Case for Competition in Medical Services (from Bloomberg)

8.23.2010

Tell me a truly competitive market where prices have gone up long term, ¬†inflation adjusted? Hard to think of one…Tell me a market where the government interferes with pricing that prices have gone down long term, inflation adjusted? Hard to think of one…

From Bloomberg:

Why Baby Costs Less Down the Road in Silicon Valley

Apparently, the cost to deliver a baby differs by as much as ONE HUNDRED (expletive) PERCENT between Sacramento and Silicon Valley. This program however, is not local to California. The fact that the consumer often has NO IDEA what health services cost, and doesn’t care because of $5-50 copayments, means that there is no incentive to seek out more competitive prices. Just think – people will drive all day and barter to save $30 on a TV, but do nothing of the sort for medical purposes.

This is just one of many REAL reasons health care costs rise. Haven’t seen this one addressed seriously though in the public sector – Whole Foods is one company trying to tackle this problem on the corporate level as CDHP (consumer driven health plans) increase in use. I haven’t read the 3,000 page health care plan but I’m sure something in there ensures no free market pricing in health care – in fact I’m sure there are provisions dictating the costs of services.

I always find that amusing that in a $14 trillion economy, and specifically in this $1.7 trillion portion of the economy, that voters actually think that a group of people, with Masters Degrees, are smart enough to pick the “right” price for a good or service (happens in many areas, not just health care – think sugar, electricity, etc). I know I’m not smart enough to pick the right price, but thankfully, we have these geniuses.

What ends up happening in a government controlled market is that either supply suffers or demand is not enough. In health care, supply will suffer as more doctors either quit or move to Asia where a US medical degree is coveted. Seniors and other frequent users of health services should expect longer lines to see the doctor in the coming years. I also expect that the government response (highly predictable) will be to create “programs” to TARGET an increase in primary care physicians (here we go again with those masters degrees trying to control supply and demand), the same PCP’s they drove out of the business!

It’s amazing that something so comical is true…