How to Have Affordable, Plentiful Healthcare- Part 2


In part 1 of this post, reader Carl challenged me in a comment to provide solid numbers for the cost of a room in a hospital.  Well, I dug into the 2013 HCA   year-end report (HCA is a large company that manages several hospitals across the US) and here’s what I found:

In 2013, they had 42,896 hospital beds in their hospitals.  Those beds were full 54% of the time.   =.

That year they had 1,744,100 admissions and 2,844,700 equivalent admissions.  Admissions are people actually admitted to the hospital, while equivalent admissions is a representation of how many admissions they would have had if outpatients were counted as admissions for the amount of time they spent.  From a ratio of admissions to equivalent admissions, you find that the ratio of inpatients to everything is about  61% of the admissions are inpatient.

From a ratio of admissions to equivalent admissions, you find that the ratio of inpatients to everything is about  61% of the admissions.  Let’s therefore assume that about 61% of the hospital costs are inpatient costs.

For 2013, their total costs were $29.62 B.  Taking that number, multiplying by 61%, and then dividing by the number of beds times the number of days in a year, times the occupancy rate, you get:

$2210 per bed per day

Now this includes not only the cost of the room and staff to check on you while you’re in a room, but the cost of surgeries, supplies, and so on.  Given that these other activities like surgeries are a lot more costly for the hospital than a room where you lie around, I think my guestimate of $500 or so per day was probably fairly close.  Even at $1000 a night, it is a bargain compared to the list prices.

Other things in the report:

Managed care and insured are 30% of the business, but pay 46% of the costs.

This shows that you are subsidizing others, including those on Medicare and Medicaid, as well as those who don’t pay (charity care), when you have insurance or pay out-of-pocket.  Medicare was 45% of the business, but paid only 39% of the costs.  Medicaid was 17% of the business, but paid only 10% of the costs.  Charity care was 16% of the business, but paid 0% of the costs.

If people were forced to save up money for healthcare, such that most people had money to pay the bills when the need arose, we would see costs for those who are responsible (those who currently have insurance or pay themselves) drop by at least 50%.

Probably the most telling number was the gross charges, which were $181.1 B.  Compare this with the costs (already stated) of $29.62 B,  and you have charges of more than 600% of costs.  This is the list price you see on the bill and the charges that you get if you walk in without insurance.  The hospital only has revenues of $34.18 B, meaning that most people (those with insurance or the government programs) don’t pay anywhere near the list prices.  The average ratio of money  paid to costs was 115%.

This means that the people who don’t have insurance are hit with a bill of six times what things actually cost, whiole the insurance company only pays 1.15 times costs.

If you have the money but no insurance, you probably end up paying this hugely inflated cost.  If you have the money but are willing to fight a bit, you still probably pay 2-3 times costs while on average people are only paying 1.15 times costs.  This means that the people paying out-of-pocket are subsidizing the low payments made by the insurance companies and the government.  This forces people to get insurance or risk facing astronomical hospital bills.

This issue would be solved by making pricing transparent.  There is no way that you could charge someone six times costs while others were paying 1.15 times costs.  If prices were posted – true prices, not what they list but then cut by huge amounts if you have insurance – web aps would quickly pop up to show people the lowest prices and hospitals would be forced to drop their list prices to compete.  Suddenly you would be paying $1000 per night for a hospital bed instead of $12,000, making it easy to cover the costs with the money you had in your HSA for medical care.

Forcing people to save up money and pricing transparency relally are the path to affordable, plentiful, high-quality healthcare.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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