My recent column on the health care crisis brought anecdotal experiences out of the woodwork. My favorite was the guy who called and said that his doctor had recommended a new skin cream. When he picked up this small tube of paste at the pharmacy, he asked the pharmacist what the insurance company had been billed. The answer? $385.
Who would have known or cared? Most of us are totally disconnected from our health care costs because they are paid for by insurance companies and the monthly premium is largely paid by our employer. Whenever we don't receive a bill and don't have to write a check, we don't seem to care.
I wonder what Kaiser Permanente would have paid for it. One of my calls was from a physician at Kaiser who pointed out that they, in fact, are not barred from negotiating drug prices with major pharmaceutical firms. Kaiser has a team of people who grind away on the drug industry. Now that I think about it, I'm surprised that Kaiser hasn't been mentioned much at all in this great debate on health care. Isn't it a single-payer, health care provider? If Kaiser is what a government-run, health care provider would look like, why hasn't it been subjected to a barrage of criticism?
A brave fellow business owner with about 100 employees recently switched everyone to Kaiser. No choice in the matter. He is saving about $100,000 a year. He found that the people who "hated Kaiser" were only the people who had never tried it. The owner himself "walked the plank" to show some leadership by example.
What I also know, from further anecdotal comments, is that many people at Kaiser received large surprise bonuses last year because of the organization's financial success.
So, here's an analogy from my childhood that may explain what's happening.
In the small New England town where I grew up, there were three famous machine tool companies that sold products throughout the world. One of the three companies was a union shop and the others two were nonunion. The union shop would strike periodically, and the result would be higher wages for its workers after a prolonged, expensive walkout. Wages for the nonunion shops would then rise to meet the town's demand for labor, but the other two shops' employees never had to bear the cost of a strike.
In a similar fashion, Kaiser can play off its competitors and price its health care services about 10 percent below the insurance company competition and entice business owners such as my friend to move to this single-payer system.
The insurance and for-profit hospital systems set the cost bar so high that Kaiser can still make plenty of money after underpricing the rest of the market. Kaiser can even afford what today might be far superior care with the free cash flow and profit margin that they have left after their discount from competitors' pricing. The health maintenance organization is operating in a market that is so inefficient and overpriced that it can offer a discount and still make a fortune.
If Kaiser is any example, a government-run health care service could probably price itself at 30 percent below current market and still "make a fortune" for us taxpayers. There are some pretty bright managers at the highest civil service levels who can make things happen for far less than $1.4 million per year, and we can change the law that prevents us from negotiating drug prices. The time has come.