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Many people today are concerned about the rising cost of health care,
particularly in the United States. This indeed is one of the prime motivations
for President Obama's
health care reform proposals, so-called Obamacare plan.
There's been quite a lot of backlash politically and otherwise against
Obamacare
but most people agree that something is wrong with the health care system,
particularly in the United States, and that something needs to be done
in particular, to get prices down. One of the problems with health care
pricing
in the United States, is that the prices are not at all transparent.
When most of us go to the doctor or go to the hospital,
we're relatively unaware of how much were actually paying for the
various procedures that we get.
Mainly we ourselves do not pay, we pay a little upfront cost
and then our health insurance provider pays the rest.
Indeed there's a study just out in the last couple days, by a group in Colorado
called the Center for Improving Value in Health Care
pointing out how much variety in prices
there can be for single procedure. They noted for example, that in Colorado-
excuse me in Denver alone a colonoscopy, which is a very standard procedure,
can range in price from $400 to $2800 dollars.
Now, when we shop for most goods and services, like
restaurants or automobiles or vacations,
we can go online and compare prices and get customer reviews
and really do some comparison shopping. With medical services
we typically can't do that, there's simply no way to find out how much
things cost.
If we had more transparency in prices,
this Colorado group argues and I agree, there will be more pressure
on health care providers to compete on price,
to keep prices down, to be more efficient. Most health care providers
go a long way to avoid disclosing how much things cost.
One reason is there are huge and highly variable mark-ups on very standard
procedures.
I had dinner with a couple of doctors a few weeks ago
and they reported how a simple injection
that can cost less than ten dollars to the doctor,
can be priced to the buyer anywhere from $200 to $400 dollars
depending on who's paying. The problem here
has to do with this so-called third-party payer system.
Most Americans don't pay for health care expenses out-of-pocket.
Their insurance company pays or if they have medicare or medicaid,
the government pays. This results in consumers having little incentive
to learn about prices and to compare prices among providers.
Why do we have a third party payer system?
Well, even leaving aside medicare and medicaid, most americans have
insurance provided about their employer and that's no coincidence.
It's because the US tax code considers
employer-provided health benefits to be an
untaxed benefit. If I pay
for health care services or health insurance premiums out of my own pocket,
I have to pay income tax on those. So, it's this peculiarity of the tax code
that leads to the dominance of these third-party payers
which means that consumers are not price-sensitive and all of this
contributes to the high cost of medical care in the US.
In an earlier Mises View I argued
that health care goods and services were really not
that different from other goods and services and that the free market could
provide effective and affordable health care
just as it provides automobiles and shoes and housing
and other goods and services. The key is to let the market do what it does
and to avoid government intervention that leads to
the third-party payer system and other mechanisms that prevent competition
and keep prices high and quality low.
We can have an effective free-market
in health care services if the government will just allow it to work.