Suppose I were to snap my fingers and transport us to my preferred health policy regime. Everyone pays out of pocket for most of their medical expenses, and most people carry catastrophic health insurance policies for truly bank-breaking medical episodes. I think there would be a very strong tendency in this world to push back in the direction of "insurance pays for everything." If we ever got there in the first place, preserving the "first-party pays for most medical expenses" regime requires vigilance.
The problem is that there are always marginal claims, which according to the insurance policy language might or might not be covered. Insurance companies try to nail down policy language so as to minimize this confusion, but there are always ambiguous claims. There is even a tendency for insurers to cover claims that they are clearly not on the hook for, because they like to show good faith to their customers. (I once overheard someone who was on a committee that decided how these marginal claims get paid out. She said something like, "How are we going to stay in business if we keep paying these claims that people don't have coverage for?" Presumably some insurers specialize in going the other direction, saying "No" to as many ambiguously covered claims as they can get away with.)
Everyone wants these marginal claims to be adjudicated in their favor. But at the same time, everyone wants their insurance premiums to stay affordable. It requires some discipline on the part of the insurer to say "No" to these claims and resist mission creep. And it probably requires a more mature understanding on the part of the insurance customers: with low premiums, diligent claims defense is part of the deal. The insured with the marginal claim needs to be able to say, "Low insurance premiums entail a lot of self-insurance for these kinds of claims. This is a cost I agreed to pay, and now I'm paying it." This would probably require a massive cultural shift on the part of the American public.
I think this kind of "cover everything" mission creep in health insurance can happen even in the absence of wrong-headed legislation or foolish judicial decisions, declaring that this or that treatment must be covered by insurance.
So that's one problem. People have this, "I have health insurance, so it should pay for everything health-related" mentality, which has lead to spiraling health costs in the U.S. and elsewhere.
The other problem is that there are very high fixed costs in medicine (that's not the problem), and that they engage in price discrimination to extract more money from rich, price-inelastic customers (that's still not the problem). The people who pay high prices bitch and moan about how somebody else got the same treatment for a lower price (that is the problem). Some commentators on health policy, even conservative and free-market commentators, have called for total price transparency for all medicine. As in, the hospital lists all their prices somewhere (on a menu, on their website, whatever). Trying to charge more than the list price is fraud, in the eyes of these reformers. I'm sorry, but I don't see how you get away from price discrimination. I explain the concept here (specifically with respect to medicine) and here (more generally). By charging lower prices to price-elastic customers, hospitals and clinics can attract customers who still earn them a profit, but who are below the average price they would need to charge to keep themselves in business. Offer everyone the low price, and there isn't enough to pay support staff, keep the lights on, amortize the cost of the building, and so on. Offer everyone the high price, and the hospital/clinic misses out on these price-inelastic patients, who are still profitable. This situation is common when you have low marginal costs and high fixed costs. The price-inelastic customers, the ones who are sore about paying the higher costs, actually benefit from price discrimination, because the clinic has more customers to spread their fixed costs over (even if they don't load quite as much of the fixed costs on these low-price customers). These reformers probably imagine that under pure price transparency, everyone obtains the same amount of care but nobody gets price-gouged. This is wrong, because some people won't seek treatment except at the lower price. (I hesitate slightly to make this point, because some places have opted for total price transparency. The Surgery Center of Oklahoma and clinics offering laser eye surgery are good examples.)
As I write this, I can't help but be reminded of someone I know who complained about a surgery that cost him $20,000, in his telling for a trivial amount of time and effort on the part of the surgeon. This was someone in a very well-paid management job. I'm thinking, You're the rich patron who's keeping the lights on and subsidizing lower-income patients. Be happy to play that role. The surgeon could probably do the same surgery for 1/10th the cost for a price-elastic patient. But he couldn't stay in business and wouldn't have bothered becoming a surgeon in the first place if he had to offer that price to everyone.
I suspect a functioning market in medicine has to embrace a little bit of price discrimination, which probably means tolerating a lack of total transparency in prices. This means a culture of not bitching and moaning that someone else got a better deal than you.
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