Monday, August 24, 2009

The economics of heath care

Tigerhawk links to an excellent article in the Atlantic on health care. From the article:
All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value.
But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is.
There was nothing natural or inevitable about the way our system developed: employer-based, comprehensive insurance crowded out alternative methods of paying for health-care expenses only because of a poorly considered tax benefit passed half a century ago.
Is this really a big problem for our health-care system? Well, for every two doctors in the U.S., there is now one health-insurance employee—more than 470,000 in total.
Many hospitals still exist in their current form largely because they are protected by regulation and favored by government payment policies, which effectively maintain the existing industrial structure, rather than encouraging innovation.

Read the whole thing if you want a good summary of why health care is the mess that it is.

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