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Smart Bombs: The price just isn’t right

Come on down! You’re the next contestant on the “The Price Is What?” The first item is major joint replacement. The price for this procedure in Inland Northwest hospitals is:

A) $77,553.

B) $47,203.

C) $35,149.

D) All of the above.

If you picked D, you’re right! So, Johnny, tell our contestant what she wins.

“The highest health care prices in the world!”

(Fade to commercial for a drug you should tell your doctor you want.)

We’re back! And the next item is one year’s tuition for an in-state student at the flagship university. The admissions website says: “The UW is proud to be a nationally ranked university with a budget-minded price tag.” Just in case you’re budget-minded, the price for this is … not available until July. But the estimate for the coming year is:

A) $12,950

B) $10,302

C) $8,904

D) Not enough space to list all the possibilities.

If you picked D, you’re right! So, Johnny, tell our contestant what he wins.

“The highest education costs in the world!”

Fun times, right? Hardly. The price is wrong for health care and college in America, both of which have saddled millions of people with debt. We extol the importance of both, and then devise the most roundabout, ineffectual solutions possible.

In health care, we’re told to pay no attention to the sticker price, because few people pay it. Still, you have to wonder how they arrive at such precise figures – $77,553, not $77,500. So, OK, let’s look at what is actually paid if you have insurance. Well, it depends on the insurance carrier. And your deductible. And co-pays. Is it Medicare? Medicaid?

The Medicare reimbursement to Deaconess Hospital for major joint replacement is precisely $15,902. And how is that calculated? Never mind. So what’s up with a sticker price that’s five times that amount? Well, you see, it’s complicated. But medical providers do want you to know that in many cases Medicare isn’t paying enough to cover the cost of services. Medicaid is worse.

Because our government has never devised a comprehensive health care system with price controls, we’re saddled with a patchwork system that’s subsidized in a horribly inefficient manner. Then we pretend it’s a free market, while prices remain invisible. As a result, third parties pay the bills that patients and doctors can’t begin to comprehend.

In higher education, we’re also told to pay no attention to the sticker price, because financial aid, scholarships and grants lower the cost. Meanwhile, states have practically abandoned universities when it comes to funding because of other budgeting pressures – most notably, health care! As a result, the high tuition/high aid model was born. The strategy is to let universities control their budgets, while making sure enough money is available so low-income students can attend.

But competing forces are at play. Universities also want to maintain or enhance their prestige and funneling aid to low-income students can work against this. One way to boost their reputations is to recruit more elite students by paying them – in part or in whole – to attend. To help finance that – and to compensate for the lack of state funding – colleges lure more students who can afford full tuition by giving them a discount. This is called “merit” aid, but some students with GPAs as low as 2.0 can get it.

If that sounds like affirmative action for the rich, that’s because it is. Rather than give one needy student $10,000 in aid, more schools are giving four richer students $2,500, knowing they are good for the rest.

This is documented in a report by Stephen Burd of the New American Foundation called “Undermining Pell,” a reference to Pell Grants, the federal subsidy for low-income students that universities used to more readily supplement. Increasingly, that school-based aid is being diverted into prestige-building exercises.

Fundamentally, our country needs to come to grips with what it wants from its health care and higher education systems, and then proceed. The current result is exorbitant pricing that nobody thinks is right.

Associate Editor Gary Crooks can be reached at(509) 459-5026.