The Economics of Healthcare

When serious people start discussing the economics of healthcare, it gets very interesting. This article (and by all means, read the comments) is a case in point. It makes my head hurt.

But, as in so many other areas, chasing after the finer points of understanding risks losing sight of the basics. The basic that often get overlooked is this: medical care is getting more expensive because demand is growing faster than supply. Pricing works the same whether whether we’re talking medical care or shoes. Supply and demand rules.

It follows that medical care can become less expensive only by increasing the supply or by decreasing the demand. The latter is improbable. Sadly, much of our government’s actions serves to decrease supply. Example: reducing Medicare reimbursements forces doctors and clinics to restrict the number of Medicare patients they see.

I’m not convinced that “the larger problem” is really a problem at all. Some people complain that medical care, however financed, is taking too much of GDP? But how much should it take, and on what basis do you make that judgment? No one can meaningfully answer that question. The reality is that we are spending more on medical care because we value it more highly than alternative choices.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: