Why does health care cost so much? A response.

Supply-and-Demand-Graph
How much would a toaster cost if someone busted your kneecaps if you didn’t purchase it?

The March 4, 2013 edition of Time magazine focuses on the cost of health care (“Bitter Pill: Why Medical Bills are Killing Us” http://healthland.time.com/2013/02/20/bitter-pill-why-medical-bills-are-killing-us/). The special report looks at the cost of care for uninsured individuals after diagnoses ranging from lymphoma to indigestion, and wonders why costs are so high.

I thought that was a question with an obvious answer: because health care isn’t subject to supply and demand. It’s not a free marketplace; capitalism doesn’t apply.

Things got even more discouraging when I watched my DVR recording of This Week with George Stephanopoulos, which originally aired on ABC the morning of February 24. (Yes, I record the Sunday morning political talk shows. Don’t judge me.)

During that episode, the round table featured the author of the Time article, Steven Brill, amongst other journalists, pundits, and politicians. The panel discussed health care costs, as expected, and Wall Street Journal’s Kim Strassel made a comparison to toasters in terms of the research that folks put into purchasing one at a good price. (Transcript: http://abcnews.go.com/Politics/week-transcript-powerhuse-roundtables/story?id=18568106&page=9)

I subsequently started yelling at the TV screen (the reason why I had to stop watching a certain cable “news” network). You can’t compare any other market that is governed by supply and demand to the market for health care!

And I started to wonder, how much would a toaster cost if someone busted your kneecaps if you didn’t purchase it?

[Now, a disclaimer: I’m not an economist. I did, however, pay attention to my Economy 100 and 101 classes during college (I thought about getting a minor in economics at one point), and my health economics elective for my Masters in Public Health.]

Main tenets of the Law of Supply and Demand include rational players in the marketplace and no coercion into producing or purchasing a product. There isn’t a gun to anyone’s head in capitalism.

But in health care, there is always a gun to the head of those demanding services. Whether you think you’re having a heart attack and go to the emergency room (even though, in Mr. Brill’s example, it turns out to be indigestion), or if you can’t walk up stairs because each step brings sharp pangs of knee pain as if someone had busted your kneecaps, the entire industry of health care is based around the premise of coercion.

Comparing the cost of services to the price of a semester of college or a car, Mr. Brills asks in his Time feature, “What is so different about the medical ecosystem…?” Steven Rattner, formerly part of the Obama administration, and a Wall Street financier according to his Twitter handle, stated in the This Week round table, “You see price in toasters, you see price in cars and homes, everything else. In health care, you don’t see price.”

Irrelevant. Price doesn’t matter when demand is completely inelastic (or not sensitive to the price of the product). Adam Smith’s invisible hand is punching each patient in the gut, not guiding rational consumers and suppliers together. You will often face bodily harm (suffer in pain, or come down with a bad infection, or die) if you don’t purchase health care services.

Let me change the topic a bit by asking: what other market of medium- or high-priced and complicated products to which we affirm the supply/demand marketplace fits this picture? Not our police or fire departments. Not our military. Not even health care for our otherwise uninsurable elderly population. All these services are considered public goods.

Unfortunately, in our culture, the health of our fellow citizens is generally not.

Even though I disagree with him politically, I enjoy hearing and respect what columnist George Will has to say. But during the round table on This Week, he compared health insurance to car insurance. “No one expects your automobile insurance to cover your windshield wipers,” he said, “or your oil changes. Insurance is for large, unpredictable events.” Health “insurance,” I assume he was arguing, shouldn’t over preventive services or minor illnesses. It shouldn’t cover that pesky cough, or the screening fasting lipid panel, or even the mammogram.

I’ll agree with him on one point: “insurance” is for large, unpredictable events. Health “insurance” is not and should not be insurance. Instead, health insurance is a pooled payer system, where we as Americans, usually through our employers, pay into a collective system that redistributes the funds amongst those paying into the system as costs arise.

When that pesky cough ends up being a pneumonia that goes untreated and eventually lands one in the ICU, or that hyperlipidemia (high cholesterol) goes undiagnosed and untreated and an otherwise preventive heart attack occurs, or the treatable early breast cancer lingers and spreads, it costs all of us more.

Primary care preventive health services are a public good.

Minimally it should be the focus of where our pooled health “insurance” funds go. At best, if we as Americans finally did the right, best, and most efficient thing, preventive services would be the foundation of a single payer / Medicare-for-all system.

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One thought on “Why does health care cost so much? A response.

  1. Dr. Shah- The problem is a bit more complicated. It is in the fiber of every single person.
    Yes, that pesky cough may turn out to be a pneumonia; but it can also be Postnasal drip, asthma or reflux. Health Insurance is not and should not be a ticket to go to the nearest ER for the simplest complaints (As patients do every single day of my life). The problem is one of priorities as well. A lot of patients claim not to have money to pay for a simple, routine, outpatient visit; but they certainly have the latest iphone in their pockets/purses.

    This insurance misuse along with the abuse of the resources by those who are not insured and those insured by medicaid is exactly what is driving the healthcare costs through the roof. You have no idea how many CT’s of the abdomen I order every day to patients faking their symptoms because they need their fix of Dilaudid. Meanwhile we cannot assume they are faking their symptoms because, as we know, even drug-seekers get very ill as well. Of course, let us not forget about malpractice rates which are ridiculously elevated. Someone has to to pay for all these “Emergent” visits and, sadly, its turned out to the tax-payers.

    Hope you are well

    Jaime

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