I used to have a hound dog named Hank. Whenever I had to take ol' Hank to the veterinarian, I would call them up and schedule an appointment. If the vet suggested a treatment for Hank, I would ask, "How much will that cost me?" But Hank never asked about prices. I assume he didn't care about prices because he wasn't the one paying them. Hank would just obediently accompany me to the doggy doctor and accept whatever treatment was dished out. But I did care about the price. I had car payments, mortgage payments, groceries, utilities, and gasoline to buy. If there was a cheaper way to make sure Hank was healthy, I wanted to know about it. When consumers care about prices, businesses include price competition as part of their overall strategy to attract customers. But if people didn't care about the price, then the business would need not worry about offering a lower price than the next guy. Hank, as I said, did not care about the price. He had a third party (yours truly) funding his medical bills.
Most Americans don't care about price when it comes to healthcare expenses. Unless they are paying a co-pay or dishing out cash for prescriptions, they let a third party worry about the costs. We are dogs. We let our insurance company or the government haggle over price with the hospital. We are happy to avoid the whole discussion. And now no one will be allowed to represent themselves, as a human being would, when choosing the price of their medical care. Obamacare mandates that everyone be represented by a third party, or be forced to pay a fine. Insurance companies love this because they need the increased customer base to offset their skyrocketing costs. And hospitals love this because they can continue raising prices. Everyone wins! Except...the patients.
Whenever we obscure costs and prices, we are asking for a world of hurt. Human beings have a limited amount of resources available to them with which they can use to sustain themselves. We need food, water, shelter, and clothing. But we do not find infinite amounts of these things lying about like manna for us to merely gather up and enjoy. They are scarce resources. And how do human beings deal with the objective reality of scarce resources? By economizing them. This is why free market prices are crucial. Market prices convey information about the supply & demand of the items we wish to acquire.
Let's use the example of medicine on a hypothetical free market. In this hypothetical world we will pretend that there are only six categories of spending: Food, water, shelter, clothing, entertainment, and medical treatment. We will also say that there is a fixed amount of income for these industries: $1200. This money is split evenly across all industries so that they all receive $200 in a given time period. Now let's say there is a fire and it destroys a portion of the stock of medicine. Supply has decreased while demand has remained the same. Since there is less medicine, the prices rise. Now the residents of our hypothetical world are being asked to spend $300 on medicine. The residents must economize. They must reduce their spending in the other categories if they want to continue purchasing medicine. Let's say they decide to decrease their expenditures on entertainment by $100 in order to spend that $100 on medicine. The market prices are conveying that medicine is more urgently needed than entertainment and those who seek to make a living will now be led to enter the medical treatment industry. This will increase the supply of medicine and bring the price back down.
So why doesn't it seem to work this way in the real world? Why does the cost of medical care continue to rise even relative to inflation? Answer: The third party payer system.
A few years back, my daughter had an extended stay in the Pediatric Intensive Care Unit (PICU) at Cincinnati's Children's Hospital. My wife and I were eventually met by one of the hospital's financial counselors (for lack of a better term) about the fact that our little girl had almost reached her lifetime limit for medical costs that my insurance company would cover and that we would need to fill out some paperwork to apply for various kinds of government aid. After she had finished guiding us through the enormous stack of papers, I explained to her that we had spent an awful lot of money at that hospital and I wanted to know if there wasn't any possibility of receiving a discount. Surely the hospital had raked in far more than the costs of the services so far provided. She said that there was absolutely discounts available...for those who applied for welfare but were rejected because they don't meet the criteria. Basically, the hospital isn't going to take a fraction of the money when the government will give them the whole thing.
And what would have happened to poor Hank if I had been driven into destitution by those medical bills? The same thing that will happen to us when Uncle Sam goes broke.
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