What has made health care so expensive?

[Barboo]

Here is the very first topic posted to our Healthcare Reform Forum. It's a question that needs a sound answer before we can find a sound solution.

Please remember, this forum is about seeking facts and trying to work out what is the truth, not about winning debating points!

If we all keep that in mind, we should be able to make this forum an honest and valuable thinking tool for all of us.

[priches]

Though I am for capitalism all the way, there is one place where I believe "for profit" should take a back seat. And that is with Healthcare. When you put health in the profit column, you come up against the issue of:

Whose health is more important? A person that has unlimited monetary resources or the penniless person?

All life is important ... money does not elevate one's importance.

Unfortunately, the way our healthcare is run, by the insurance companies, that [i.e. money] seems to be the bottom line.

How does one increase profit? [Companies] must have a good bottom line and profit for their shareholders. To increase profit, you either must find more consumers, or raise prices. In healthcare, as prices rise, more consumers are unable to afford the care or insurance, therefore, they drop out ... which means for those that stay in ... the price goes up.

This seems to be a never-ending spiral at this point. There are no checks and balances for regulation of the insurance companies, the "for profit" hospitals, or private doctors. The so-called managed care companies that monitor a consumer's medical expenses, do not do this to help bring down the cost of medical treatment for consumers, but to regulate how much the insurance company has to pay out, in order to MAKE A PROFIT, thus they frequently deny consumers access to medical treatments they deem, TOO EXPENSIVE.

So the circle goes round, chasing after the golden profit, making good healthcare an almost unreachable goal for a majority of Americans.

I have "good" insurance, but to be honest, if I was diagnosed with a disease such as cancer, I don't know if I could afford it, even with the health insurance I currently have.



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(BARBOO, PRODOS) Moderator's notes:
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[prodos]

How does one increase profit? [Companies] must have a good bottom line and profit for their shareholders. To increase profit, you either must find more consumers, or raise prices.

Some brief reflections on what actions can increase or reduce profits ...

Profits can sometimes be be increased by reducing prices - rather than raising them. A lower price may mean a smaller profit per item, but it may lead to many more people buying the product, which can result in an overall higher profit for the business.

Increasing the price of goods or services can lead to lower profits if it causes enough customers to fall away.

Profits can be increased by keeping the price the same but reducing production or delivery costs. Such production or delivery costs can be reduced by removing a feature, or by developing a new technology or method which uses less labor or a cheaper form of labor or less energy or a cheaper form of energy or less of some other costly ingredient.

One way of reducing labor costs is through machinery. The machinery can replace human labor.

(The other thing is that machinery can allow each worker to produce - for the same effort - a lot more than he/she otherwise could.)

Profits can sometimes be increased by keeping the price the same but by selling to fewer people - rather than to more people.

If increasing the price of a product leads to quite high profits for a company, entrepreneurs and investors will seek to enter the market of that profitable company and "compete" with it.

These new competitors don't directly "compete" with the profitable company. They "compete" in the sense of trying to win over some of the customers of the profitable company. They "compete" for the customer. To win over those customers the competitor needs to offer some sort of incentive such as a lower price or a better product.

Therefore competition for customers can sometimes encourage a lowering of prices and lead to lower profit margins.

Competition for customers can sometimes encourage businesses to try to develop more efficient or effective technology in order to cut production costs and reduce prices further or to cut production costs, keep prices the same, but increase profits - even if only temporarily, until competitors start moving in.

Competition can encourage businesses to develop a whole new type of product and thus wipe out the old product from the market entirely (For instance, vinyl records versus cassette tapes versus CD's versus iPods, etc. For instance, when stainless steel replaced timber in food manufacturing equipment. For instance, when VoIP replaced some traditional telephone systems.)

(Aside: What's interesting is that when new technologies, methods, or materials develop in order to replace existing technologies, methods, or materials in one area they can also open up new and surprising possibilities in other areas. This can make possible what was previously impossible.)

An entrepreneur may see that a particular product or service being offered in New York is highly profitable. But it's not being offered in Chicago. Therefore the entrepreneur may attempt to set up a similar business in the unserviced city.

Now the product can be found in both cities. The product now has more customers. But the New York company has not increased its profits - even though it was that company's work which inspired the entrepreneur in Chicago.

A far more expensive product that can do much, much more than the existing product may win over more customers than a cheaper product that does less. For instance, laser eye surgery is much more expensive than a pair of glasses, but for some people it offers such great advantages that they prefer it.

Increasing taxation or "red tape" can increase the cost of producing a product. This may lead to increasing the price of the product without increasing the profit the business makes.

Conversely, reducing taxes or regulatory "red tape" can decrease the costs of production and make it possible to reduce the price or to keep the price the same and increase business profit.

High litigation costs can increase the costs and therefore the price of products and services. And they can reduce or even wipe out profits.

Laws preventing entrepreneurs from competing with an established business can lead to prices being higher than they might otherwise be since the protected business is not compelled to compete on price, and therefore may maintain higher than otherwise profit margins.

At the same time such protected businesses have little incentive to try to develop new technologies or methods or better products which might be beneficial to the public. Also, because they do not fear that their customers might go shop elsewhere, service and responsiveness to the wishes of consumers may be diminished.



Best Wishes,

PRODOS