K-12 Tax & $pending Climate: “It is about collective bargaining”
Doctors and hospitals were encouraged to hike their prices to match the generosity of insurance coverage. On the patient side, the marginal cost of getting more healthcare once you have the plan might be zero, thus leading to inefficiently high levels of healthcare. Even if the insurance company attempted to control things through cost sharing, where the patient must pay a portion of the costs of care, this would only cut out the most egregious waste.
Then, expenditures flatlined. For much of the 1990s, healthcare spending as a share of GDP was constant, and even in the years it grew, its growth rate was lessened considerably. The rise of managed care was responsible. Between 1988 and 1998, the percentage of employees in traditional fee for service plans fell from 71% to 14%.
They accomplished these cost reductions with the tools of modern health insurance companies. Rather than pay any medical bills at any doctor, they would instead restrict the network of doctors and hospitals you could see. If they charge too much, they’ll find themselves out of the network and getting no business at all. Insurance companies began to involve themselves in what treatments a patient should be prescribed, requiring “prior authorization” for treatments of great expense and heterogeneous effectiveness. The most extreme versions of Health Maintenance Organizations (HMOs) like Kaiser Permanente would be fully vertically integrated, with the doctors being employees of the insurance company on salary. Even if they are not directly employed, they can still be paid a flat per-patient fee, or capitation, regardless of what procedures are ordered or what work is done.
