Sunday, September 12, 2010

Is healtcare expensive because YOU don't pay enough of the price? I am just the messanger...

If someone else (lets call them a "third party") is paying a portion of the purchase price for something you need/want do you care about how much the total purchase price is? Do you care even less if this third party pays a continually larger portion and you pay a continually smaller portion?  The graph below shows overtime the relationship between what individuals pay at the point of service for health care  relative to what third parties pay for the service.  Prices convey a lot of information but when they become obfuscated by time and distance between the contracting parties, then price distortions tend to set in.   
Source: Carpe Diem
 I can use myself as an example. I have had a series of steroid injections in my lower back for pain.  It required outpatient services, anaesthesia, etc.  I paid my minimal co-pay and the insurance company was billed for the rest. Although I teach economics and know better, I had no incentive to find out how much the total bill came to.  Didn't need to.  The hospital and I were the original contracting parties and I paid the required "price".  Now the bill becomes separated from me by time and distance and the "third parties" now negotiate the price.  Local knowledge starts to dissipate, except for the  hospital that is now contracting with far-off (in time and distance) insurance companies. If I had been a medicare patient, then the third party would have been the Federal Government.  I am not suggesting this is the whole problem with health care costs, but it is a rather large slice.  It is not talked about much in the media, so I hope this helps you to understand another piece of the puzzle in the debate a little more...
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