Punch line: Economists have shown that if a good’s price is zero or decreasing, then the demand for this good will likely increase. And, that applies to healthcare.
* * * * *
Excerpted from American.com: The High Cost of No Price, January 12, 2010
A simple chart shows why healthcare spending has gone out of control. The graph shows out-of-pocket payments by consumers and spending by Medicaid, Medicare, and private insurers on healthcare from 1965 to 2008.
In 2008, consumers were only directly responsible for 11.9 percent of total national healthcare expenditures, down from 43 percent in 1965. This means that someone other than consumers pays roughly 88 percent of all healthcare costs, giving consumers little incentive to mind costs and much incentive to over-consume.
Since the passage of Medicare in 1965, consumers’ out-of pocket spending on healthcare has decreased steadily as a percentage of overall U.S. healthcare spending. While real and nominal out-of-pocket healthcare payments increased over the period, growth in these costs was dwarfed by a much more rapid growth in overall spending. On average, consumers’ out-of pocket healthcare costs increased 6.7 percent each year, while national healthcare expenditures increased by an average 9.8 percent each year.
By contrast, increases in expenditures by private insurers, Medicaid, and Medicare accounted for the majority of this excess cost growth — since 1965, private insurers’ spending has increased by an average 10.8 percent annually, Medicaid spending has increased by an average 15.4 percent, and Medicare spending has increased by an average of 15.6 percent each year. The rate of growth in both Medicare and Medicaid spending far outpaces the rate of growth in out-of-pocket and private insurance costs.
When people aren’t exposed to the true cost of their care — even if they pay for it in foregone wages and higher taxes — they consume more.
It’s that simple.
Full article:
http://www.american.com/archive/2010/january/the-high-cost-of-no-price
The Homa Files 