Med Econ 101

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The truth is, “Marketplace medicine” may not work. Are we asking the tough questions about health care economics? 

When I was born, health care constituted about 3% of the gross national product. This year, it’s going to be between 17 and 18 percent. It’s the largest single business in America. There is probably no way we can stop it from going to 20% of the GNP. What we’ve done is run a major industry as if it was a bunch of mom and pop stores. We’re talking about the largest single industry in the world; we need to ask some serious economic questions.
 One of the questions we need to ask is this: Does health care fit the free market model?
I am a true Adam Smith economist. I believe in the marketplace. But medicine is not a good market product. One problem is that consumers don’t know the difference between what they need and what they want. Americans who have insurance have gotten used to services which are probably a waste of time and cost way too much money. No one asks a patient if they can afford the treatment, or what is the most cost-effective way to get from point A to point B.
Another problem is that the purchasing of health services has an intermediary – a doctor – who, to a great degree, decides what health services are given out. And doctors have a financial interest in those services. Think about it: if you come in with your child and the doctor says they need a CAT scan, what is your argument position? You don’t have one. Basically you say, “Thank you, Doctor, get one quickly.” So that means that the true purchase of health care has a totally different intermediary than any other purchase.
Another reason that health care doesn’t fit the market mold is because of insurance. With every other product you buy, you ask a simple question: Can I afford it? When you have insurance, people think that the sky is the limit. They want you to be cost effective on everyone but them. Nothing else in the country is given out this way. Why should we do it with health care? After all, if we had a food policy that said that you could eat anywhere, I would prefer to eat at the Café Des Artiste in New York and not at the McDonalds down the street.
Lastly, to fit health care into the market model, we have to understand the consumer, which means coming to grips with the fact that we are a seriously aging nation. The shift in the demographics of the United States has been nothing less than remarkable. When I was a kid, men died on average at age 65. They retired at about 62. It was really a very nice system; they retired and then they died. But now, if a male is expected to live to 79, he can’t retire at 62 and expect that somebody is going to pick up his costs until 80. This is called the shift in the dependency ratio. Without a firm understanding of the dependency ratio, how it works and what it means, you cannot decide on governmental services.
I don’t care who the new president is, they need to discuss the dependency ratio question with the American people. How many people are going to be sitting in the wagon, and how many people are going to be pulling the wagon? When my parents came to this country as immigrants, there were about 3.5 people pulling the wagon for every one sitting in it. Now that ratio is about 1.7 to 1, and we’re continuing to move, in a sort of socialist mentality, to putting more people in the wagon, with not enough people pulling. Bottom line: you can’t expect it at the distal end unless you properly fund it at the proximal end. I think that this is where the real struggles are going to be going forward, and anyone who doesn’t understand the shift in the dependency ratio and the fact that as we age, our use of health care services goes up logarithmically, is quite frankly an economic idiot.


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