Wednesday, July 05, 2006

Health Care Inflation is Real

If someone else is paying for it you buy more

Health care costs have been going up about three times that of other prices in the economy (approx. 10% versus 3%). I got this from The New York Post (America’s oldest daily which has excellent financial coverage and spot-on editorials and local news, and deep local sports coverage if you’re into that, as Thorstein Veblen said, “sportsmanship” - in modern parlance this would translate to “ra ra-ism”). The Post cites the recent Milliman Medical Index.

New York City has the highest health-care costs ($15,255 per family of four), DC is forth highest ($13,650) and the national average is $13,382. Families pay 38% of the bill with employers (meaning insurance) covering the rest.

What is wrong with this picture? It seems strangely relevant that the percentages of out-of-pocket expenses are almost inversely proportional to the differential in medical versus other inflation. If something is subsidized, if the prices are lower than the actual cost of providing the service, then more will be demanded than would be if it wasn’t subsidized.

It is time for a change, no not universal health care, which would just mean, in essence a price cap and health care provision shortages like has been happening in Canada and the UK where people don’t get enough treatment for the complex diseases we are lucky enough to be getting because we are living longer under 200 years of an (almost) economically liberal order (eg globalization). And where Doctors have to work extra long hours because there’s not enough of them at the government salaries these government systems pay.

It is time to make the consumers of health care pay more directly for the services they get. Tax breaks for individuals, or for individual medical savings accounts, to even the playing field offered that to corporations for their payment of health care insurance is one place to start. Or better yet, remove all special treatment of health care in the tax code; remove the subsidies and remove the inflation. Incentives matter.