Its All About High Health Care Prices

Posted by

Tom Emerick

Posted 3/6/12 on Cracking Health Costs

Ezra Klein wrote and article in the Washington Post on March 2, 2012 on this subject.  He wrote, “There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.”

That’s true enough.  Klein goes on to say,”…unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high.”  Click here to read the article.

Again, why is that way in America but not in other resource advantaged countries?

Here’s why.  In the US we are trying to maintain a fiction that the free market should basically rule in the the area of pricing for health care services….with some limitations, of course…but national policy is to let the “market” basically rule.

That is deeply flawed thinking.  In a free market, prices of goods and services will achieve an “equilibrium” at a certain demand and supply intersect.  That can never happen in health care because the “buyers” of health care are not thepayers….hence no price equilibrium, not now, not ever.  “Market” economics does not work when someone else pays your bills. That’s called wealth transfer.

Other countries simply understand this better than we do and make appropriate adjustments to offset the lack of market economics.

We are not yet there in America.  If our national view of this remains static, expect prices to go up forever.  It’s that simple.

Thanks to Galen Thorp for sending me this article.

One comment

  1. Tom’s post is more valuable for its inherent errors than its revealed truths. For example: “In a free market, prices of goods and services will achieve an “equilibrium” at a certain demand and supply intersect…. “Market” economics does not work when someone else pays your bills. That’s called wealth transfer.”

    All well and good if one assumes an econ 101 view of the world in which the only “free markets” are composed of individual actors (presumably persons), grimly earning and spending their own resources in an economy red in tooth & claw.

    Bilge. “Market” economics doesn’t work as described in Tom’s cartoonish model, under any conditions, ever. Tom, you’re much, much smarter than that. Grow up, read some Shumpeter, and come back with a more compelling model of how the world works here on planet Earth.

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