Monday, January 11, 2010

Health Care - Why Does it Cost So Much?

Why does it cost so much? This is the big question that seems to be avoided most of the time.

The answer is transparently simple. It costs so much because there is nearly unlimited demand. There is nearly unlimited demand because the segment of the population that uses the most health care gets it for free.

It's all about supply and demand. If something highly desired is free, what else can happen to the price other than go up?

Medicare is the sole cause of skyrocketing health care insurance costs. Medicare was started in 1965. Before that time, going to the doctor was like going to the car mechanic - it was an unpleasant expense but it was manageable. The health care insurance problem has been growing since 1965.

What would happen if the government gave free cars to all kids between the ages of 16 to 24 years old? Every kid would have an awesome car. The price of cars would go up. The technology in the cars would rapidly improve because price is meaningless to the kids when the government is paying the bill. Pretty soon, only the kids will have cars and the rest of us will be riding the bus.

There are two solutions to the health care crisis
  • Get rid of medicare
  • Give medicare to everyone
Getting rid of medicare is impossible because seniors vote and they won't go for it. No politician is gutsy enough to advocate scaling down medicare. Giving medicare to everyone is therefore the only reasonable solution. And it's a fair solution. Giving free health care insurance to a single segment of the population is NOT fair.

Interestingly, seniors don't like the idea of giving medicare to everyone. Why? Because they correctly realize the country cannot possibly afford to give everyone the same benefits currently enjoyed by seniors. In other words, their privileged portion of the pie will be reduced when everyone gets an equal slice.

Read this for a little more detail.