Why Does Health Care Cost So Much?

[jacassidy2 0]

This is a copy of a post I made in another philosophy forum. The thread was started by a man who asked about whether people who made bad choices that had influence on their health should be given access to health care. Yea, it was scary.

I responded with a post about how, in a free market, insurers would most likely specialize in the categories of people who made different lifestyle choices and how that would be better than a government system that attempted to make social policy.

The thread continued with lots of side comments about the cost of health care and the need to figure out a system of resource allocation, and all the other BS you would expect. No one asked why? Why the cost has gone up so much? So I responded and I reproduce it here - so if I made an error in my rush to post, one of you will catch it. Hey, I'm not an intellectual coward - I'm a student.

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THE POST

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It might be instructive to ask why health care has become so expensive? America chose not to go for a universal government-based system like Canada or Great Britain. Did America choose the free market? No, we chose a mixed system and that choice has consequences. The knowledge gained by analysis may help future generations make better choices.

Increases in science and technology have certainly had a significant influence on cost, but decisions to implement new discoveries, to make them practice protocols, are made for reasons outside the sciences - and so, this category is as much effect as it is cause in the question of cost increases. That is, that this reason for cost increase has a more fundamental cause.

Increases in malpractice suits are often blamed, but their direct effect is not mathematically significant. What is significant is the increases in medical costs based on medical professionals doing more work. In an effort to avoid malpractice, professionals order more tests, more procedures, more drugs, etc. But again, this fact is not a primary cause of increase costs because it is dependent on patient ability to pay. Like technology, there must be a more basic reason for cost increases that allowed the influence of this secondary cause.

Remember that in a free market, the price for goods and services is based on the millions of decisions made by buyers and sellers - the average of these interactions becomes the "fair" price. The buyer thinks, "is it worth it in comparison to other values I might purchase with my limited resources," and the seller thinks, "should I sell it now or wait for a better price later," and so many other value judgments on each side of the transaction. Now, ask yourself what would happen to the price of a good or service if both the buyer and seller knew that payment would be made by a third-party not directly involved in the transaction?

Two events in history have interrupted the natural pricing process described above. These events are directly responsible for the increases in health care costs and are the proximate cause of the influence of indirect cost increase sources like malpractice and technology.

The first event was government wage and price controls during WWII and beyond. Employers having to compete for labor during government wage controls, offered lower and lower deductibles on medical plans when the law forbade wage increases. It also caused more employers to offer medical benefits at all. This policy created a trend and expectations in labor markets.

The second event was the advent of Medicare and Medicaid in the 1960's. Recall or note that the out-of-pocket costs for the recipients of these benefits is pretty small just like employer provided health insurance benefits. If you've ever seen a graph of medical cost acceleration over time, you will note that the late 1960's is the time when the slope of the curve increases dramatically.

These two events separated the buyer and seller in health care. The cost, being absorbed by a third-party, was no longer a concern to the buyer or the seller. This is a clear historical example of the threat posed by a mixed economy.

Managed-care, HMO's, peer-reviews, and Obama Care are only a few of the attempts to stop the runaway inflation that occurs when you take away the natural concerns of buyers and sellers. Almost all of the reasons given for the increases in health care costs can be logically linked to the two events described above.

Some will say, "if you'd adopted a health care system like Canada or Great Britain, you'd have avoided the problems." But that's another thread, isn't it?"
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Thanks for taking the time to read this essay and thank you for any comments. Jack

[Leonid 0]

Milton Friedman already addressed this issue.http://www.youtube.com/watch?v=5RDMdc5r5z8

Milton Friedman in a 2004 interview with Fox News:

There are four ways to spend money. You can spend your own money on yourself. When you do that, why you really watch out for what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well then, I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it costs, and I’m not concerned about what I get. And that’s government. And that’s close to 40 percent of our national income.

But it's much more than that. The cost of medicines is soaring because the FDA introduced new products into the market, a lengthy and very expensive procedure which could take up to 10 years of trials. The regulation of medical insurance companies contributes to the increasing costs of medical insurance. And since government in many instances picks up the tab, many health service providers behave like small children in the candy shop during Christmas time.

[A N Other 0]

Regulation creates what the Progressives call "stakeholders", but not just among their regulators themselves, but in the accounting firms, laboratories, hospital staffs and hospital administrations and more. These people ostensibly work on the producing side but have jobs that really depend on the inefifiencies created elsewhere. At the bank I worked for there was a cadre of people who would rub their hands together and warm up to whatever new demand that was made. Simple solutions to simple requests "required" major productions to solve. So: many people who work on the "product" side have their "investment" in the inefficiencies in the system.

[ewv 0]

Regulation creates what the Progressives call "stakeholders", but not just among their regulators themselves, but in the accounting firms, laboratories, hospital staffs and hospital administrations and more. These people ostensibly work on the producing side but have jobs that really depend on the inefifiencies created elsewhere. At the bank I worked for there was a cadre of people who would rub their hands together and warm up to whatever new demand that was made. Simple solutions to simple requests "required" major productions to solve. So: many people who work on the "product" side have their "investment" in the inefficiencies in the system.

"Stakeholders" means the competing factions of the pressure group warfare of welfare statism, each with different desires, demands and claimed "entitlements", and is a notion deliberately concocted to avoid any consideration of the rights of individuals. Of course it makes things "cost more", to say the least.