Faulty Thought, Version 1.0: Healthcare

The debate over health insurance in the US continues to rage. No one likes any of the solutions proposed by anyone very much. But it’s not the solutions that are the problem; it’s the nature of the debate. When did we become obsessed with health insurance, versus health care? This reminds me of the basis of most magic tricks: distraction.

The very nature of this debate proves that market forces are long gone from the health care industry. We don’t even think of health care in terms of market forces any longer. But here is one that should enter the debate: the supply of health care. Heretofore, we have only spoken of the demand for health care; nary a soul brings up the supply. Yet, the laws of supply and demand cannot be repealed. If legislation increases the demand for healthcare, and the supply of it does not change, then the price will rise.

Take nursing. The supply of nurses is restricted in the US because of aging faculty, aging teaching facilities, just plain not enough teaching facilities, and retirements of practicing nurses. The shortfall that’s been brewing here is about to become a crisis, as aging baby boomers further stress a system that isn’t working very well. Some 80,000 qualified nursing school applicants were turned away in 2012 due to facilities shortages; this is the latest number I could find, but that’s up from under 70,000 a few years earlier, so it’s a good bet the number is far higher now.

What about hospitals? Well, the number of hospitals in the US has been sliding for decades. In 1975, there were 7156 registered hospitals in the US. In 1995, there were 6291. Now there are 5564. Not good from a supply perspective.

And the US graduates close to 18,000 doctors every year, year in and year out, with very little change for decades. With retirements looming for this cohort too, the number of physicians may well decline in years to come, not increase.

Aside from the miserable supply/demand statistics – which should cause us to demand some different policies from our legislators – there is zero price transparency in the medical field. Consumers cannot order a ‘menu’ of services showing prices, as everyone expects for, say, a restaurant. Why not? One reason is that there’s no incentive to shop or even understand prices if the buyer is not paying for the service. In fact, with mandated insurance, there’s actually an incentive to purchase more services, to make the insurance ‘pay for itself’. Furthermore, since insurers can only adjust prices for age and tobacco use, there is also nearly zero incentive to stay healthy and fit.

These things need to change before we have cost effective health care in the US. Unfortunately, I see no probability on the horizon that we’re going to have an all-inclusive debate on this topic. Future generations will be stuck with ever increasing bills for health services. In turn, when your family is paying through the nose for health care, you can’t buy much else, and the economy cannot grow as fast. Not a good outcome, for sure.