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Thread: Why is healthcare prohibitively expensive in the US?

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    Why is healthcare prohibitively expensive in the US?

    As you may know, the costs of healthcare are going up faster than GDP. Healthcare in the US is getting rather expensive these days.

    Supporters of universal healthcare typically say that since healthcare is a basic necessity, prices do not affect demand because without it, people will die. The economic term for how much demand changes relative to price is price elasticity. To their credit, healthcare is an inelastic good (demand changes more slowly than price), but on the other hand, it isn't the only one.

    Other examples of inelastic goods are gasoline, clothing, recreational drugs (including tobacco), and to some extent, food and water. And yet, we don't see companies price gouge on gasoline, clothing, food, or water. Now maybe one could make the case that water utilities are heavily regulated or are owned by municipal governments and most recreational drugs are illegal but what about the others?

    Although the cost of food has gone up in the last generation or so, it didn't do so by nearly as much as healthcare. When food (or drinks) get close to expiration date, they go on sale. In fact, sometimes when they're not close to expiration date, they go on sale. Clothing likewise is not being price gouged.

    Oil is considered an inelastic good because it's necessary to power our cars. Sure, electric cars exist, but the market is only in its infancy. But despite the importance of oil, prices aren't constantly on the rise, even with growing demand. Rather, they fluctuate, even though most oil reserves are in OPEC countries.

    So why don't the markets of other inelastic markets see a great amount of price gouging? The answer is competition. If Safeway charges too much for groceries, shoppers will simply look elsewhere. If one gas station charges too much for gasoline, people will go to other gas stations. The markets for clothing likewise don't price gouge because there is competition. Thes markets are inelastic, if the price rises by a lot, there will still be a great deal of demand for them. An inelastic market will be able to maintain fairly small prices so long as there is competition. Thus it is worth asking why we don't see the same in healthcare.

    It would perhaps be fallacious to say that healthcare in the US is expensive purely because of the free market because it is one of the most heavily regulated sectors in the US economy.

    If this Forbes article is to be trusted, the US government is limiting the number of physicians per year, causing a shortage and thus raising the cost of medical care due to lobbying on the part of the AMA. The government has also restricted the establishment of medical schools. Foreign doctors have to redo their residencies, regardless of how long they have been practicing, to legally practice in the US.
    The Evil-Mongering Of The American Medical Association

    Another problem is prescription drug medication. Thanks to patents, prescription drug companies have the license to price gouge their consumers without fear of competition. Some argue that the patent system guerantees that drug manufacturers will make a profit after developing the drug. The problem with this notion is that the big prescription drug companies spend more money on marketing than on R&D.
    https://www.washingtonpost.com/news/...=.be4ebaf0521a

    Which brings me onto my next point. The FDA puts a long and burdensome process on getting drugs approved. While it may be with best of intentions, it has effectively prevented many would be useful drugs from coming onto the market. Big pharmaceutical companies have little trouble complying with these regulations but smaller companies are effectively crowded out.

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    Re: Why is healthcare prohibitively expensive in the US?

    Quote Originally Posted by Masterhawk View Post
    As you may know, the costs of healthcare are going up faster than GDP. Healthcare in the US is getting rather expensive these days.

    Supporters of universal healthcare typically say that since healthcare is a basic necessity, prices do not affect demand because without it, people will die. The economic term for how much demand changes relative to price is price elasticity. To their credit, healthcare is an inelastic good (demand changes more slowly than price), but on the other hand, it isn't the only one.

    Other examples of inelastic goods are gasoline, clothing, recreational drugs (including tobacco), and to some extent, food and water. And yet, we don't see companies price gouge on gasoline, clothing, food, or water. Now maybe one could make the case that water utilities are heavily regulated or are owned by municipal governments and most recreational drugs are illegal but what about the others?

