Why Does Health Care Cost So Much in the US?

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One of the complaints people have about health care in the US is the price. It seems even the most trivial thing costs a ton of money.

It’s really easy to blame the free market economy for the costs. However, it’s grossly inaccurate. 50 years ago when medical care was free of government control, people didn’t need insurance because they could easily pay for any treatment they needed. Nowadays, government regulates every aspect of health care. It is hardly a free market. The high prices, in fact, are because health care is not a free market and will not be until Obamacare and a number of other regulations are eliminated.

Let us consider the costs of health care.

First, let’s start with the cost of materials. In order to deliver health care, we need trained personnel. What does it cost to train someone to work in the health care industry? Ask your doctor or nurse how much they spent to get educated. Why does it cost so much money? It’s rather easy: the government is artificially inflating the price of education because they pay for the education of a large number of people. Because people do not pay their own way through school, they are buying something they didn’t pay for. You might say that they are paying because they are taking out loans. This is true, somewhat. The education loan industry is heavily subsidized by the federal government, and heavily regulated. This means that people who take out student loans aren’t even bearing the true cost of their loan even if they do pay it all back.

What about medicine: drugs, machines, procedures, that kind of stuff? These cost billions of dollars to develop. The health care you receive in the US is the most advanced in the world. When you hear about a medical discovery, you automatically assume it is from the US because that is largely true. This is not cheap. However, why are we spending billions and billions on medical research and development if our system is overpriced to begin with? Quite simply, it’s because of two reasons.

One, there is a giant hurdle called the FDA that all medical treatments must overcome before experimentation can even begin in humans. Even treatments for people in life-threatening conditions must wait until the FDA feels good and ready to give a thumbs up to experimentation, regardless of what the researchers or patients have to say on the matter.

Two, medical researchers know that they are not dealing with private individuals but the federal government, particularly with elderly care. That is, they have deep pockets they can exploit.

Let me help you understand. There’s a number of really, really good ideas in my industry that nobody pursues because there is no market for it, or at least, no market that could recoup the costs of research and development. Because of this, investors don’t throw their money into it, and people leave it alone. If the market ever changes to the point where it does make financial sense to pursue the research, then it has to compete with every other really good idea out there. In the end, only the best ideas are financed, and only because they make the most sense financially.

In the medical industry, if you develop a treatment that will get covered by Medicare or Medicaid, you can tap a “market” that is the American taxpayer. No old person is going to balance the cost of treatment with their needs. No price is too high. Also, you have a really high threshold to cross with the FDA certification. These two burdens completely distort the market. If you want to do medical research, it not only has to be financially viable, but it has to also include the cost for arbitrary FDA certification and it has to be more profitable than the medical research for treatments to Medicare/Medicaid patients would be. Any research that does get done is going to be extremely expensive, because cheap treatments are simply not even considered.

Add in to this the cost of doing business in America. You need facilities and other staff beyond the medical experts. With taxes high and our economy otherwise unfree of government control, the cost of simply building a hospital is enormous, way beyond what it would cost if government would let us be. In addition, there are boards across the country that artificially limit the construction of health care facilities to artificially keep prices high. This is no different than the hair salons which control the hair industry by requiring licenses and so drive up the cost of cutting hair and artificially limit the number of hair cutters competing in the market.

Now, let’s talk about the insurance companies. Why do we even have them? A long time ago, businesses had to find a way to reward good employees to keep them from leaving. Because FDR’s socialist policies forbade anyone from giving their workers raises, they had to reward them with goods and services rather than cash. Health care was one of those things. Before this, health insurance didn’t even really exist. Everyone paid out of pocket.

Insurance companies really weren’t that bad, at least not until the government decide to control the costs of their insurance programs (Medicare/Medicaid) by strictly regulating treatments. The insurance companies conformed to the government standards, and now everyone is royally screwed. Our medical treatments are not determined by our doctors, but by boards and bureaucrats we will never even know the name of.

If the insurance industry were free, then people wouldn’t participate unless it was in their own self-interest. As it is, states across the union have made it all but impossible to buy private insurance, and have made it all but impossible to have individuals negotiate health care treatment and costs with their doctors. Thanks to government interference, good luck having a truly free market interaction in anything remotely related to health care, even if you pay out of pocket with real money.

One thing that insurance does is it divorces the cost from the treatment. People go to the doctor and expect to get treated, and care nothing about how much it costs. No one ever asks if the treatment is worth it financially. Instead, the insurance companies are left to pick up the tab, and so they end up cutting corners elsewhere or raising premiums or limiting treatments, etc…

It doesn’t help that we have a jackpot system in medical malpractice suits. Rather than try doctors by a jury of their peers, they are tried by ignoramuses who know nothing about medicine and are taught to hate the doctors because they are rich. Is it any wonder that we have lawyers getting rich off of people’s ignorance, and doctors paying a good portion of their paycheck just to keep their practice running?

