Why healthcare costs so much

Miscellaneous General
1

I came across this article which I found very informative about doctor culture as it is today - http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=1. It is long (8 pages), but I’m wondering what the economic people here think about it. I read the whole thing and it seems accurate, but it concludes that any healthcare insurance reforms and any free market reforms would all fail because the problem rests with how the healthcare profession is currently run. Any thoughts?

2

That kind of assumes that consumer choice plays no role in how the healthcare profession is run. But that’s not the case. Actions of businesses are affected by actions of consumers. So in a free market, consumer choice would start forcing changes in how hospitals are run, what the terms of insurance contracts are, etc.

3

I’d like to see the evidence that health care costs are rising.

4

@NewLiberty. Looks like your familiar with Human Action by Mises. I’m fairly new to the economics side of things so I’m not sure I want to tackle that book. Thank you for the explanation. Makes a lot of sense. I guess that means hospitals are not privately run then. Or are they just regulated to death?

@Caley. I didn’t think of that. Your saying that costs are staying the same while prices are rising?

5

As someone who is a Doctor, I can tell you healthcare costs are rising because it has become more and more subsidized. Our services aren’t being payed for and demand is going up.

I love watching and reading these pundits who think they have a clear POV. Capitalism has a great concept, a voluntary exchange between 2 parties for a good and a service. I don’t really have a problem with insurance companies because I don’t blame them, the Gov’t has been regulating and mandating them for decades and are coerced to follow. If insurances weren’t involved we would be more efficient because 1. We do not have to wait to hear from an insurance company who tell us what we can and cant to as far as treatment 2. Less paper work and less people being involved which can be very frustrating 3. We would offer lower prices for office visits because we wouldn’t have to pay the staff we have just to sit there on the phone with insurance companies and Medicare

Hospitals charge a lot because of losses they take throughout the year because of someone not able to pay, someone who is illegal, or low reimbursement from either Medicare, Medicaid, or SCHIP.

6

I’m not talking about total spending. Anyone who knows anything, not most people who write about the subject, knows that prices and total spending are different concepts and different phenomena affect each. The total amount of spending on health care has obviously increased since the dawn of man. I would like to know how the price of any given service has changed. Given the concern about it that seems to be what most pundits mean when they say “cost”.

7

From my understanding, the reason for the rising cost of health care is threefold:

1.) Medicine, in general, is a very labor intensive industry. The AMA limits the number of doctors that can graduate from every state and doesn’t allow doctors from overseas to compete in the US market. The limited pool of doctors causes in increase in the cost of labor.

2.) Government intervention in the form of Medicare and Medicaid. We all know that both programs only pay a certain percentage to medical practitioners for services. Health care provider’s recovery there loses by increasing cost to private insurers.

3.) Government mandates that have caused insurance companies to tackle on more coverage. Health insurance is supposed to cover very costly procedures (like car insurance). Routine visits and checkups, at one time, was paid by individuals. In general, this third party system has destroyed the patient and healthcare provider system of negotiating payments and fees.

It’s amazing how in many other industries the cost of technologies and services are decreasing. Lasik surgeries and plastic surgery are two areas that are the most “free market” oriented (i.e. little to no government intervention) where consumers pay doctors directly for services rendered. In these two markets, the cost has continued to decrease, in spite of inflation, and the level of care has continued to increase. Clearly, the free market is doing some right here. However, I’m sure if government begins to intrude into this sector prices will soar beyond belief.

John Stossel has any excellent analysis on this very subject:

http://www.youtube.com/watch?v=aEXFUbSbg1I

The CATO Institute also has an book aviliable as a free download on the matter also:

http://www.cato.org/healthy-competition/

8

Two great posts, by gipper and czelaya.

Thanks, guys.

9

Thanks for the info guys. Really liked the stossel video. Very informative.

I liked how stossel brought up how health insurance works and his analogy “What if you had food insurance? Wouldn’t you get steak instead of hamburger and as much of it as you want?”

I’ll definitely be using that analogy.

10

Cade, my favorite links on the subject of health care are as follows:

http://mises.org/daily/3613 (comprehensive)

http://libertariannation.org/a/f12l3.html (Originally, government solved the health care crisis. The time was about 90 years ago, and the problem was health care costs were TOO LOW. Boy, did government solve this problem.)

http://www.youtube.com/watch?v=Nt0tKl0J-S4 (Stefan Molyneaux two part power point series, the FDA stats starting at 14:20 are important)

http://www.npr.org/templates/story/story.php?storyId=124544505 (Modern day mutual aid societies)

Here’s a quick list of government interventions into the free marketplace.

  • Medicare, Medicaid, SCHIP, COBRA and all entitlements. (Also, price controls are in these programs, ruins pricing mechanism)

  • Intellectual Property (patents on drugs and devices; also leads to patenting of genes, GMO foods, etc.)

  • Licensing of doctors and devices (government transfers licensing power to AMA)

  • FDA drug testing (1962 law started the problems; see Mary Ruwart’s stats on the FDA in the youtube video by Stefan Molyneaux)

  • Rules preventing hospitals from being built (existing hospitals lobby to keep new hospitals out; laws are called “Con laws” http://stossel.blogs.foxbusiness.com/2010/02/09/the-con-of-american-hospitals/). Most hospitals operated by government. (http://mises.org/daily/3586) Also, heavy regulation on the few private hospitals.

  • Regulations on insurance. No interstate or out-of-country competition! Insurers are required to cover various conditions no matter what. Etc. Doctors cannot come up with innovative insurance programs (lodge practice type things http://abclocal.go.com/wabc/story?section=news/local&id=6690656). Regulations that cause insurers to have to take sick people embed a social welfare program into a nominally private industry.

  • Government prohibition of organ markets. Thousands killed every year.

  • Emergency rooms have to take patients no matter what.

  • Tax system causes insurance to be embedded into employment system, rather than an individual purchase. (legacy of WW2 era wage controls)