    Although the cost of food has gone up in the last generation or so, it didn't do so by nearly as much as healthcare. When food (or drinks) get close to expiration date, they go on sale. In fact, sometimes when they're not close to expiration date, they go on sale. Clothing likewise is not being price gouged.
    One problem with healthcare is that it is service-based. With most things, we can use automation to reduce prices. But with healthcare, doctors and nurses can't be easily automated. They also are highly paid and have large hourly fees. In addition healthcare uses a lot of expensive new drugs and technologies often with patents and often with little competition for individual products. Healthcare providers also don't show their prices before providing their services and have very complex pricing. So its hard to really compare different options especially when healthcare services can be so varied. healthcare providers often don't charge prices that have anything to do with the cost of care and will simply charge as much as people are able to pay. Insurance companies negotiate with hospitals but only the large ones can get good deals because they need large provider networks to be competitive. Healthcare is also an inelastic product and people will often not care about price when choosing healthcare especially when insurance companies pay for a lot of their care. They will often spend a lot of money on expensive treatments especially at the end of life and insurance companies cover a lot of that which heaps a large cost on insurance payers. Americans also also having a big obesity epidemic that is overburdening our healthcare system. We have so many states with different regulations and healthcare providers negotiating with insurance companies with complex policies that creates a lot of red tape and results in 25% of healthcare costs going to administrative cost. We do have many problems created by the government but the private market creates problems too and just isn't able to limit prices.

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    Re: Why is healthcare prohibitively expensive in the US?

    I don't have an opinion on admission rates for medical schools, but drug approval is necessary, and arguably too easy as is. It's simply too easy for manufacturers to get drugs that are dangerous and/or unhelpful approved (e.g. SSRIs).

    The best solution for high medical costs would likely be direct limits on drug prices.

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    Re: Why is healthcare prohibitively expensive in the US?

    Quote Originally Posted by AmNat View Post
    but drug approval is necessary, and arguably too easy as is. It's simply too easy for manufacturers to get drugs that are dangerous and/or unhelpful approved (e.g. SSRIs).

    The best solution for high medical costs would likely be direct limits on drug prices.
    The problem with this view is the seen and the unseen. You see the damage that faulty drugs which do go through cause but you don't see the help that drugs which didn't make it through would have done.

    Perhaps a better solution would be to make drug approval optional but to require the label "not approved by the FDA" for any drugs which are not approved.

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    Re: Why is healthcare prohibitively expensive in the US?

    Quote Originally Posted by Masterhawk View Post
    The problem with this view is the seen and the unseen. You see the damage that faulty drugs which do go through cause but you don't see the help that drugs which didn't make it through would have done.

    Perhaps a better solution would be to make drug approval optional but to require the label "not approved by the FDA" for any drugs which are not approved.
    That's a fair point. The current process just measures a manufacturer's ability to spend lots of money. Making a approval optional would be one possibility, but I think a better option would be to change the approval process so that it's less expensive, and so that it actually requires that a drug work and be safe (e.g. require all clinical trial data to be reported, require all clinical trials to take place in the US). Of course, that would require the government to not be corrupt, which is a non-starter.

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    Re: Why is healthcare prohibitively expensive in the US?

    The cost issue with healthcare lies solely in the fact that it is a for profit system, along with the pharmaceutical companies and our insurance companies.

    Because they know they're going to get their money, healthcare and pharma can price gouge like crazy, and they do, and insurance companies are such a racket that they still make out with yearly record profits even when paying out the exorbitant costs of the things they pay for.

    also, if you think oil prices aren't gouged, you're being silly.

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    Re: Why is healthcare prohibitively expensive in the US?

    Quote Originally Posted by Masterhawk View Post
    As you may know, the costs of healthcare are going up faster than GDP. Healthcare in the US is getting rather expensive these days.

    Supporters of universal healthcare typically say that since healthcare is a basic necessity, prices do not affect demand because without it, people will die. The economic term for how much demand changes relative to price is price elasticity. To their credit, healthcare is an inelastic good (demand changes more slowly than price), but on the other hand, it isn't the only one.

    Other examples of inelastic goods are gasoline, clothing, recreational drugs (including tobacco), and to some extent, food and water. And yet, we don't see companies price gouge on gasoline, clothing, food, or water. Now maybe one could make the case that water utilities are heavily regulated or are owned by municipal governments and most recreational drugs are illegal but what about the others?

    Although the cost of food has gone up in the last generation or so, it didn't do so by nearly as much as healthcare. When food (or drinks) get close to expiration date, they go on sale. In fact, sometimes when they're not close to expiration date, they go on sale. Clothing likewise is not being price gouged.

    Oil is considered an inelastic good because it's necessary to power our cars. Sure, electric cars exist, but the market is only in its infancy. But despite the importance of oil, prices aren't constantly on the rise, even with growing demand. Rather, they fluctuate, even though most oil reserves are in OPEC countries.

