Thursday, December 9, 2010

Health Care Costs And Worker Opportunity Costs

A comment I posted to "What's Cost Got to Do with It?" by Joseph T. Salerno on the Mises Daily blog:
Two points.

1. Health care costs, direct and insurance, were and continue to be a big issue, but they follow the same pricing principles mentioned. All the economic articles and research I have seen on the topic discuss, analyze, and provide solutions on the cost side of medical services and health insurance especially that costs are higher in the US than other countries and the US spends more per capita for medical services. They ignore the value to the consumer.

Like all other products and services, the price paid is determined by the value to the consumer. The US has very high GDP per capita and very high productivity rates. These factors would make a worker's opportunity costs, on average, high in comparison to other countries.

With a high opportunity cost, one would expect US medical prices would be higher than other countries as long as the higher price lowers the opportunity costs of medical services to the consumer. Delays caused by waiting for doctor appointments, specialist appointments, medical tests scheduling (such as MRIs, etc.), use of less efficient older technologies, use of older less efficient drugs that require re-treatment, lost productivity from the medical condition, etc. have a high opportunity costs for American workers (who often also have to take off work time to care for an ill child, parent, or spouse). Using new, efficient (in the sense of diagnosis time and treatment) technologies and decreasing the total time (and opportunity cost including lost productivity) to the consumer from the first phone call for an appointment to final result is expensive and will result in higher US medical costs. Most looks at other country medical services find the US had shorter wait times, newer technology to speed diagnosis and treatment, newer, more effective (and more expensive) drugs, and fewer doctor visits per year and per medical condition. This is not to say anything about end results, which are often used as a measure of comparative health care. It is about the speed of reaching that end result, the opportunity costs, beginning from a consumer's awareness of the condition (not first doctor appointment, but the wait for the first appointment) to final recovery.

To me, medical costs in the US are high because these services have a high value and lower opportunity cost to Americans. All attempts to directly control medical costs will fail because the value of the service to the consumer will remain high. American consumers will find ways to spend more, under any medical cost regime, to reduce their opportunity costs while receiving medical services.

Medical costs in the US will rise until they are equal to the consumers' opportunity costs and value.

If the value of the medical services were lower to US consumers, the medical establishment would find ways to reduce costs.

2. To all the comments that say costs are factored into price before production are ignoring that many businesses fail, despite adequate business plans, because consumers are not buying the goods in sufficient numbers for the business to remain viable. At a lower price, the business will sell more, but at a loss. Lack of demand kills many businesses.

Businesses I know consider demand as much as production costs and some will even regularly sell items at or below cost, such as loss leaders, in hopes of increasing overall demand and hopefully increase sales of their other goods. If costs were the main or only consideration, then profit margins would be much higher than they are at most businesses. Demand is determined by value and it sets an upper limit on price and profit.
Also see my earlier post, "The Marginal Value Of US Medical Service Is High So Medical Prices Are High" relating to this topic.

32 comments :

  1. Now the health care is being provided by the company owners to their employees in most of the top leading firms. All though the coverage is very basic but its good rather than being unsecured. And even the medical costs are increasing day by day, and if this continues policies will also get affected soon.

    ReplyDelete
  2. Thanks for this post. It Very nice Blog. It was a very good Blog. I like it. Thanks for sharing knowledge. Ask you to share good Blog again.

    ReplyDelete
  3. Take up one idea. Make that one idea your life - think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone.

    ReplyDelete
  4. Hmm… I read blogs on a similar topic, but i never visited your blog. I added it to favorites and i’ll be your constant reader.

    ReplyDelete
  5. Hello,great post. Information are pretty exciting and saved me huge amount of time which I have spend on something else instead of searching posts like this. I am waiting for more.

    ReplyDelete
  6. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

    ReplyDelete
  7. All the contents you mentioned in post are too good and can be very useful. I will keep it in mind, thanks for sharing the information keep updating, looking forward for more posts.

