Thursday, October 8, 2009

Health Care & Supply and Demand

Chris, I enjoyed your last post. A wealth of information and comments. And thanks for your compliments. You are a source of knowledge and insight as well...

Yes, there are 'disconnects' with traditional views of "supply and demand" when it comes to Health Care. After all, it is frequently a "life or death" decision. In that situation, you don't CARE what the cost is. If it’s a choice of paying whatever price is demanded or losing your life, you will pay whatever is demanded, even if it utterly impoverishes you.

The problem with areas where Health Care is in high-supply is that with fewer customers per provider, each provider must charge more to get the amount of profit that he desires. Because all of the providers in the area are operating under the same "Money-Or-Your-Life" Rule, they all do this. In this specific case, "normal" competition can’t drive down prices. Further, when the whole industry operates under MOYL Rules, there’s no real driving force for competition. By analogy (a slippery one) an increase in the number of muggers in an certain area does *not* decrease how much money they obtain from each victim.

But back in the real World and away from theory - even with Health Care... With respect to the supply side (i.e., how many professionals are out there working), when faced with an increasing demand and stagnant/decreasing supply the price will increase until supply catches up with demand... exactly according to Supply and Demand principles. Frustrating to find a simple answer.

But when you scrub away all the reasons you gave for WHY Supply and Demand doesn't seem to work, there *was* a common thread... interference with the operation of the marketplace. These outside manipulations take many forms: regulatory requirements, limiting growth of supply (restrictions on accepting applicants at medical school and certification of graduates), etc., etc., etc. Attempts to manipulate aspects of the marketplace is a significant contributor in WHY "it doesn't work". And, sadly, a huge portion of that interference has, at its root cause, government action(s). Doesn't matter if the intentions were good, or even necessary, its still interference in the marketplace.

I note that Paul Krugman (among numerous others) just can't accept that the reason there are "no examples of successful health care based on the principles of the free market", is simply because We The People (via our requests/demands to government) keep sticking our fingers into the machinery. He seems to think that adding more and more Zeros (laws and regulatory bureaucracy) to a sum increases its value.

I admit one serious aspect about health care is that it’s complicated. Many people are unwilling to do the research for real comparison shopping. That’s why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

BUT STILL... IMHO, (Re)Introducing the Consumer to exactly WHAT the costs of care ARE (or will be) will do far more to reduce costs (via increased competition) than any 'mandate' or 'bureaucratic decision-making'. Sure, some people won't do it (or do it well), but that should not prevent *ME* from having the option to retain ultimate control of my treatment.

Just more food for thought...

- Steve

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