Discover Why South Dakota’s Healthcare Ranks 2nd Most Expensive in US
TL/DR –
South Dakota has the second highest healthcare expenses in the US, according to a Forbes analysis, with another study by the Health Care Pricing Project showing the state’s private insurance expenditures being among the highest in the country. Contrary to expectations, intense competition between two major healthcare systems in South Dakota has not lowered costs. The economics of healthcare do not operate like standard consumer markets, with healthcare providers rarely competing on price, patients often not knowing service costs until billed, and the complexities of the system leading to high administrative costs.
South Dakota’s Surprisingly High Healthcare Costs
An analysis of “The Most and Least Expensive States for Healthcare in 2024” by Forbes revealed that South Dakota has the second highest healthcare costs in the US, a concerning discovery. Comparing healthcare costs across regions is complex due to the varying population demographics and the many payers involved. However, this finding is reinforced by other studies.
A detailed paper by the Health Care Pricing Project previously indicated that while the Medicare costs in Sioux Falls region were much lower (275th out of 306), the private insurance expenditures were among the highest in the nation (14th out of 306). This discrepancy is attributed to Medicare prices being set by the Medicare program, while private payers negotiate prices with individual providers.
Despite fierce competition between two major healthcare systems in eastern South Dakota, costs remain high, contrary to expectations. This is because healthcare economics do not follow the typical price principles of common consumer markets.
For efficient functioning of consumer market, suppliers compete based on price and quality, and consumers need detailed understanding about products and prices. Consumers should be free to switch suppliers for better deals. However, this doesn’t translate well to the healthcare sector.
Healthcare providers seldom compete on price. The price for a service often remains unknown until the bill arrives. With most expenses covered by third-party payers, patients have less incentive to inquire about prices or to shop for the best price.
Even when patients have price comparisons, they tend to doubt lower-priced services, fearing that quality might be compromised. Since patients often lack access to objective information about the quality of services, they rely on provider reputations or word-of-mouth evaluations.
Shopping around for best deals may work in groceries or gasoline markets, but it poses major issues in healthcare. Insurance network limitations, disruption in care continuity, and the risk of missing crucial patient history make it problematic. The administrative complexity due to multiple payers with different reimbursement rules also leads to substantial administrative costs.
Competition often results in duplication of facilities and services from the providers’ perspective. While this might make business sense, it can lead to higher costs and poorer outcomes in technically complex services like organ transplantation. Instead of fostering better service and lower costs, competition tends to do the opposite in healthcare.
Paying for healthcare services is a highly complex task. In the US, healthcare expenditures are the highest globally, despite significant portions of the population not receiving care. Conventional market principles need reevaluation when it comes to healthcare.
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