Medical costs in America

Americans seem to be shocked that medical costs continue to soar. Many companies are paying almost $1000 each month to pay insurance premiums for each employee. Medical costs have increased faster than inflation for some years now. With the upcoming presidential election, Americans are sure to hear more about medicine's spiraling costs and proposals to solve the problem.

Like everything else, the Bible gives us an explanation of the human reason why medical costs are exploding. In Job 2:4, God records for us that Satan says. "All that a man hath will he give for his life." In other words, when it comes to medical care people do not follow normal economic principles that keep down the cost of other things. Let me explain.

The first principles of economics revolve around supply and demand. When supply is higher than demand, prices fall. When demand is higher than supply, prices rise; and when demand and supply are equal, prices are stable. When this basic understanding of economic principles are applied to Americans' current medical situation, it may seem apparent that the price of medical care has exploded because demand has not kept up with supply.

In reality, it is not a constriction in supply that has raised prices, it is that Americans demand premium health care. Because a man is willing to give everything he has to preserve his life (and his health, if possible), it is not surprise us that medical costs are rising.

Let's take two examples: an older man with good health insurance buying a car and the same man facing cancer treatment. As the man goes out to buy a car, he examines his options and his budget. Even if he is willing to buy his car on credit, his choices are limited by his budget. If he is middle class, it is unlikely that he will try to buy an S-class Mercedes-Benz. He may want one, he may think that it is the best car for his money, but he remains financially constrained by his average budget.

Now let's imagine that his doctor tells him that he has lung cancer. If he has good health insurance, it is unlikely that as he looks at his options that he will consider the costs. Especially if the prognosis is grim, he will expect his insurance to spend any amount of money in an effort to save his life. In fact, one common complaint against medical insurance groups is that they refuse to pay for experimental (and usually expensive) medical treatments. In other words, most Americans do not think that cost should be a factor in choosing medical treatment. So it is now surprising that medical costs continue to increase.

But let's imagine a more interesting scenario. Two brothers both of whom developed diabetes in their late 40's. Both are overweight and do not eat right. Both go to their doctors and receive a prescription for medicine (not insulin) that will help their bodies control their blood sugar. The medicine is expensive (hundreds of dollars a month) but since much of the cost of the prescription is paid for by their insurance, they choose to go ahead and take the medicine. Because they do not lose weight and continue to eat poorly, their diabetes worsens. Eventually, their doctors suggest that they should just begin to take insulin. It is inexpensive and effective in controlling the worst effects of their disease. One begins to take insulin, and his insurance pays for the bulk of the cost. He really does not even consider the cost.

However, his brother does not want to be dependent on insulin for the rest of his life. Also, he is considering leaving his job and realizes that should he decide to buy his own health insurance being an insulin-dependent diabetic will raise his future insurance rates. So he sees a doctor who tells him that through proper diet, losing weight, and exercise, he can control his blood sugar without insulin. The brother makes major diet changes, begins to spend several hours a day walking, loses fifty pounds, and soon has his diabetes under control without drugs or insulin. Since his employer pays his medical insurance premiums, he only sees a small savings in his medical costs. His insurance company, however, will see significant savings over his lifetime - none of which the brother will realize unless he leaves his job and becomes self-insured.

Now imagine that the American government decides to provide universal health care for all of its citizens. The two brothers mentioned in the scenario above would have almost no financial incentive to control their diabetes through diet and exercise.

In such a scenario where the federal government with its supposedly deep pockets is paying for health care and removes most financial incentives to preserve one's health without the use of drugs or invasive surgery, there will be little reason why all Americans will not demand premium health care.

Since this is the case, our government will be faced with two basic choices to keep costs down. One possibility is that the government could try to introduce price controls. Americans do not realize that they subsidize medical research for the rest of the world. Most new drugs and most new medical procedures are developed in the United States. The drug companies, doctors, and hospitals try to recoup the costs of developing the drug or procedure in the United States before exporting it to other countries.

This means that Americans receive premium health care. Yes, other nations may have less disease and better overall health because the focus in those countries is on preventing disease rather than curing it. But when it comes to curing disease, America has the world's best - and most expensive - health care.

This means that American doctors also focus on supplying cures rather than controlling causes. The current system simply does not provide enough incentive to preventing disease. Smoking pay only marginally higher costs for health care, the obese do not have significantly higher costs, people with high cholesterol do not face daunting bills. As long as such a situation continues, Americans will continue to persist in unhealthy lifestyles and expect their doctors to treat their symptoms. While there will always be health conscious people who seek to avoid disease, the current reality is that too many of us expect to eat what we want, do what we want, and live without thinking about our future health. When diabetes, heart disease, cancer, and other illnesses occur, we expect that our medical system will go to extraordinary lengths to restore our health and prolong our lives.

The second way that the federal government could control costs is through rationing care. This is common in socialist countries where people often have to wait months for common surgical procedures such as hip replacements or heart surgery. While the such governments do not publish ration books or coupons, they ration care by only paying for a certain amount of such procedures.

So there are only three basic solutions to the health care funding crisis in America:

1. Financial incentives and disincentives to cause people to search for non-medical ways such as diet and exercise to preserve their health. I do not think that most Americans are willing to go this route. It seems unjust to Americans that they should have to consider the cost when choosing medical treatments. Should I undergo chemotherapy and spend my life savings or should I die "prematurely"? Such questions seem abhorrent to Americans.


2. Government or insurance company rationing of health care. This was tried back in the early 90's when HMO or health maintanence organizations tried to control costs by preventing illness and restricting patient access to expensive medical drugs and procedures. Americans found this to be "unreasonable" and health care costs soared from there. Some may point out that even during the zenith of HMOs health care costs continued to rise. This is true: but they continued to rise because Americans resisted having their health care rationed. The purpose of this post is not to support HMOs or their practices, but if Americans want cheaper health care they will have to make a decision to increase supply (and decrease quality) or decrease demand (which they have proven unwilling to do.


3. Government intervention to control health care costs. Obviously, as financial incentives for finding new drugs and procedures become more scarce, such research will slow significantly. Are Americans willing to wait decades for research into curing Alzheimers and other diseases to progress.

My advice is for Americans to begin to look for ways to prevent disease and cure causes rather then treat symptoms.