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Why Does Health Care Cost So Much?

November 14, 2014

A recent article in Time magazine by Steven Brill documents the enormously high prices we pay in this country for health care, including the markups and significant profits of “nonprofit” hospitals. For example, M.D. Anderson marked up an anti-cancer drug some 400 percent. Stamford Hospital billed an individual $8,000 for a test that Medicare would have reimbursed at $600. Blood tests are often marked up by more than 1,000 percent over verifiable costs. Brill’s article is 28 pages long and includes dozens of examples.

This brings up some important questions. Shouldn’t the focus in health care policy be aimed at understanding why health care costs so much? Wouldn’t the answer determine the right policies to pursue? If we bring down costs, wouldn’t many of our concerns about the cost of care and access to insurance be addressed?

Brill concludes, correctly, that there is no true health care market. He’s incorrect, though, in his belief that the nature of health care keeps one from forming. In reality the heavy hand of government stops a health care market before it can start. From licensing regulations that raise costs and limit competition, to the income tax policy that encourages employer-provided health insurance and keeps us from being informed and inquisitive consumers, to Medicare and Medicaid, which cause millions of Americans to treat health care as if it were free, the lack of a market in health care results from short-sighted government policies.

One policy worth pursuing is Arizona’s Senate Bill 1115 which would require disclosure by doctors and hospitals of cash-pay prices to patients who ask. This regulation on hospitals and doctors, who have a highly-privileged place in a highly-regulated industry, is hardly onerous given that if they were in a real market, they’d have to reveal prices and compete for business. This small step towards making more information available to consumers is the least policymakers can do.

Learn more:

Goldwater Institute: Removing the Middleman: What States Can Do to Make Health Care More Responsive to Patients

Goldwater Institute: Nonprofits in Health Care: Are They More Efficient and Effective?

Time: Bitter Pill: Why Medical Bills Are Killing Us

The Atlantic: How American Health Care Killed My Father



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