Reason on Health Care

In 10 years about 20 percent of the country's gross domestic product will be spent on health care, up from 16 percent today. In dollar terms the annual average cost of health care will rise to $12,320 per person in 2015, compared with $6,683 per person in 2005. Does this trend represent a social crisis or an economic disaster in the making? Not necessarily, says Robert Fogel, Nobel laureate in economics and University of Chicago professor. Contrary to most people's intuitions, Fogel points out that a large supply of disease and disability does not automatically increase the demand for health care. It takes something more—namely, money. "In order for the demand for health care to be high, income has to be high," notes Fogel....Does Health Care Cost Too Much? Ronald Bailey in Reason Online, 2/24/2006

Fogel's report was a great get for Ronald Bailey at Reason Online. You should read the whole piece. Some thoughts follow:

I know that educators tend to ignore basic economics, preferring the hallucinations of Marx & Engels to such practical things as how markets work, but is this above, like, hard? Here's help.

Basic principle: The greater the quantity of buyers (called demand) the more pressure there will be on price (a consequence of supply). If demand is high and supply is slow in catching up, the price will rise to compensate.

Wait a second. Doesn't that suggest that there isn't enough of a supply of medical care?

Corollary to basic principle: Demand and supply are not necessarily an indication of need. For instance, if forty million people each want 4 houses of their own, they clearly don't need more than one, two at the most. But if they each demand four houses, and there's no restriction on the demand (such as tax policy on writing off mortgage interest), homebuilders will try their best to provide. If the best they can do is an average of 3.5 per customer, the price of housing construction will go up. Why? Because some buyers will be willing to pay more to break through that 3.5 average and get their fourth house.

And modern Americans' demand for health services hasn't grown because disease and disabilities have increased. In fact, quite the opposite has occurred. Fogel shows that in 1900, American men age 50-54 endured an average of 3 chronic medical conditions, and their confreres who were lucky enough to make it to 65 and above suffered from six chronic conditions. In 1900 only one American in 25 made it past age 60. By the mid-1990s, according to Fogel, American males in their early 50s generally suffered from one chronic condition, and those in their late 60s put up with two chronic health conditions. Nearly 9 out of ten Americans now live past 60....Does Health Care Cost Too Much? continued....

Oops, there's an elephant in the living room, dear. Bailey, not to mention Robert Fogel, Nobel laureate in economics and University of Chicago professor, who asked these questions, is probably not much loved at the AMA, or the Hospital Administrators Association. But maybe not...

Fogel optimistically concludes. "The increasing share of global income spent on health care expenditures is not a calamity; it is a sign of the remarkable social and economic progress of our age." ....Does Health Care Cost Too Much? continued....

For the innocent, the above is a good representative of irony. Us rich folks in America may just want a whole lot more than we need; it's one of the prerogatives of having reason enough to make a good living instead of waiting for the government to send a check. If we become less successful in the future, perhaps through some failure of reason, and we can't even afford basic health care, then political discussions about cost will have real meaning.

Luther