Why Is Health Care So Expensive?

Just wondering why health care, in various forms, is so expensive. We always hear about the twenty five dollar aspirin and fifteen dollar band aids as the sort of poster children for an industry run amok. The basic reason is that there is no accountability in the system.

Because most of us do not reach into our pocket every time we go to the doctor, dentist or hospital, there is no real consideration for what is being charged for the services rendered. This is the root cause of the problem. Most people pay their insurance premium, or if they are lucky they have an employer sponsored plan, and they never really consider what is the cost of the specific services they have received. This creates a disconnect between the customer or consumer and the provider. It also removes all market influence from the prices of services which are all artificially controlled.

Often times doctors and hospitals need to make up for losses they incur because insurance companies set pricing that is too low for the services rendered. A doctor may need to charge one hundred dollars for a particular service which, in general, covers the cost to provide the service and the doctor's profit. The insurance company may have a pre set fee of twenty five dollars that it will pay for the same service that the doctor must accept if he or she wants to continue to treat a particular patient.

The alternative would be to turn away or drop patients with certain types of medical insurance which could cause the practice to close down. Ultimately the doctor or hospital needs to make up the difference on some other service which skews prices away from normal market levels.

Another example is the ridiculous cost of drugs. Sure, we can all accept the fact that the research and development involved with developing new drugs can be astronomical but government regulations have an effect here too. Drugs that have cost millions of dollars to develop will at some point in the future be manufactured by generic drug companies which could reduce prices by eighty percent or more. Drug companies also have to factor in the cost of potential future legal claims against their products.

A great way to bring health care costs back down to reasonable levels would be to have consumers pay for some services directly. This would cause consumers to shop for the best price for the service they are looking for. Routine visits and many common ailments could be handled this way, however catastrophic or long term illnesses could not be. Some level of insurance would still be required in these cases. But insurance rates could be drastically reduced if the policy was limited to long term illnesses and did not cover every doctor's visit or routine procedure. Unfortunately, the likelihood of this happening is quite slim due to the special interests involved.

By: Rich Pagano

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