After reading the article on the Tom Woods blog “Surgery Center Defies Insane Health Market, Keeps Prices Down”, I had a question about the incentives in the health care system.
I re-read the health care section of “Rollback”, and my question still remains. I understand the basic issues at play (boosting of demand by insurance and various restrictions of supply), but I can’t figure out why the insurance companies don’t do more to keep prices down. It is obviously in their best interest to do so. What is the best explanation for their inability to accomplish this task?
I assume the answer revolves around Medicare and Medicaid (which the Surgery Center from the article did not accept), but I would like to hear what everybody else thinks about the topic. Thanks for the consideration.
I’m not sure it is in their best interest to do so. I haven’t studied this topic seriously, but it would seem to me that health insurance is a highly inelastic product. Almost everyone who has the means to purchase it does purchase it, regardless of the cost. Because of this, the insurance companies can (and do) easily pass along price increases of medical costs right to the consumers through increased premiums.
Also keep in mind that the employer-provided system means that most Americans not only avoid paying the true cost of their medical procedures, but they also avoid paying the true cost of their health insurance, as their insurance is often highly subsidized if not provided entirely by the employer. While those of us who understand economics might realize that greater health benefits must translate to lower wages (or lesser benefits of another type), the average person seems to have not made this connection.
If the end customers don’t care about price hikes, nobody else along the chain will either.
AB’s post is one I’ve wondered about as well. SM put it well. I think that it really may not make much of a difference to the insurance companies to fight to keep costs down. If providers keep raising prices, insurance companies will just pass the costs on to the consumer, which isn’t really us. For most of us, our employer is the buffer that somewhat mitigates the damage.
At my work, our health insurance is re-assessed annually, and it goes up every year. But I still think there’s just not enough of a real-world connection between our wallets and the cost of our healthcare.