    So why don't the markets of other inelastic markets see a great amount of price gouging? The answer is competition. If Safeway charges too much for groceries, shoppers will simply look elsewhere. If one gas station charges too much for gasoline, people will go to other gas stations. The markets for clothing likewise don't price gouge because there is competition. Thes markets are inelastic, if the price rises by a lot, there will still be a great deal of demand for them. An inelastic market will be able to maintain fairly small prices so long as there is competition. Thus it is worth asking why we don't see the same in healthcare.

    It would perhaps be fallacious to say that healthcare in the US is expensive purely because of the free market because it is one of the most heavily regulated sectors in the US economy.

    If this Forbes article is to be trusted, the US government is limiting the number of physicians per year, causing a shortage and thus raising the cost of medical care due to lobbying on the part of the AMA. The government has also restricted the establishment of medical schools. Foreign doctors have to redo their residencies, regardless of how long they have been practicing, to legally practice in the US.
    The Evil-Mongering Of The American Medical Association

    Another problem is prescription drug medication. Thanks to patents, prescription drug companies have the license to price gouge their consumers without fear of competition. Some argue that the patent system guerantees that drug manufacturers will make a profit after developing the drug. The problem with this notion is that the big prescription drug companies spend more money on marketing than on R&D.
    https://www.washingtonpost.com/news/...=.be4ebaf0521a

    Which brings me onto my next point. The FDA puts a long and burdensome process on getting drugs approved. While it may be with best of intentions, it has effectively prevented many would be useful drugs from coming onto the market. Big pharmaceutical companies have little trouble complying with these regulations but smaller companies are effectively crowded out.
    You hit the nail on the head here. There has been a doctor shortage in this country for years now, and why not? Everyone who goes to college sees what doctors are put through, and the demands placed on them. I'm sorry, but no profession should require someone to go without sleep and work for 36 straight hours. Doctors get paid a lot for this(and many other) reasons. We simply need more doctors in this country, and people at the top aren't letting it happen.

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    Re: Why is healthcare prohibitively expensive in the US?

    There are several reasons why America's "socalled" Healthcare System is prohibitively expensive.

    First and foremost is the high-cost of a medical diploma! In Europe, these diplomas - across the board of medical learning - are nearly free, gratis and for nothing. However, that is not the case in the US. From here:
    The median four-year cost of medical school (including expenses and books) was $278,455 for private schools, and $207,866 for public schools in 2013 according to the Association of American Medical Colleges.
    Which means that doctors working as GPs have a average income close to $200K a year! Comparing that to elsewhere in the world is not easy, because recent data does not exist. However, I managed to find this in the NYT (dated 2009):


    As you can see, the salary for doctors in the US - a the GP level - in the above infographic is about $50K less than the actual salary today (ten years later). I doubt however the one could say the same for salaries in EU countries. In fact, because salaries are largely determined in EU countries by National Healthcare Systems, I'll bet they've not moved at all. (Here in France, it costs me about $30 to just see a doctor. How much do you pay?)

    So, fellow Yanks, if you want to both enhance your availability of decent healthcare AND want to pay far less, then somehow vote into office people who will want to provide such across the country. And, then, but only then, will you have a chance to live as long a life-expectation as we do here in Europe!

    At present national life-expectancy comparisons look like this:
    Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them; then neither persons nor property will be safe. (Frederick Douglass)

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    Re: Why is healthcare prohibitively expensive in the US?

    Quote Originally Posted by Masterhawk View Post
    It would perhaps be fallacious to say that healthcare in the US is expensive purely because of the free market because it is one of the most heavily regulated sectors in the US economy.
    That is not the reason why healthcare is so expensive.

    It is expensive because healthcare is seen to be like a commodity that responds to the law of Supply&Demand. Were prices regulated, GPs would not be making $200K a year.

    And people covered by National HC Insurance quite likely lifespans would not be 4-years lower than here in Europe ... ?
    Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them; then neither persons nor property will be safe. (Frederick Douglass)

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    Re: Why is healthcare prohibitively expensive in the US?

    Quote Originally Posted by AmNat View Post
    I don't have an opinion on admission rates for medical schools, .
    Well then I'll use yours. Admission to medical school is a joke. It needs top be changed.
    The more I get to know people the more I realize why Noah only let animals on the boat.

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