Monday, January 29, 2007

More on the Unnamed Health Insurance Issue

Jeff Jacoby makes a good start on the teaching needed on the subject in today’s JWR. As in education, we need to let the market back in to the world of medicine. I know it sounds simplistic, but it works every where else. Jacoby mentions the WWII point I made last week but the more interesting discussion involve the common thought that because medicine has become so high tech that the costs must soar:

Why is health insurance so expensive? .... The revolution in cardiac care, the myriad new drugs, the invention of CAT scanners and MRIs, the ability to transplant organs — these and so many other lifesaving medical miracles didn't come cheap. It stands to reason that insurance covering the cost of such miracles doesn't come cheap either.

But wait — [why does] it stand to reason? Information technology has exploded in recent decades too, yet computers have never been as affordable as they are now. Agriculture is far more advanced, and the quality and variety of food available to consumers far greater, than they were 50 years ago, yet the real cost of food has plummeted. The price of a primitive color television in 1954 was equal to three months' wages for an average American worker; today that worker gets a sparkling picture on a 25-inch screen for just three days of work.

"Why is it," asks David Gratzer, a physician and scholar at the Manhattan Institute, "that in every other field where enormous technological strides have been made, total costs have fallen over time, but in health care they have increased?" The answer, he writes in The Cure, a lively and engrossing new book on the American health care mess, is simple: Health care costs so much because most of us pay so little for it. And we pay so little — out-of-pocket expenses amount to just 14 cents of every health dollar spent in this country — because a third party nearly always picks up the tab. For most working Americans, that third party is an insurance company paid by their employers.....

Why does it matter whether Americans pay for medical care directly or let insurers cover their bills? Because thrift and price awareness usually go out the window when we're spending other people's money. Under the present setup, most Americans have little incentive to be economical consumers of health care. As a result, health care expenditures — and insurance premiums — have been racing ahead at three and four times the rate of inflation.

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