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Wednesday, June 06, 2007

Health Care is Messier than You Think

I was reading this article, from today's New York Times, wondering why the heck skyrocketing health care costs are blamed on insurance. Is it the lack of insurance? Is it the overhead? Is there some kind of incentive problem I'm missing?

The article suggests that rising health care costs are caused by an expansion of insurance coverage, not the usually cited lack of coverage. It seems to me that the costs of treating those without insurance (and those that will not pay) is more palatable to the public, but less of a problem than expanded insurance coverage.

Why? Increasing insurance coverage increases incentives for hospitals to do risky, costly (but highly profitable) procedures. The lumbar fusion cited in this story is an excellent example. The problem is, I think, that we've hit some kind of inelasticity... that is, as coverage becomes (slowly) more available, costs increase disproportianately so that those still without insurance "can't afford treatment," and hence our current dilemma.

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