible for Medicaid.

At the end of 2015, 28.5 million were uninsured, a dramatic drop in uninsured. (Figures from this Kaiser Family Foundation post)

At this point, if the ACA is repealed, we are looking at around 20 million Americans losing access to health care.

Why are People Uninsured

There are limited ways people gain access to health insurance.
1. Employer-provided health care–most Americans are covered through their own employer or that of a spouse
2. Medicare–for elderly Americans who are 65 years old and older
3. Medicaid–for those who meet income rules, usually total household income is a percentage of poverty line
4. Disablity–those who are approved for SSI can get Medicaid and those who have SSDI qualify for Medicare after two years
5. Non-group insurance purchased on the open market–this was quite limited until the ACA went into effect

The main reason people don’t have health insurance is because it is unaffordable for them. While lawmakers make completely out of touch comments about the cost of insurance, such as a foregone iPhone would cover it, many people don’t realize that insurance premiums can be extremely expensive. Average rate is $321 per month per person, with an average deductible of over $4,000 per year. A family of four would pay $1,200+ each month.

This lack of affordable health insurance is at the heart of the debate over the Affordable Care Act.

Affordability vs. Access

There are two issues at play with the ACA.

First, is the access question. This is not a important element for Republicans. For Democrats, reducing the number of people who are uninsured is the chief goal with the ACA. The thinking is that when people are uninsured, two things happen. One, if they end up with a serious illness during a period without insurance, they are more likely to end up taking on enormous medical debt which can lead to bankruptcy.  Two, people without insurance delay care in the hope they will get better and avoid paying for care. This means they have to endure more before they seek relief. And it means if something serious is wrong, a delay in care means a delay in treatment. Obviously with things like cancer, this can mean the difference between life and death.

To be charitable, I think access isn’t as important to Republicans because they think if health insurance is too expensive, having insurance doesn’t guarantee care because the person still can’t afford to go to a doctor with a huge deductible.

The second issue then becomes very important: affordability. Unaffordable insurance limits access to care too.

This is the deep dive of this deep dive. Why is health care so expensive in America? The short answer is because nobody has an incentive to limit the cost of care.

There are three things that have inflated the cost of health care in our country.

1. Insurance billing
2. No incentive for health care producers to cut costs, a.k.a., no price competition
3. Preference for quick fixes, a.k.a., pharmaceuticals to treat vs. prevention and general non-drug wellness

Let’s take these one at a time.

Insurance Billing

I’ve already slammed insurance companies, so here’s a preview from just a few days ago.

Essentially, insurance billing has created a perverse incentive for providers, be they medical offices or hospitals, to add all sorts of tests in order to justify billing insurance for more money. They also want to provide you with the quickest treatment bang for the buck. So, in this example, notice how much the doctor’s office charged for various parts. $10 for administering the flu shot and $90 for the actual flu shot. $60 to see the doctor and $25 for drawing blood.

That example was published in 2012 so it is a little dated. But you get the drift. In what was probably a five  minute appointment, the doctor decided to give a flu shot that took maybe a minute to get out of the supply room, walk down to the patient, and stick in her arm. It’s not even covered by insurance, so the doctor can balance bill Mary for the entire price.

That blood draw probably was for unnecessary tests that won’t be covered by insurance. Mary is looking at paying probably $100 for the actual test. Maybe the doctor had her tested for allergies. So Mary had a cold and ended up paying $200 out of pocket for bullshit tests. She probably hates her doctor and this is why.

Now if her doctor had said she has a cold, rest, drink plenty of fluid, that would have only netted $50 after insurance had their way. The additional flu shot and blood draw brought in only $20 for the office, and the rest went to Mary’s tab. But the doctor still got $70 for a five minute appointment, so the office is happy.

I’m sure the doctor would rather spend a few more minutes with her, take the time to find out she’s not sleeping well, recommend she take Claritin over the counter, and get $70 for ten minutes. But insurance isn’t playing.

Now imagine this repeated over and over again throughout the day.

Your back hurts? Better do an x-ray. That weird bloated feeling in your ab requires an ultrasound, and when that’s inconclusive, a CT scan and then an MRI. Every patient is a potential piggy bank.

Is this an exaggeration? No. I’ve had the unnecessary tests experience far too many times. And you probably have too. Recently a family member had a biopsy and when she saw the doc for the results, discovered the biopsy was performed despite the doc already knowing it was a benign tumor. Just some light biopsy action to garner some fast cash.

Why do providers order unnecessary tests or treatment? Sometimes, it is because they have a financial incentive to do so, a.k.a. kickbacks. Other times it is because they are so rushed they want to make sure they don’t miss anything, no matter how remote.

