A brilliant summary by Jacob Pollack re: what drives healthcare costs, as a comment on a WSJ article about China's concerns about US debt:
Healthcare costs in the U.S. are driven by the following:
(1) Workers being given very extensive healthcare insurance that give them easy access to all manner of healthcare at little marginal cost to them. The richness of these benefits is boosted by exemption of these benefits from tax.
(2) Without a price inhibitor, lack of other restriction to prevent overuse of the system, which naturally results when the price of use is artificially low.
Nationalized healthcare systems suffer from problem #1 (since the marginal cost of using the system is 0), but resolve it by putting in place restrictions on overuse of system. Usually these take the form of some sort of panel of experts which decides what care people can have and what care they can't have and deliberate under investment in capital equipment which means people have to line up and wait (for example, by buying only 2 MRI machines to service an entire city). This is the so-called "rationing" which Americans fear.
To stem increases in healthcare cost, the U.S. must either put in rationing, like in other national healthcare systems, to restrain overuse of the system (which results from not exposing patients to prices) or it must scale back the richness of the benefits afforded under insurance policies so that average citizens have to pay out of pocket for a lot more of the care they receive. The latter could be accomplished by shifting to insurance which looks a lot more like true insurance and only insures "catastrophic" care costs. Such policies would have high annual deductibles, requiring people to bear most of the cost of their ordinary day-to-day care. Although they would offer much less benefits, such insurance would be far cheaper and by exposing people to the costs of the services they use, they would not overuse the system (and providers would be encouraged through competition to offer good prices to attract clients). By accepting less expensive insurance, Americans would receive higher salaries or other forms of compensation. Healthcare for the true poor can be resolved through direct government subsidies to provide basic insurance or provide direct services in public clinics, or similar solutions. This latter approach would be a more American free-market solution.
(1) Workers being given very extensive healthcare insurance that give them easy access to all manner of healthcare at little marginal cost to them. The richness of these benefits is boosted by exemption of these benefits from tax.
(2) Without a price inhibitor, lack of other restriction to prevent overuse of the system, which naturally results when the price of use is artificially low.
Nationalized healthcare systems suffer from problem #1 (since the marginal cost of using the system is 0), but resolve it by putting in place restrictions on overuse of system. Usually these take the form of some sort of panel of experts which decides what care people can have and what care they can't have and deliberate under investment in capital equipment which means people have to line up and wait (for example, by buying only 2 MRI machines to service an entire city). This is the so-called "rationing" which Americans fear.
To stem increases in healthcare cost, the U.S. must either put in rationing, like in other national healthcare systems, to restrain overuse of the system (which results from not exposing patients to prices) or it must scale back the richness of the benefits afforded under insurance policies so that average citizens have to pay out of pocket for a lot more of the care they receive. The latter could be accomplished by shifting to insurance which looks a lot more like true insurance and only insures "catastrophic" care costs. Such policies would have high annual deductibles, requiring people to bear most of the cost of their ordinary day-to-day care. Although they would offer much less benefits, such insurance would be far cheaper and by exposing people to the costs of the services they use, they would not overuse the system (and providers would be encouraged through competition to offer good prices to attract clients). By accepting less expensive insurance, Americans would receive higher salaries or other forms of compensation. Healthcare for the true poor can be resolved through direct government subsidies to provide basic insurance or provide direct services in public clinics, or similar solutions. This latter approach would be a more American free-market solution.
