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Saturday, September 19, 2009

Health Care - It's Not Free (Duh), But It Can Be Provided Equally

Mankiw writes in the New York times that health care is not free - that is the main point of his article. He points out that, "At some point, someone in the system has to say there are some things we will not pay for." Great. That may or may not be true, but that has no bearing on whether such restrictions can be applied equally.

First, as long as we are willing to transfer resources from outside the health care industry to inside it, and/or we are willing to make the health care industry actually work (increase competition etc), there becomes an increasing possibility that we can pay for quality healthcare - for everyone.

Second, I have doubts that the mainstream econ talking point about health care technology as the real base reason for the skyrocketing costs. The reason is that the price trajectory should eventually FALL because of this invention, not rise. Like every other industry, when new technologies are introduced prices are usually quite steep, but then they almost always dramatically fall as costs of using recently 'released' technology falls. So why don't they in the health care industry?

1. The patent system creates monopoly power and encourages companies to focus on the 'next big technology' as opposed to focusing on improving on existing products. So, it's not the technology that is a base cause, it is the patent system. This is the 'dark' irony of the our patent system: it is supposed to encourage invention, but the very act of encouraging invention by creating monopoly power actually makes the market unsustainable.

2. Unlike every other developed country on Earth, the US allows direct commercial marketing and advertising for the newest technology/drugs which, when combined with the fact that consumers have no incentive to think about cost (since it's going to be passed on in many cases to insurance companies as Mankiw points out), consumers demand the next best thing - no matter the cost.

So maybe it's not the technology by itself that is the issue. Maybe it's the infrastructure that we've created that is the problem.

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