Wednesday, July 29, 2009

Ten Questions on the Health-Care Overhaul


Here's an interesting article from the WSJ on health care reform. Examination of the graphic below highlights one of the key problems with the current system.

The center graph plots the share of costs paid by three parties; the taxpayer, private insurance, and individuals. From 1970 to now, the individual's out of pocket costs have declined from over 30% to around 10%. Now if costs of a good or service are paid by "somebody else", how does that effect your use of said product? The price signal is severely altered, and thus the system does not have efficient feedback for optimal allocation of resources.

Never mind that the "somebody else" may ultimately end up being you again with higher taxes and/or deficits and/or inflation and/or insurance premiums. Bottom line, someone is picking up the tab. I certainly am no expert on health care, but it seems to me if much of this disconnect was removed the system would function better. Shifting around who pays for care will not fix anything. The underlying reasons for escalating costs must be addressed.

2 comments:

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