Different River

”You can never step in the same river twice.” –Heraclitus

February 10, 2005

Why Health Care Costs are Out of Control

Filed under: — Different River @ 2:04 pm

There is an excellent explanation of why health care costs are out of contol, over at Coyote Blog. I’ve been meaning to post something along these lines myself.

The crux of the explanation is:

The problem in the world of health care costs is actually very simple: patients have the incentive to over-consume services and providers have the incentive to over-provide services. Patients consume as many services as possible because some other entity is generally footing the bills, such that the marginal cost to the patient of extra services is generally nil (if you don’t believe this, imagine a world where a 3rd party paid for your car – would you choose the same care you drive today?)

This disconnect between the entity paying the bills and the entity selecting the care cannot endure. The fix in the future is guaranteed to be one where the decision maker on the selection of care is the same person who is paying for the care. The only choice we have in designing the system is whether that entity making the decisions is the government (as preferred by statists of all stripes) or the patient.

I’d add only one thing: The difference between paying for health care and paying for a car is that, as a society, we are generally perfectly willing to live with the fact that if you can’t or won’t pay for a car, you just won’t have one. We are not willing to have it that way for health care, and for reaons which, at some moral level, I believe are correct. There are all sorts of problems with the government deciding who gets what kind of health care; the only problem with the patient deciding is that some patients can’t afford the health care we as a society think they ought to be entitled to even if they can’t afford it. One possible way out of this — the wrong way — is to have the government decide for everybody. Another way would be to have some objective criteria for “people who can’t afford needed health care” and have the government provide health care only for those people. It is not necessary to solve the problem of unequal access to health care by making everyone’s health care equally bad, which is what nationalized (“single payer”) health care would do.

2 Responses to “Why Health Care Costs are Out of Control”

  1. Dave Schuler Says:

    I agree that there’s an imbalance between supply and demand. And I’ll also stipulate that there is some overconsumption. But any idea that rising health care costs are cause solely by excess demand is risible. Do you have actual data to support the claim? It’s also counter-intuitive.

    I don’t like going to the doctor or taking medicine. Do you? Does anybody you know? Do you get two legs set when one is broken because you’re not paying for it out of pocket?

    Health care is more like your “broken window” example. As a rule people don’t consume more health care because they can they do so because they must.

    In my view the problem is caused by the combination of subsidization and (legally) constrained supply. Additionally, there’s a problem of information caused both by the actual payers (insurance companies, the government) and the suppliers.

    So, once again in my view, there are two competing solutions. The first (and my preference) would be to remove subsidization, the gatekeeper functionality of medical doctors, and remove the barriers to entry into health care supply. The second (and far more likely) is to manage what we’re doing now better. That path probably leads through a single-payer system.

  2. The Glittering Eye Says:

    Making plans, health care costs, and bureaucracies
    With the Becker-Posner Blog’s observations on health care that I linked to this morning and the recent related posts from Coyote Blog and Different River both of which suggest that the rise in health care costs can be explained solely…

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