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Friday, April 13, 2007
Why Health Care Is So Expensive In the US
Why are health care costs rising so fast?
In the long-term, that is the most important question before the fiscal policy community. The long-term budget imbalance threatens to do great harm to government programs and the economy, and rising health care costs account for ALL of the spending that outpaces revenues for the foreseeable future. Not Social Security, not entitlements, not an aging population- health care programs, driven by rising prices in the private market.
So what's going on with health care? Maggie Mahar has an answer- her post in a TPM Cafe discussion on health care is a must-read for anyone interested in the long-term budget problems.
The principle force driving up health care costs is waste in the health care delivery system, as opposed to the health insurance system. See this McKinsey & Company break down of excessive costs in the health care system.
Mahar points up a Dartmouth Medical School project that has been comparing health care expenditures to outcomes across the country for the last 25 years. They've found that quite often, more services are provided to zero benefit for patients, and sometimes increased treatment is associated with worse health outcomes.
Which raises the question: why would patients be paying for services that don't do them any good? Isn't that irrational?
It is, yes- but think about it. Patients generally don't know what treatment is best for them. They can't shop around very effectively. And when they are really sick, which is where most health care costs occur, they tend to spare no expense in treating themselves, even if they don't know whether what they are getting, or if they have to pay for it out of pocket. As a result, profit-motivated doctors can prescribe expensive but ineffective treatments all they want, consequence-free.
Market dynamics do not pertain to much of health care provision. The sooner we realize this, the sooner we'll get to work on actually making health care affordable and accessible- while preventing a fiscal and economic meltdown.
Posted by Matt Lewis
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