Fact Checker: Free market exposure would control health care costs

Congressional candidate Christopher Peters makes case for free market health care

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Introduction

“ ... There are two areas in U.S. health care which are not protected from free market competition, that is they are subject to free market forces. These include cosmetic surgery and corrective vision procedures, such as LASIK. In these two industries we’ve seen costs stay stable relative to inflation and the quality of care and services actually improve over time.”

Source of claim: Republican 2nd District congressional candidate Christopher Peters on Aug. 11 at the Iowa State Fair. He is challenging Democratic incumbent Dave Loebsack.

Analysis

The comments are part of a broader point by the Coralville doctor and limited government champion about how much better health care could be under a free-market system.

He contends costs remain stable in a free-market system in which consumers pay out of pocket, as evidenced by LASIK and cosmetic procedures, while public subsidies have chilled competition in the health care industry and allowed costs to soar above the inflation rate,

This Fact Checker will zero in on increases in overall health care costs; how cost increases for cosmetic surgery and corrective vision procedures compare with procedures covered by insurance; and how health care cost increases — both covered and uncovered — compare with inflation.

Health care spending in the public and private sector grew between 2.9 and 5.3 percent a year from 2010 to 2014, up from $2.6 trillion in 2010 to $3 trillion in 2014, according to the Centers for Medicare and Medicaid Services.

Federal, state and local governments paid 45 percent of health care costs in 2014, according to CMS. The Affordable Care Act was the main catalyst for 2014 federal spending increases, according to CMS.

LASIK and cosmetic surgery are different from most health care procedures because consumers pay the full freight. They are not covered by Medicare or most major insurance companies, unless deemed medically necessary

LASIK costs climbed on average 4.5 percent per year or from $1,870 per eye in 2002 to a high of $2,288 in 2007 before declining on average 1 percent per year to $2,159 per eye by 2012, according figures from a 2014 Vanderbilt University economics thesis by Darien Paone.

“The increase and then decrease in price of the surgery follows a general trend encountered by new goods entering the market,” the paper states. “As more competition entered the LASIK surgery market, the price per eye decreased slightly and also stabilized, with less variation in price decrease occurring past 2007.”

For cosmetic surgery, none of the five most popular procedures — breast augmentation, tummy tuck, liposuction, nose job and eyelid surgery — increased by more than on average 3 percent per year from 2010 to 2015, data from the American Society of Plastic Surgeons show.

How does that compare with the most popular covered procedures?

A 2014 NBC News analysis in partnership with Healthcare Bluebook, a comparison shopping guide, found rates for the four most common covered procedures increased more than for cosmetic or LASIK, but not by much.

From 2009 to 2014, hernia repair climbed on average 3.2 percent a year; gallbladder removal and hysterectomies each increased 4 percent annually; and a hip replacement climbed 4.8 percent a year.

Another measure found smaller increases when looking at surgery-related hospital costs as a whole. A Health Care Cost and Utilization Project report showed hospital costs per stay for surgery climbed on average 2 percent annually from $17,300 per procedure in 2003 to $19,100 in 2008, and then an average of 2.6 percent annually up to $21,200 by 2012.

The final piece to check is inflation.

The inflation rate increased between .8 and 3 percent per year from 2010 to 2014, according to USInflation.org.

That was lower than the overall industrywide health care spending increases and also lower than the most common covered and uncovered surgical procedures, except LASIK in the more recent years.

To help make its free-market case, the Peters camp turned to right-leaning sources.

The National Center for Policy Analysis, a free market think tank funded by conservative donors, reported the price of cosmetic surgery has increased 30 percent since 1992, while overall medical care has increased 118 percent.

“In health markets without third-party payers, doctors and clinics use price competition, package prices, convenience, and other amenities in order to attract patients willing to purchase their services,” the report said.

But is it valid to make that broad argument from two procedures?

Dan Shane, an assistant professor of health management and policy at the University of Iowa, questioned it.

“Comparing two examples of elective procedures that only affect fairly well-off consumers is not a strong argument versus the entirety of the $3 trillion in medical spending in the U.S.,” he said.

Conclusion

It’s true health care costs have been rising. It’s also true cost increases among the most popular covered procedures outpace increases for the most popular uncovered cosmetic procedures. Still, the most popular procedures — both covered and uncovered — are rising faster than inflation.

While the numbers alone generally back up Peters, some health policy experts say you can’t take the two examples as indicative of how the whole health care industry would respond. It’s too large and complex.

“It’s challenging to refute because it sounds intuitive, but the system just doesn’t work that way,” said Peter Damiano, director of Iowa’s Public Policy Center.

Very little health care spending is discretionary, he said. For example, who would shop for the cheapest emergency room or physician in a time-sensitive situation? Fact Checker focused on Peters’ claims we can verify, and on those fronts the numbers mostly support him. For that reason, we score this a B. But we caution that Peters’ broader point that free market health care would drive down costs is not supported and some policy experts suggest claiming the two examples make the case is misleading.

Criteria

The Fact Checker team checks statements made by an Iowa political candidate/office holder or a national candidate/office holder about Iowa, or in advertisements that appear in our market. Claims must be independently verifiable. We give statements grades from A to F based on accuracy and context.

If you spot a claim you think needs checking, email us at factchecker@thegazette.com.

This Fact Checker was researched and written by B.A. Morelli.

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