Tuesday, February 12, 2008

Spending Other Peoples' Money: The REAL Problem

According to Dr. David Gratzer of the Manhattan Institute, in 1960 about half of health-care expenditures were directly controlled by consumers. Today, it is about 15%. Over the same period in which consumers have relinquished control, per-capita health-care spending has quintupled and costs have skyrocketed.

~Star Parker in
Hillarycare Is Not the Answer

Now imagine how your spending on food, travel, clothing, automobiles, cell phone plans, housing, etc. would change if you only paid 15% of the total cost out-of-pocket.

1. You'd eat a lot better, and so would your dog, e.g. you'd both eat a lot more steak.

2. You'd always travel first-class.

3. You'd get a Jaguar instead of a Ford Focus, or you'd get 2 Ford Focuses instead of one.

4. You'd get 2,000 minute per month plan, instead of a 500 minute plan.

What would happen to the prices of food, cars, etc.? Up, Up, Up.

Bottom Line: Anytime consumers are insulated from the true and full cost of their purchases of goods or services, consumption of those goods or services will increase significantly, which will then eventually significantly increase the prices of those goods and services and/or reduce the quality, which will then make those goods and services less and less affordable, which will then create a crisis, which will lead many to claim that there has been a "market failure" and advocate a government solution.

But anytime consumers are insulated from 85% of the true and full cost of their spending, that's not a market failure, that's a problem that has its source in spending somebody else's money.

Universal healthcare won't do anything to solve the problems of: a) spending somebody else's money, and b) making consumers conscious, aware AND concerned about the full cost of their treatment.

As P.J. O'Rourke said "If you think health care is expensive now, wait until you see how much it costs when it is free."


At 2/12/2008 10:40 AM, Blogger ProbTrader said...

When you get a chance, I would like to read your take on the adverse selection problem.


At 2/12/2008 3:25 PM, Blogger Cobb said...

I'd like to hear some possible answers to the problem. I agree that adding more government involvement would magnify the problem, but the problem would probably exist even without government involvement.

It seems that taking deductions for insurance premiums away from companies would be a start. Put the decision about a person's health care in that person's hands. Make each individual choose which company provides their insurance and give that individual the deduction.

Tell me if that doesn't make sense. I'd like to hear other suggestions, too.

At 2/12/2008 3:38 PM, Anonymous Anonymous said...

There are other factors which drive costs in health care. One should also consider capital costs, labour, demographic changes and advances in treatment.

The advances in medical imagining technology between 1965 and 2008 have added significantly to capital costs. In 1965, diagnostic imaging was commonly X-ray and ultrasound technology. The advent of PET scanners, CT scanner, MRI technology, genetic testing etc. have increased health care costs while improving patient outcomes.

In most businesses, labour is a significant portion of expenses. The average age of nurses and physicians has risen since 1965. One would expect to find increased salaries to compensate the increased seniority of staff to say nothing of premiums that are paid to attract physicians to underserved communities.

Additionally, the U.S. population has a higher proportion of seniors than it did in 1965. The last 2 years of life are statistically the most expensive in terms of health care.

Medical advances have made it possible to extend life at great cost. Today, a 2 lb. premature baby can be saved but the cost is phenominal something inconceivable in 1965.

While consumer behavior is one element of the problem of rising health costs, this easy answer is an oversimplification of a complex problem. The generic term "health care" also fails to adequately capture the multitude of delivery models used.

At 2/12/2008 8:53 PM, Anonymous Anonymous said...

Thank you, Star, for stating the problem so clearly. Low cost, high quality health care is not a basic right, as much as some people wish it were. Nobody has a "right" to force someone else to give them goods or services at a reduced cost. The value of health care is best determined by a free market with informed and responsible consumers. Sorry if that bursts some socialist dreams. No manufacturer has a warranty which becomes more inclusive as the product wears out; the cost would bankrupt them. Yet that is what we are seeking in health care for the elderly. Additionally, bad lifestyle choices are responsible for many of our maladies. Should someone else be forced to pay because a person chooses to abuse their body?

At 2/21/2009 1:10 AM, Anonymous Anonymous said...

HealthCare is unnecessarily expensive in US because of various institutional controls on the number of doctors, dentists etc that are allowed to enter the profession every year. We should start importing Doctors from other countries just like we import PHD's and Engineer's. No doubt the quality of care might not improve but it will certainly be more affordable.

At 12/03/2009 3:10 PM, Anonymous Anonymous said...

The comparison is off for 2 reasons. First, most people prefer not to consume medical care if they don't have to (how many colonoscopies would you like to have if they were free? How many medicines would you like to take?)

Second, there are countries where healthcare is essentially free (basically the entire developed world except for the US) and they don't use unlimited amounts of resources.

It is much more likely that the problem we have is paying doctors, hospitals, drug companies, etc. to provide more care whether patients need it or not. Unfortunately, the patients have no way of knowing whether they need it (since they rely on their doctors to tell them). Asking patients to pay more will not give them better information, but will encourage them to forego necessary as well as unnecessary care.


Post a Comment

<< Home