Our US health care system is broken. There is no doubt about it. The proscription is not to keep doing what we have been doing. Things are getting worse as we do that, not better. We are losing our health care freedoms, not getting free health care in exchange.

A simply, robust plan to fix the health care industry overnight would look something like this:

  1. Eliminate the FDA, allowing people to treat themselves with whatever treatments they feel is appropriate. (If individual states feel like they need an FDA, let them do it on their own. Doing it at the federal level makes no sense whatsoever.)
  2. Eliminate Medicare and Medicaid. (As a consolation, perhaps write a check to refund people for their investment, or provide vouchers.)
  3. Eliminate all tax laws regarding medicine. That is, no tax breaks or special taxes on medicine.
  4. Allow insurance companies to put together their own plans, free from government force and coercion. One way to do this is to force states to accept out-of-state and international insurers, without being subject to state laws.
  5. Reform the tort system, restoring “trial by jury of peers” to its original meaning. Eliminate damages for practicing medicine in good faith and with the consent of the patient.

These 5 reforms would dramatically change the medical industry into a free-market system. Costs would plummet overnight. There would be a lot of crying and gnashing of the teeth by those people who we have been paying money to treat their sickness. However, I believe the philanthropic nature of the American people would find a solution faster than republicans can choose their presidential nominee. With treatments plummeting in cost, it won’t be hard for the same dollars to insure many, many more people.

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4 Responses to “Why Does Health Care Cost So Much in the US?”

  1. tensor Says:

    … arbitrary FDA certification …

    Have you ever certified a medical device or treatment with the FDA? Because I have; I was on an R&D team at Pfizer when we did so. The process was meticulously detailed and very precise, but it was not “arbitrary”. From the moment we were ready to start prototype production to the moment we received certification was a few months, so it was not a drag on our efforts, either. The entire process was essentially a final QC on our work, paid by taxes, from an independent auditor (the FDA). (The machine we built is still used in surgeries worldwide — doctors actually use it to cut open their patients.)

    • Jonathan Gardner Says:

      It is arbitrary because it is determined by a group of people who have no economic interest whatsoever in seeing certification proceed in the benefits of the doctors, the patients, or anyone, except their political careers.

      If there is a benefit to certifying medicines and treatments and machines as safe, then the private industry will create the agencies and organizations and processes to ensure that top quality products are available, identified. Things like UL already exist, and work fine. The law only needs to protect people from those who would commit fraud.

      If a treatment is novel, or so extraordinary that no agency would certify it, but the doctor and patient still feel like it is medically necessary, what gives me or you the right to deny that treatment? The fact is we don’t have any such right. The FDA is an exercise in government largess and an example of how good intentions lead to corruption.

      • demokid Says:

        The law only needs to protect people from those who would commit fraud.

        Which is, of course, EXACTLY what the FDA does.

        While there is certainly an interest in certification by some companies, there are others that would be more than happy to not have oversight. In cases such as this, how precisely does one prove fraud? If you do not have a battery of mandated, reviewed tests required by law that show that a drug does not do what it says it does, how precisely do you prove this?

        You’re simply handing power to private companies, in the hopes that things work out. Given that more than a few drug companies are quite willing to lie about the effectiveness and side effects of their drugs, placing faith in self-regulation is idealistic at best, downright stupid at worst.

        The FDA is an exercise in government largess and an example of how good intentions lead to corruption.

        It pales in comparison to the corruption that would be involved if it were NOT present. And this is the fascinating problem with limited government advocates — the systems that they want would paradoxically result in LESS freedom.

      • Jonathan Gardner Says:

        So, the numerous cases of fraud involving the FDA are what—figments of my imagination? Members of the government are just as capable, if not moreso, of committing fraud as anyone else. In fact, I’d daresay that fraudsters prefer working for the government because it gives them the benefit of authority.

        If a company is experimenting with a new drug, then they can state, honestly, what they are doing, what they know about the drug, and what they predict are the possible outcomes of treatment with that drug. They can certify with boards or organizations that they are making the statements with as best knowledge as they can on the subject, and have independently verified their results with these organizations. If the groups were to commit fraud, then people would discover this and no longer trust the organizations involved. With the FDA, we don’t have a choice in who we trust.

        Corruption is present in private and public sectors. We live in a world of corruption. If anything, the government is more corrupt because in the private sector, corruption leads to bankruptcy, and there is no interest in protecting the corrupt from the law.

        I think this is where you liberals fail: you believe that somehow, in some magical way, when a man crosses the threshold into employment by the government, they earn halos and angel wings. Perhaps it would do well to tell you that republicans work for the government like democrats do. Maybe this will help you understand that government is not perfect, and corruption thrives there at least as well as it thrives anywhere, if not moreso.

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