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The American Health Care Crisis

July 30, 2013

I have been thinking about this recently and debating/discussing with friends. The common notion with this health care issue is that, it should be made affordable to all. Universal health care should be the motive, “Obama care” is the way to go, etc.

This is alright. So, now when addressing this issue, there are two sides to it. The cost side and the payment side. Looks like the focus is on payment side. What I mean by this is that the approach seems to be to make it affordable by giving money to those who can’t afford it. Somebody has to pay this right? Yeah, the “rich” taxpayers are there isn’t it? Let the “Obama care” pay for those who can’t pay for their health care.

The problem with this approach is that it doesn’t actually solve the cost issue and on top of it makes it costly for everyone (specially the one’s who are actually paying for it in the form of taxes or increased insurance costs). The information is so skewed is the whole health care transactions that no one actually knows what is the cost, how much they pay, or monitor the prices as conscientiously as in other products.

Human ingenuity has solved the cost issues of many commodities that we use today taking them for granted. A computer desktop cost has come down significantly, a memory chip, a cell phone, cost of food, electricity, – everything has come down significantly. Why not health care? The problem here is the fact that no one actually knows or cares about the cost. For eg, most of the people covered by insurance are under the illusion that they don’t pay a lot for health care. Here is the catch. Although the monthly insurance contribution to your pay check seems small (and the employer apparently contributes quite a bit), and the co-pays seems small amounts, the real costs are actually hidden. If the employer was not forced to contribute his bit for this “costly” health care, you probably could be paid a lot more. Ultimately, the salary that is offered already takes into account all of these.

The other problem is that most hospitals don’t exactly know how to price it. For the same procedure, different doctors could quote different prices. Anyone have a clue of the exact costs?  This can lead to very bad outcomes of artificial scarcities and high costs. The Obamacare nor insurance companies have an incentive to force a competition in the market as someone else is paying (taxes or employers). Because there is no competition or reference, it is not clear how to price a certain treatment. Many doctors at different places and times can price it differently to the insurance companies.

The basic idea here is that, as long as someone else is paying, there is no incentive for reducing the costs. This is where the actual problem lies. Unfortunately the solution is being focused in subsidies and making it more expensive. The main purpose of universal health care is being lost in this “care for all no matter what” non-sense without proper understanding of the problem.

Hope common sense will eventually prevail at some point.

PS:- I will provide the references to the skewed pricing. This was in an article I read sometime back in NYTimes.

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