Why Health Care Costs Will Not Go Down

We see newspaper headlines almost daily bemoaning the increasing cost of health care. On Thursday, President Obama spoke at the "White House Forum on Health Care Reform", repeating the scary statistics that we hear so often:

You know, we're here to discuss one of the greatest threats, not just to the well-being of our families and the prosperity of our businesses, but to the very foundation of our economy. And that's the exploding cost of health care in America today.

In the last eight years, premiums have grown four times faster than wages. An additional 9 million Americans have joined the ranks of the uninsured. The cost of health care now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes.(http://www.washingtonpost.com/wp-dyn/content/article/2009/03/05/AR2009030501850.html)

The fact is, he is right. Health care is taking up a larger and larger portion of the average person's budget. Health care costs are increasing. The typical reasons given for high health care costs fall into one of three main camps:

1. People are greedy - this argument says that some group of people - typically insurance companies, doctors, or malpractice lawyers - are too greedy. Costs are increasing because they are taking a bigger and bigger slice of the pie.
2. Government is not involved enough - this argument is that socialized medicine allows the government to set prices and quality of care.
3. Government is too involved - this argument says that if we just let the free market work, then health care costs would come down. The huge influence of Medicare and Medicaid is actually raising prices.

I think that some, or maybe even all, of these camps could be right. I am sure that costs could be lower if we made some changes to the structure of how health care is delivered. However, I believe that there is a much more fundamental reason that health care costs are increasing.

The reason that health care costs are increasing is because health care in the U.S. is so good. Health is the classic inelastic good. People will spend whatever money they have if spending that money will save their life. As the better and better health care saves more and more lives, people live longer, and require more health care.

Since this is the main point of the whole post, I think that it's worth illustrating with an example. In hypothetical country Moribund everyone has a heart attack every 20 years. In Moribund there are two cities: in city A, there are 500 citizens, and a mediocre doctor, whose rate of successful heart operations is 50%. In city B, there are also 500 citizens, but they have a great doctor, whose rate of successful operations is 90%. In both cities an operation costs the society $100 (either the individual or the government - it doesn't really matter).

After 20 years in city A, there will have been 500 heart operations, costing $50,000, but only 250 people will have survived.
In city B, the cost will also have been $50,000, but 450 people will have survived.

After 40 years, city A will have only 125 citizens, and will have spent $75,000 on health care.
In city B, they will have 405 people, and will have spent $95,000 on health care.

Obviously, this little example is not true to the real world, but you get the point. The better health care is, the longer we will live. The longer we live, the more often we will require health care. And because health care is so inelastic, we will pay a greater and greater portion of our income for it.

Image by salimfadhley

The Curse of Poverty

I have become more and more convinced that I, that we, should be doing more. Despite the recent problems in the economy, despite the talk of a global recession, we have so much.

Like many people, I lost a huge chunk of my net worth over the last few months, having been heavily invested in the stock market. While it has been depressing to watch the news and watch my IRA balance, I have been otherwise unaffected. I still have an apartment, I still have plenty to eat, I still have a TV and a Wii and a computer and access to the Internet. In fact, if I lost all of my savings, all of my possessions, and only had my last paycheck, I would still have more money than 80% of the people in the world make in a year. In fact, even those at the poverty line ($10,400 for one person) in America are in the top 13% of earners in the world!

How To Help

• I am a huge fan of Kiva as a way for me to give some of my (relatively) untold wealth to those who have not had the great fortune to be born in a Western country. Please feel free to join the Kiva Mormons team that I founded.



• Another great way to help is through fasting. Members of my church forgo two meals for one day each month, and donate the money to help the needy.



• There are many, many other ways to help. Find something you are passionate about, and get involved. Just do something.

Our humanity is defined by the way we treat The Other - those without a voice, without opportunity, and without the ability to reciprocate. Christ spent his time with the publicans, the Samaritans, and fisherman. Should we not do more for the Forgotten in our society?

Let Their People Come Review Part 1 - The Morality of Immigration

Photo from Flickr - celikins

I just finished Lant Pritchett's fantastic Let Their People Come, and I feel compelled to put down a few of the thoughts that I had. I hope this will kick-start my writing on this blog, but that remains to be seen.

I wrote about immigration once before, and reading Mr. Pritchett's book reinforced some of my ideas, and gave me some new ideas.

One of the most powerful arguments, in my mind, is his argument that we treat nationality as a morally legitimate basis for discrimination. He compares labor mobility restrictions to apartheid - "The analogy between apartheid and restrictions on labor mobility is almost exact. People are not allowed to live and work where they please. Rather, some are only allowed to live in places where earning opportunities are scarce . . . The restrictions about who can work where are based on conditions of birth, not on any notion of individual effort or merit"(79).

This is one facet of what I call the "There but for the grace of God" argument, and I think that it is spot on. Any attitude or policy that treats people differently because of the "conditions of birth" is inherently wrong, and the location of birth is no different than race, gender, or ethnicity. He argues that we have as strong a moral obligation to the "Outer Mongolian" as we do to our own countrymen.

While there are serious policy difficulties in determining how to achieve a society without "nation prejudice", Pritchett reminds us that this should be our goal, and we should couch our policy decisions in that framework.