Tuesday, June 16, 2009

The Cost of Health Care

Critics of our health care system point to the ever-rising cost of providing health care in the United States, in comparison to other industrialized nations. In 2007, the Kaiser Family Foundation reported that the cost of providing health care in the United States has grown from 7.2% of the nation’s economy in 1970 (or $356 per person per year), to about 16% in 2005 (or $6,500 per person). This is nearly twice the cost of providing care in Canada ($3,161), France ($3,191.), Australia ($3,128.), Japan ($2,358), and the United Kingdom ($2,560.). (Kaiser 4). But there are hidden complexities here as well. How much health care spending is too much for an individual patient, family, city, state, or a nation? Is it economically and/or politically undesirable to have so many Americans employed in the health care sector of the economy? What exactly is the quality of the health care that we purchase at this cost? So what does it really mean when we say that our health care system costs too much? Let’s take a look at that!

In the real world, the access and quality of a health care system cannot be separated from its cost, at least not for very long. How do we decide whether the “price is right?” In the Real World, that depends on how much we, as individuals, value health care products and services at the quality and price that they are being offered. For any other product or service other than health care (and perhaps education), when a product or service is priced too high, buyers simply refuse the offer and gravitate toward other sellers. Although I am a pro football fan, I have never attended a Bengals game. Frankly, the product being offered is not worth the ticket price. So I spend that money on other leisure activities that are “worth it,” mostly concerts. Even if the Bengals were great, I still wouldn’t attend a game at the prices offered today. I prefer to watch them for free on T.V. I might attend those games if they were free, or $10. But probably not. I hate the other "opportunity costs" such as traffic and parking problems. The Bengals will stay in business as long as at least a few fans continue to show up at Paul Brown Stadium on Sundays, and as long as the T.V. networks are willing to carry the games. In short, the Bengals must compete for our money. As individual buyers, we make purchasing decisions based on our beliefs about both quality and price. If I say that a new automobile is too expensive for me, what I’m really saying is that, the quality of the new vehicle does not justify the price that I’d have to pay for it. Hence, I’d prefer to keep my old car, or buy a less expensive used vehicle and spend those savings on the fulfillment of other wants and needs; perhaps a family vacation.

So what is the “value” of health care and or “health?” Our assessment of the value of health care has been shaped by a four-party party payment system that fosters both quality-insensitivity and price-insensitivity. In today’s economic environment, many young, healthy, middle class Americans, that do not get less expensive health insurance through a fourth party (employer) value other goods more than they do health insurance. Therefore, they spend their paychecks on new vehicles, spacious homes, higher education, high-quality food, alcohol, tobacco, or extended summer vacations. Therefore, when we say that our health care system is too expensive, what we are really saying is that many Americans value health insurance (of unknown comprehensiveness) less than other things. If I choose to spend my money on a vacation at Disney World, I at least have a good idea the quality and price of my purchase.

So the fact of the matter is that all Americans have “access” to health care, they just are not willing to buy it at the quality and price that it is being offered. And of course, many young, healthy Americans will never buy health insurance, no matter how much it costs because they would rather spend their money on those other things. This underlying reality has inspired a movement to offer “free universal health care,” through a government program like Medicare or Medicaid. However, the fact of the matter is that these programs are neither free nor high quality. Indeed, libertarians argue that the best way to insure universal access to low quality health care (or education) at an unreasonable cost is to force all Americans to pay for it through taxation. Here's another blog entry on health care reform: http://freedomsphilosopher.blogspot.com/2008/10/health-care-reform.html

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