I think part of the problem with the debate is that the word cost is used incorrectly.
Cost is a term used in reference to inputs; such as land, labor and capital for a producer of a product or service. Producers have costs. Producers control costs by finding cheaper inputs or improving productivity. Thus doctors and hospitals deal with costs. The price of healthcare, to the consumer, has nothing to do with the cost of inputs to the producer. The price of healthcare, to the consumer, is determined by supply and demand.
What the public is worried about is not the cost of healthcare but the price of healthcare and particularly rising prices. Healthcare prices rise continuously because Medicare and employer provided healthcare keep pushing the demand curve farther and farther out every year
Improvements in efficiency will always be retained by the producer in the form of higher profits as long as the demand curve is moving outward relative to the supply curve.
The only way to reduce prices is to increase supply or reduce demand.
Healthcare costs also keep increasing for another reason; new medical procedures and drugs have a very steeply rising curve of cost with some of the newest drugs costing tens of thousands of dollars per year. This aspect of rising healthcare costs isn’t going to change anytime soon. Not this side of the Singularity, at any rate.
I am a case in point. I’m a Brit and rely on the NHS. Ten years or so ago I was diagnosed with a very rare and aggressive, but also quite treatable, form of cancer. Sometime during my treatment I was told that the treatment I had been given had cost about £50,000 or approx. $75,000. Ten years or so before that, the treatment would have cost very little because the drugs (chiefly cisplatin) didn’t exist. Of course, that would have done me little good, because I would now be dead. In that scenario I would now have been dead for about twenty years, in fact.
And as I don’t earn very much, if I lived in the USA and had the same problem ten years ago I would still be dead – I couldn’t have afforded $75,000.
I would like to raise a couple of questions. For an individual, healthcare is indeed a cost – associated with staying alive and healthy and no more avoidable than the cost of food. What proportion of the cost of healthcare in the USA goes into the pockets of insurance companies and lawyers? And related to that question; how much of the cost of healthcare in the USA is incurred by tests and procedures ordered or carried out to defend the doctor against lawsuits?
Healthcare prices rise continuously because Medicare and employer provided healthcare keep pushing the demand curve farther and farther out every year.
Not completely. Healthcare costs suffer from Baumol’s Cost Disease.
anon, I had never heard of that. Thanks. Nonetheless salaries can’t increase unless someone is able to pay more. Willingness and ability to pay more is tantamount to pushing the demand curve out.
I think part of the problem with the debate is that the word cost is used incorrectly.
Cost is a term used in reference to inputs; such as land, labor and capital for a producer of a product or service. Producers have costs. Producers control costs by finding cheaper inputs or improving productivity. Thus doctors and hospitals deal with costs. The price of healthcare, to the consumer, has nothing to do with the cost of inputs to the producer. The price of healthcare, to the consumer, is determined by supply and demand.
What the public is worried about is not the cost of healthcare but the price of healthcare and particularly rising prices. Healthcare prices rise continuously because Medicare and employer provided healthcare keep pushing the demand curve farther and farther out every year
Improvements in efficiency will always be retained by the producer in the form of higher profits as long as the demand curve is moving outward relative to the supply curve.
The only way to reduce prices is to increase supply or reduce demand.
Healthcare costs also keep increasing for another reason; new medical procedures and drugs have a very steeply rising curve of cost with some of the newest drugs costing tens of thousands of dollars per year. This aspect of rising healthcare costs isn’t going to change anytime soon. Not this side of the Singularity, at any rate.
I am a case in point. I’m a Brit and rely on the NHS. Ten years or so ago I was diagnosed with a very rare and aggressive, but also quite treatable, form of cancer. Sometime during my treatment I was told that the treatment I had been given had cost about £50,000 or approx. $75,000. Ten years or so before that, the treatment would have cost very little because the drugs (chiefly cisplatin) didn’t exist. Of course, that would have done me little good, because I would now be dead. In that scenario I would now have been dead for about twenty years, in fact.
And as I don’t earn very much, if I lived in the USA and had the same problem ten years ago I would still be dead – I couldn’t have afforded $75,000.
I would like to raise a couple of questions. For an individual, healthcare is indeed a cost – associated with staying alive and healthy and no more avoidable than the cost of food. What proportion of the cost of healthcare in the USA goes into the pockets of insurance companies and lawyers? And related to that question; how much of the cost of healthcare in the USA is incurred by tests and procedures ordered or carried out to defend the doctor against lawsuits?
Healthcare prices rise continuously because Medicare and employer provided healthcare keep pushing the demand curve farther and farther out every year.
Not completely. Healthcare costs suffer from Baumol’s Cost Disease.
anon, I had never heard of that. Thanks. Nonetheless salaries can’t increase unless someone is able to pay more. Willingness and ability to pay more is tantamount to pushing the demand curve out.