Friday, December 23, 2005

Pedantonomics --- Part One

Why is health care so expensive?

This question is asked by many people, often with an indignant tone.

Here are some of the major answers:

(1) Government regulation.
(2) The threat of litigation.
(3) The scarcity of the service.
(4) The fact that doctors are deep in debt upon completion of residency.
(5) The fact that pharmaceutical companies invest [tens of] millions of dollars into experimental drugs for years with no guarantee that the drugs will pan out or be approved by the gov't.

You can't complicate doctor's lives with forms, paperwork, bureacracy, and then tell people that they have a "right" to "free" or "subsidized" health care, and then have an industry dedicated to suing hospitals, physicians, pharma companies, etc, without

(i) decreasing the time doctors have to actually practice their trade,
(ii) causing doctors to have to perform needless tests in order to make them less lawsuit-prone,


(iii) causing physicians to be inundated with people who, by virtue of having free or subsidized service, do not treat the service as a rare commodity.

All of these things decrease supply without removing any of the demand. Ergo, the price of health care goes up. This is basic supply-'n'-demand.

Also, when you come out of med school about $150,000 in debt and you start some $30,000 per year residency for a few years where you work 60-80 hour weeks, you're not able to get out of debt. Should somebody who has gone through residency then sell their services for cheap?

Let's say they do. What financial incentive is there to practice medicine then? You go through hell and then you're in debt and you don't make enough money to have a decent life if you want to pay off the debt.

There's a reason why people don't say "I want to flip burgers at McDonald's for my career" and instead think of, say, law, financial fields, etc. The answer is that you make more money in the latter fields [typically].

Now if you remove the financial incentive from medicine, you'll have a shortage of doctors, for people typically don't want to do a lot of work for low pay. Then the supply of doctors diminishes even more, and the cost goes up. The attempt to regulate the cost of medicine will, like most if not all government attempts at regulating prices apart from the free market, make the service or item more expensive.

If you want to "stick it" to pharmaceutical companies and put price caps on their products, or merely to get in the way of the market, you make it unprofitable for a company to pursue research, to take chances, to venture on new drugs. Why should a company spends tens of millions of dollars in R&D hoping that the drug pans out and is ultimately approved by the gov't if it is then forced to sell the drug at a price that does not let them recover the costs that have been built up not only for that drug, but for the other drugs that do not see the light of day?


In the socialist world, one doesn't have to worry about these minor details. It sounds good to talk about free health care, income ceilings for doctors, equality, rights to health care, and other fuzzy-wuzzy constructs of an imagination that believes the world must conform to the latest trend of social justice.


Anonymous Blue Cross of California said...

Health sure is too expensive and I hope something can be done to improve the situation for all.

Monday, December 26, 2005 10:19:00 PM  
Blogger wordsmith said...

Indeed, the laborer is worthy of his hire, so I don't begrudge the doctors their pay. But neither am I obligated to shoulder the cost of their schooling. (Any college graduate could make a similar argument, but they don't justify their wage compensation based on the cost of their post-secondary eduation.)

I think the outrageous cost of health care can be mainly at the feet of the insurance companies and our litigious society. (How outrageous is it? I just had a baby in October, and by the time you add up all the bills from every Tom, Dick and Harry in volved in the process, the total cost is close to $20,000 w/o insurance. Direct negotiations with the hospital and healthcare providers brought the price down some, but it's still significantly over $10,000. Please tell me, why should a "blessed event" be so costly?)

Tuesday, December 27, 2005 12:09:00 PM  
Blogger Pedantic Protestant said...

I agree that you're not obligated to shoulder the cost of their schooling.

I was merely trying to explain why costs were high: predators and regulation.

As to why the event you mention is costly, just remember what the infant mortality rate 100 years ago was!

Tuesday, December 27, 2005 3:58:00 PM  

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