It's an interesting explanation, but why does this not occur in other countries with more intrusive government (single-payer scenarios)? Do they not use their own "complicated formulas"?
Why would it cause the same effect in a single payer scenario? In a single payer scenario you don't have the multiple and independent lines of bill payers (ie government, collective an individual). You have a
single-payer and they pick the price they will pay (again, often without regard to the actual costs of the service).
Our formula is related to the prevailing price of a service (what is supposed to be the market price). The government finds it convenient to lower the rate of reimbursement when it needs to control costs, without regard to whether this results in fair compensation. That's what causes an incentive to force the prevailing price ever higher (so that this declining reimbursement percentage results in a similar sized payment). Keep in mind this is a problem with central government, they can not effectively monitor whether a fair price is being paid for every service at every location in the country so they have to pass one size fits all prescriptive rules to try and limit the ability of locals to manipulate them. A problem that is completely fixed by having the consumer make the pricing decisions.
There isn't a market price in single payer system to manipulate. Nor would their be a reason to manipulate it in a similar manner.
I really think this is insurance company shenanigans, and that they are really the ones with the formulas that drive price discrepancies between chargemaster prices and billed amounts. I was just looking at a bill for a urine drug test where the charge was $7500 and I just stood there laughing at it for a minute (insurance paid $247 and I got billed for $125... incidentally it was supposed to be covered but the lab my physician used subcontracted out to this other lab and... well, it's a damned mess but I'm making phone calls).
Those bills directly reflect the fact that you as the customer only care about the $125 out of pocket. You literally don't care what the starting number is do you? $3k, $7k, $20k if you always pay $125 what do you care?
The overcharging is two things
Overcharging is dozens of things, but its root is government manipulation of the pricing market. You're misidentifying symptoms as causes in the below:
1) Collusion with the insurance companies - the high sticker price makes the insurance companies look like they are saving the consumers lots of money, when in reality almost the full value is paid by the insured individual as their deductible. So the hospital claims 10x, insurance pays .5x but looks like it is paying 9x and then the insured pays 1x as their deductible. So the insurance company looks needed; the hospital makes more with insurance than without; and insured feel like they are getting value.
And why are they set up to do that? The insurance company that is paying the bill makes more money if they pay less, why would they pay a third party a fee just to get to a higher price themselves (before you even consider the fee)? Does that sound like a rational decision? Do you really believe that some of the best predictors of financial results in the world (ie insurance companies) voluntarily create a system when they have higher expenses than they have to?
The system you're complaining about is the direct result of dozens of "micro-manipulations" from the government (and some big ones too).
Your opinion piece cited to ERISA - ERISA is a bear of a compliance burden, with massive penalties that can apply for even technical breaches where there is no intent to harm. Anyone that deals with ERISA makes inefficient decisions when they think they are technically required as the consequences of non-compliance are too great (e.g. even an innocent mistake (without any harm to someone) can require you disgorge the gross revenue and eat the costs, and if there is harm associate with a non-compliant decision (even one that looks like it was the best you could have done) you could be hit with triple damages as well).
Insurers would love to use non-hospital medical providers. You know what they get labeled by the government regulators when they do? Cut-rate services, dangerous "for profit" providers that are cutting corners with your health. They get inspected and regulated if they use these less "safe" or non-traditional providers (and who can argue that a provider giving the "same" service for $500 that a hospital needs $5000 to do is not cutting corners? It's almost a prima facie case). So what do they do? They find ways that are "approved" and then repeat them endlessly.
They get sued for "cutting corners" with your health care on any negative result, notwithstanding that some results will always be negative, and health insurance litigation is a major cost driver with the need for defensive medicine and ordering of tests that are not medically necessary.
Keep in mind the opinion piece you cited to is a doctor running a non-hospital practice complaining about what he thinks is unfair. Hardly unbiased. Follow the link in his opinion piece. It looks to me like he has a bee in his bonnet about negotiation fees but that doesn't make him correct that they are the major cause of his problems. I will point out though, that the medical industry is replete with "governmental work-arounds" and this certainly could be another one that some people do. Another is the way, that medical groups have acquired testing groups in line with the expansion of the over testing regime to generate profits they used to get from their medical appointments but that have been squeezed.
I do agree that the whole system is being manipulated to make consumers believe that insurance is "vital" to protect from health care costs, when the truth is that they'd be better off if we chucked the whole parasitic insurance operation into the ocean (every dollar spent on administration is wasted health spending and our current model spends big on governmental, insurance company and doctor office administration). Who is it that forces you to buy insurance at law again? The government.
2) Tax deduction of loses from uninsured. The insurance company claims a loss of 10x when the uninsured can't pay, this is then deducted against taxes. A large 'loss' deduction is more valuable than charging and being paid a reasonable amount.
Tax deductions are deliberate governmental manipulation - trying to attribute them to private actors is beyond the pale.
The biggest problem in the industry is that employers get a tax deduction for providing insurance that employees don't get for purchasing it themselves. Make the tax deduction personal, and let employers get a separate tax deduction equal to 20% of the value of any plans their employees obtain as result of the employer's negotiations. Then you still incentivize employers to act but stop treating the self employed unfairly.
Regarding medicaid and medicare - the elderly insurance pays a reasonable amount - and it is generally about the same amount that gets paid from insurance + deductible after transfers. The coverage of the poor the government underpays in general. The elderly prescription coverage the government drastically overpays.
Who cares what the elderly pay out of pocket? I'd dispute its "reasonable" to have payments that are less than your costs, but I get you're looking at the absolute amount they are paying and not what they are getting in return.
But the issue with Medicaid and medicare is not what the consumers are paying, its what the government is paying. The reimbursement formulas used are just about the single largest factor pushing medical price manipulation out there. It's a known fact that reimbursement rates are so low that its becoming ever more difficult to find doctors willing to take such patients, particularly in big cities, so I don't where you think the rates work out to be about the same as what insurance pays generally?
