A Short Note on the Cost Issue

The New York Times has published several incredible reports about the incredibly high costs of health care in the US. Here's Elisabeth Rosenthal:

Doctors’ charges — and the incentives they reflect — are a major factor in the nation’s $2.7 trillion medical bill. Payments to doctors in the United States, who make far more than their counterparts in other developed countries, account for 20 percent of American health care expenses, second only to hospital costs.

Specialists earn an average of two and often four times as much as primary care physicians in the United States, a differential that far surpasses that in all other developed countries, according to Miriam Laugesen, a professor at Columbia University’s Mailman School of Public Health. That earnings gap has deleterious effects: Only an estimated 25 percent of new physicians end up in primary care, at the very time that health policy experts say front-line doctors are badly needed, according to Dr. Christine Sinsky, an Iowa internist who studies physician satisfaction. In fact, many pediatricians and general doctors in private practice say they are struggling to survive.

I won't get too much into the issue right now, but alot of the discussion of cost has made me think about markets. It is not all that different from the way the Stephen Brill (the guy that wrote the incredible Time article that set all of this off) discusses the issue with Jon Stewart.

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Health care markets cannot function in the traditional sense because they are based around compulsion. I can't choose to not be treated for cancer. I'd die. This seemingly innocuous flaw leads to all of the insane effects we're seeing now, because there is no mechanism to properly set prices.

Brill's article talks about how an external price mediator must enter. That's politically unpalatable in the US, but it's not impossible. The launch of the Obamacare website shows that when a broad enough spectrum of Americans are affected by a specific problem (not just poor people), government can and often does act quite quickly to solve the issue.

George Will (who is mentioned in the clip) said nothing will be done about prices unless people feel like "they have enough skin in the game." His metaphor was apt, but for all of the wrong reasons. Pricing control mechanism will be introduced after the implementation of Obamacare because all of us will be paying a lot more for each others' insurance. The rent-seeking behavior of hospitals and doctors will not be as possible when it is a problem facing everyone at the same time. With enough political momentum, we'll have results.