[ExI] USA Health Costs

[dan_ust at yahoo.com]

--- On Mon, 6/1/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
> 2009/6/1 BillK <pharos at gmail.com>:
>> Good analysis here in the New Yorker magazine:
>> http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=all
> 
> The article is about overservicing. Medical overservicing
> is not only
> expensive, it can also be dangerous. Free market medicine
> encourages overservicing.

How's that?  In this particular case, the article mentions "In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns."  Is Medicare a free market institution?

Anyone grounded in economic theory would expect the price of subsidized whatever to rise -- as, regardless of supply, users of the whatever have their costs redistributed.*  This is, in fact, what we see.  The overservicing arises because people who use the services are not price sensitive anymore.  Were this their money, they might economize better.  (Or they might -- if they truly wanted to be overserviced.)

In this particular case, what's happened is, I believe, the subsidized healthcare -- a government intervention -- is being "gamed" to use Bill's term.  The solution to the problem -- if one doesn't want to see overservicing -- is to remove the subsidy.  Some might still prefer higher levels of service (especially those accustomed to it now), but they will then bear the costs of this or, at best, only be able to spread those costs locally (to friends, family, their insurers, or charities wishing to oblige them).  The service providers, too, will either have to change or continue to "overservice" will invite competitors in.

Regards,

Dan

*  Note: the effect won't be immediate, won't be the same everywhere, and might not instantly go away once the subsidy is removed.  Other factors can impinge on using the subsidy -- in much the same way that accepting the dole is not for everyone.