A True Statement About Healthcare

Ezra Klein’s recent post’s title, “You Don’t Know What Health Costs” is true and that itself is a great argument for healthcare reform. I wonder if he knows just how true it is. A more complete statement would be:

You don’t know what health costs. Nobody does because under our current system price discovery is impossible.

What is the market clearing price for an internist? For a stay overnight in the hospital? For a dose of Monopril?

Nobody knows the answer to any of those questions because the market is so fixed, regulated, supported, subsidized, and restricted that it’s impossible to determine the answers. In the absence of any interference in the market the prices might be half what they are now. Or they might be double. And to the best of my ability to determine there isn’t anything in any either the House bill, H. R. 3200, or Max Baucus’s bill that would materially change that.

Those who argue that a public option is a necessity for reducing costs are essentially proposing that they’ll fix costs in such a way that they go down. If the set price is lower than the market clearing price, it will create a shortage. If the set price is higher than the market clearing price, it will create a glut and will be a sub-optimal use of resources, stunting economic growth.

8 comments… add one
  • TimH Link

    I’ve often wondered if people really think that healthcare is worth what it costs. I’m convinced that without subsidies, for a lot of it, it’s not. One of the problems plaguing our health care system is over-filled ERs. Part of this is because people don’t have access to care they think they can afford, but part of it is because people go when it’s not strictly a life-or-death (or even “life or death???”) emergency. Usually, raising the cost would reduce demand, but the person receiving the care pays, at most, a fraction of any increased cost (through a larger co-payment), this has proven pretty ineffective.

    I think this is why so-called ‘high deductible’ plans have a lot of potential for reducing health care costs, since they encourage people to think of what their health care costs, and weigh cost-benefits, except in cases of large, unexpected events (heart attack, cancer, car accident). I think that most people will still be pretty cautious (as in, going in to a doctor if they think they might need care) since it is their lives they’re talking about. At the very least, it gets patients involved in conversations about the cost of care, though at the moment, no one in most hospitals or doctors offices has any idea how to assess costs before care is given. (This obviously needs to change, especially if such plans are to become more common).

  • Jimbino Link

    I object to both Ezra Klein’s and TimH’s assertions that the uninsured who use emergency rooms for their care are free-riding on the insured or the Treasury.

    The fact is that the uninsured person sitting in the emergency waiting room has already paid some 50% of the costs of his care through the 50% subsidy the Fed contributes to the medical industry. Add to that the probability that the uninsured uses far less medical care in his lifetime than the typical insured (I presume; we need evidence here), it may well be that the typical uninsured subsidizes the insured, not the other way around!

    I am an deliberately uninsured person who has been paying taxes, part of which have gone to subsidize the medical industry that I do not use, and I have never been in an emergency room. I haven’t even visited an American doctor since 1967 and he gave me 50% off because I had diagnosed my problem myself, using the Merck Manual.

  • Audrey Link

    President Obama’s heath care promises won’t be kept. Costs will rise exponentially, NOT fall. Therefore, our taxes will be the ones to pay for it. We need to support the goal of covering all individuals through private health insurance. We are NOT prepared to turn our health system over to the government.
    http://www.friendsoftheuschamber.com/issues/index.cfm?ID=300 .

  • Drew Link

    Jimbino –

    Please tell me that was a temporary brain cramp.

  • Geez Dave I think you are mistaking theory for the real world.

    Hi micheal!

  • steve Link

    I think you are correct as regards lower cost procedures and office visits. Determining market costs for big ticket items would be more difficult. Few people will have the savings on hand to pay for a CABG or bone marrow transplant. These items will require insurance in some form for most of us. Insurance distorts everything.


  • Andy Link


    It’s not just the uninsured that are filling ER’s. I have pretty good medical insurance (through the military) and there are times when the ER is the only option for timely care since 24/7 urgent care facilities are few an far between. If my kids develop strep throat (as they each did last year), it’s not feasible to wait 24-48 hours for an appointment – we were told to go to the ER, which is what we did.

    This is one reason why I think Dave is completely correct about there being a shortage of healthcare. I think in a truly open market we’d have a lot more 24/7 urgent care facilities so that the ER would be there for real emergencies and not timely urgent care.

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