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Brooks Wilson's Economics Blog: Sowell on the Cost of Medical Care

Wednesday, November 4, 2009

Sowell on the Cost of Medical Care

Thomas Sowell wrote a very good article, "The "Cost" of Medical Care" for Real Clear Politics.  He uses economic ideas of economic cost rather than accounting cost, opportunity cost, and cost shifting to evaluate current health care reform proposals.  I originally intended to include a graph to illustrate a few of his points, but like the Fonz from Happy Days who looks in a mirror as he pulls out his comb only to find that he cannot improve upon perfection withdraws his comb, I reread the article and withdrew the graph.  The article is good and deserves to be read in its entirety.  I quote at length.
We are incessantly being told that the cost of medical care is "too high"-- either absolutely or as a growing percentage of our incomes. But nothing that is being proposed by the government is likely to lower those costs, and much that is being proposed is almost certain to increase the costs.

There is a fundamental difference between reducing costs and simply shifting costs around, like a pea in a shell game at a carnival. Costs are not reduced simply because you pay less at a doctor's office and more in taxes-- or more in insurance premiums, or more in higher prices for other goods and services that you buy, because the government has put the costs on businesses that pass those costs on to you.
Costs are not reduced simply because you don't pay them. It would undoubtedly be cheaper for me to do without the medications that keep me alive and more vigorous in my old age than people of a similar age were in generations past.

Letting old people die would undoubtedly be cheaper than keeping them alive-- but that does not mean that the costs have gone down. It just means that we refuse to pay the costs. Instead, we pay the consequences. There is no free lunch.

Providing free lunches to people who go to hospital emergency rooms is one of the reasons for the current high costs of medical care for others. Politicians mandating what insurance companies must cover is another free lunch that leads to higher premiums for medical insurance-- and fewer people who can afford it.

Despite all the demonizing of insurance companies, pharmaceutical companies or doctors for what they charge, the fundamental costs of goods and services are the costs of producing them.

If highly paid chief executives of insurance companies or pharmaceutical companies agreed to work free of charge, it would make very little difference in the cost of insurance or medications. If doctors' incomes were cut in half, that would not lower the cost of producing doctors through years of expensive training in medical schools and hospitals, nor the overhead costs of running doctors' offices.

What it would do is reduce the number of very able people who are willing to take on the high costs of a medical education when the return on that investment is greatly reduced and the aggravations of dealing with government bureaucrats are added to the burdens of the work...

Any one of us can reduce medical costs by refusing to pay them. In our own lives, we recognize the consequences. But when someone with a gift for rhetoric tells us that the government can reduce the costs without consequences, we are ready to believe in such political miracles.


  1. Mary Catherine Driese4/11/09 7:36 PM

    It's very hard to put a cost on a human life. On one hand, no cost is too dear for say, a family member dear to us. But the fact is, almost everyone has a family member dear to them who is believed to "need" such-and-such treatment, or "needs" to live to a ripe old age of 90. Healthcare's existence is not only a fiscal matter, but an ethical matter as well.

  2. The value of a human life is one thing and the cost of health care is another. Government won't value human life more than family members, nor will it reduce the cost of healthcare.

  3. Zach Dickerson8/11/09 8:43 PM

    I have a great grand mother on these expensive medications, and i believe with out these she would not be alive today. It shouldn't be the government decision whether she lives or dies.

  4. Jonathan Diep10/11/09 8:08 PM

    I agree with Sowell's view of medical care. Medical care prices are high because people are looking for more without any trade-offs.