The Affordable Care Act was meant to take care of this in a very specific way–paying health care providers for outcomes versus paying by test or treatment. However, this subject is extraordinarily complicated and while some of the costs were falling, it was not widespread enough to make a huge dent in this intractable problem.

No Incentives for Cost Cutting

Your doctor isn’t cutting costs, as established above. Your insurance company isn’t cutting the overall cost of health care, just what they’ll reimburse. And best of luck to those trying to comparison shop for a major health care expense, like a hip replacement. There is little chance a patient can get price quotes for medical procedures, even though patients with access to pricing info would presumably reduce health care spending.

Recently, I had surgery. I had a devil of a time finding a doctor who took my insurance. I paid cash for an initial exam since the office didn’t accept my insurance.

I wish every doctor had a front office person like the woman running this office. Let’s call her Debbie, which is totally not her name. When it was clear I needed to have surgery, Debbie called in a few favors and negotiated on my behalf. The total cost out of pocket was less than what my family has paid out of pocket after an ER visit covered by insurance.

Debbie didn’t negotiate on my behalf because there was anything in it for her; she did it because she’s an amazingly good person. But relying on those working in health care to be as good as she is really isn’t going to cut it.

Which means the obvious answer is to allow the consumer/patient to have full information about costs so we can cut costs. We are the only people with the incentive to cut costs and the only way we can do it is with transparent pricing.

Since I doubt that will happen, another option is the price should be the same everywhere. That’s right, government regulations limiting the price of medical care. I’ll wait while you get that wailing about capitalism out of your system. Singapore calls this controlling the cost of the supply side of health care services. It works. Singapore’s health care system is number two worldwide in terms of health care outcomes. In fact, it is nearly as good as number one Japan, but much less expensive.

The Affordable Care Act addresses this. The aim of the pay for solutions versus pay for each different treatment model was to provide that incentive to give only necessary care.

Alas, it doesn’t always work so easily. The ACA can mandate certain things, like regular pre-natal care should be covered as part of a package of services for childbirth, but they can’t give all providers equal negotiating power. And without government controls on price, the old system continues.

Large hospital chains and insurance companies who won’t negotiate with smaller medical groups are mucking it up. From the LA Times:

When Azad and a consultant she hired tried reaching out to the insurance companies to ask for higher rates, she said, “One … responded saying, ’You don’t even have 2% of market share. Basically drop our contract or not — it doesn’t affect us.’”

Another insurer told her it couldn’t raise her rates because it had to pay too much to the larger health systems in town, she added.

The median reimbursement for independent doctors in the Bay Area, on average, is $2,408.45 for a routine vaginal delivery, which includes prenatal and postnatal visits, according to the Kaiser Health News analysis of claims data provided by Amino, a health cost transparency company.

That compares with $5,238.13 for the same bundle of services for Stanford physicians and $8,049.84 for doctors employed by UC San Francisco.

When no one has an incentive to keep prices low, and there is no way of limiting prices or limiting out-of-pocket expenses, there’s no way to keep prices low. If UCSF docs get $8,049.84, that doesn’t even limit what random crap the hospital can throw into the bill and then charge back to the patient as part of their coinsurance. I’ve personally been charged for outrageous things clearly done on purpose not for better care, but so that I would have a heftier total bill. Most of us with insurance pay 10-20% coinsurance for major medical expenses like the example above. And that % comes off the total, not off of what insurance covered.

This was a way for the hospital to make more money and they took it. I probably couldn’t even identify all the things that should not have been added to my bill. Again, insurance negotiates rates and pays them, the hospital finds ways to charge extra, and the patient has no way to predict what the final cost will be.

Quick, Expensive Fixes

Finally, you have a system of rushed appointments, unnecessary tests and imaging, and no incentives to keep the cost down.

The easiest way to bring down costs for patients with chronic conditions such as back pain is diet, exercise, and complementary therapies including acupuncture, physical therapy and chiropractic care.

But the quickest fix is a prescription. It’s not just pharmaceutical treatments that jack up health care costs. It is also surgeries that are not as effective, especially when doctors know they won’t produce the desired outcome but think the patient “expects” surgical correction.

This is a nut that the ACA tried to crack with a focus on preventive care like mammograms and colonoscopies and other common early tests. But the ethos of prevention is just not there and this contributes to using medical solutions for non-medical problems. And that drives up costs for care.


While the ACA and the Medicaid expansion addressed some of the needed changes for our health care system, fundamentally the system is so flawed that we are going to have to start all over. For those who want incremental change and for those who want major change, we need to start pushing hard. For those who are fine with our system as-is, you must be an elected official with free taxpayer-financed health care because the rest of us are miserable.


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