    ReplyDelete
  8. Wow, awesome blog structure! How long have you been running a blog for Pharmacy Technician? you made blogging look easy. The total look of your site is wonderful, let alone the content material!Sleeping Pills Online

    ReplyDelete
  9. This is the kind of blog I want to visit to start my day. I also admire your selection. I'll be back soon for more discussions. As of the moment I'll just leave a quick post just letting you know I love your blog.background apps ios7

    ReplyDelete
  10. I am very impressed with the way you efficiently blog and your posts are so informative. You have really have managed to catch the attention of many it seems keep it up! regalos originales para ninas

    ReplyDelete
  11. This site really is comprised of an excellent useful connection which will afflicted me with a a lot of knowledge about this kind of change lives.tucson lawyer

    ReplyDelete
  12. What makes THERMO BLACK X such a great supplement is that it does not depend entirely on guarantees or simply boosts your nitric oxide.http://www.thermoblackxfuel.com

    ReplyDelete
  13. This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. Really its great article. Keep it up.SEO Manchester

    ReplyDelete
  14. Nous sommes offre 2014 Ray Ban Wayfarer avec le prix le plus bas. Toutes les lunettes de style à notre magasin en gros ont la qualité impôt sur guarantee.No et la livraison gratuite.

    ReplyDelete
  15. Bienvenue à acheter les meilleurs tods en ligne. Vous pouvez obtenir la qualité officielle et le prix pas cher à notre magasin. Livraison gratuite!!!

    ReplyDelete
  16. In 1952, Ray-Ban created another classic style, the Ray Ban Wayfarer 2140, this time with plastic frames. They soon became popular in Hollywood, and can be seen on James Dean in 1955’s Rebel Without a Cause.

    ReplyDelete
  17. I went over this internet site and I believe you have a lot of fantastic information, bookmarked Your Site.

    ReplyDelete
  18. The article make every detail of the story depicts streaming with the best, and every movement of the characters all write so lifelike.

    ReplyDelete
  19. Very useful post. This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. Really its great article. Keep it up

    ReplyDelete
  20. Cheap Ray-Ban Eye Sunglasses Factory Outlet Online Store,Ray bans is the most popular and best selling sunglasses brand in the world.

    ReplyDelete
  21. Since 1854, Louis Vuitton has been passed down to the excellent quality, outstanding creativity and craftsmanship to become a symbol of fashion travel art.

    ReplyDelete
  22. Discount Ray Ban Sunglasses Outlet For Sale Online Store,If you are looking to purchase sunglasses wholesale, we offer excellent product quality and competitive prices. All orders shipped within 24 hours.

    ReplyDelete
  23. Burberry is a very traditional British style luxury brand, its multi-level products to meet consumer demand for different age and gender.

    ReplyDelete
  24. This is very useful and effective blog. I was finding this type of information from long time about marketing basics.

    ReplyDelete
  25. Everything is beautifully define in your blog. Thanks for your useful info.

    ReplyDelete
  26. A current client of mine is relocating to your erea and wanted me to find a practice to suit their families needs.

    ReplyDelete
  27. I wanted to know if anyone has used it and how well it works. Thanks in advance..

    ReplyDelete
  28. It was extremely beneficial for me. Retain sharing such tips in the future also. This was actually what I was trying to find, and I'm glad to come here! Thanks for sharing the such information with us.

    ReplyDelete
  29. I m saving your blog in my personal folder to visit again You made legal points within this article that I sense need further examination.

    ReplyDelete
  30. very good work thanks for sharing and keep it up

    ReplyDelete
  31. Great blog, just looking around some blogs, seems a really nice platform you are using.
    http://www.katespade-outlets.net/
    http://www.newjordans11shoes.net/
    http://www.outletmoncler-jackets.net/
    http://www.pardaoutlet-onlinestore.com/
    http://www.coachfactory-outlet.in.net/
    http://www.moncleroutlet-sale.us/
    http://www.prada-outlet-online.us/
    http://www.todsshoesoutlet.us/
    http://www.guccihandbagsoutletonlines.net/
    http://www.asicszapatos.es/
    http://www.airjordans-retro2014.net/

    ReplyDelete