Pricing in health care

this is a bit of a stream of consciousness post - so apologies in advance -

I came across this article on GE's change in their health care plan:

Health Care: GE Gets Radical - BusinessWeek

They are essentially changing from a traditional high up front premium, predictable co-pay model to one where there is greater price transparency given that there is a higher deductible, lower premium.

Interestingly, my own employer recently changed health benefits from what was a "cadillac" plan (insurance plans that shield consumers from the true price of health care - the types of plans that are given to high priced executives or union employees) to something more reasonable, with slightly more price transparency - tiered co-pays that gives the consumer at least a modicum of insight that some drugs and services are more expensive than others.

As pricing becomes more transparent in health care (btw we've been talking about price for years now - health savings accounts were supposed to transform health care as we all became more price sensitive - but instead most of us use it to buy eyeglasses and get dental work) it's important to understand how pricing works in health care.

A bit more on pricing:

As you prob know from an earlier post, I'm a big fan of the baseline scenario blog - an extremely well written blog about finance. The folks at the baseline scenario also produce the Planet Money podcast for NPR.

They have recently been looking into pricing in the US health system. they had two very well produced segments on pricing for MRIs.
The first is at this link - and worth a listen - gives a fantastic historic overview of how we developed a fee-for-service system in health care, and how price has become so perverse in health care. Jeff and I had an argument about why partners health care takes such big price hikes in boston - and this podcast explains a bit why institutions like partners can justify taking those price hikes in services.

Then there's a follow up on pricing for MRIs in other countries - the podcast is at this link . what they find is that pricing for MRIs in japan are substantially lower. However, what's fascinating about the japanese health care system is that their approach to controlling health care costs is to reduce price. Since 1990, the government has implemented a strict policy that has capped increases in both medical - treatment fees and the price of drugs to around 2 percent annually since 1995 (muc lower than any other OECD country). Theoretically this makes sense, if you pay less then health care costs should go down. Right? Wrong. What happened in japan is there has been an expansion of health care providers - supply has gone up, japan's population is ageing very fast, technology is growing faster than price decreases, japan's wealth has triggered more visits to the doctor, - and physicians, the finely tuned economic beings that they are, have compensated with declining price with increasing volume. Remember basic microeconomics? Price times quantity equals revenue. If price goes down, a rational economic being increases quantity. Therefore, japan is the most medicalized society in the world - On average, the Japanese see physicians almost 14 times a year, three times the number of visits in other developed countries!

Alright - I'll stop here - take a listen to the podcasts, and I'll try to write more about consumer directed health plans in my next post.