Everybody's Got One
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Wednesday, October 26, 2005

Prices vs Costs  

I was talking the other night with a friend whose mother is in the last year of her life, when the majority of health care costs are incurred. She has inoperable cancer, and recently moved into a nursing home (with occasional unexpected hospitalizations); the hospice is waiting down the road a ways. My friend is overwhelmed by her $3000 a month drug bills, which he regards as proof that health care is criminally overpriced, and the middle class is being screwed

I started thinking how to explain prices to him, how they only go down with less demand, or more supply, or competition between suppliers, none of which apply with health care (and would be worse under the single-payer monopsony he thinks would solve rather than aggravate his problem) ... but then I stopped short. He doesn't care about price, all he cares about is cost.

Specifically, his out-of-pocket costs.

And if there's a gap between his cost and market prices, he doesn't much care how it's bridged: government subsidy, private insurance, provider price caps, corporate philanthropy, anonymous benefactors ... he merely wants his costs to be lower. And if that causes prices to rise, he's okay with that ... for now.

And he doesn't even care if government subsidies raise taxes, because that comes from an entirely different pocket. (In fact, since it's withheld, it simply makes the pocket smaller. Automatically, every pay period.) Insurance premiums don't necessarily get factored in, either, whether they're withheld, or another bill that's due.

My friend isn't stupid. He's a bit foolish, but who of us isn't at times? One thing he definitely isn't, is a rational economic actor. And he isn't alone.

posted by Kelly | 12:52 AM link