The problem is that there is too few doctors in the
market. The American Medical Association
acts as an cartel by blocking entry into the market.
Doctor’s Total Value:
Doctor’s Rent1+ Doctor’s Surplus1> Doctor’s Surplus0
Patient’s Total Value:
Patient’s Surplus1 < Patient’s Surplus0
DEAD Weight Loss:
This is the area represented by the medical treatments that did not happen
because patients were unable or unwilling to pay for Price1.
NOTE*: The
difference between Q* and Q1 might represent a huge difference as
patients make decisions regarding their medical condition based on an inflated
price.
This might look like a better outcome, but it is not.
Doctor’s Total Value:
Doctor’s Surplus2 + Doctor’s Rent2 > Doctor’s Rent1 + Doctor’s Surplus1
Patient’s Total Value:
Patient’s Surplus2 < Patient’s Surplus1
DEAD Weight Loss:
Dead weight loss2 relative to dead weight loss 1. We don’t know. We do know that Q2>Q1.
NOTE*: So, you
ask? Why aren’t patients better off? The
problem lies in how and why the demand curve shifted out. The demand curve shifted out because people
are instead paying yearly premiums distributed across all health insurance
consumers. We know that there is no way
on average people are going to receive more value from health insurance than
they pay. Therefore, though they pay
less per treatment, on average people pay more for health services because of
health insurance.
However, politicians observe people who receive health
insurance through work and find these people to be very happy. This is because for those people who receive
health insurance through work, this is the equivalent to a lump sum transfer or
payment. So, politicians say, one way to
make people happy is to give them health insurance. Thus recent medical reform.
This might look like a better outcome, but it is not.
Doctor’s Total Value:
Doctor’s Surplus3 + Doctor’s Rent3 > Doctor’s Rent2 + Doctor’s Surplus2
Patient’s Total Value:
Patient’s Surplus3 < Patient’s Surplus2
DEAD Weight Loss:
We cannot directly observe the dead weight loss in this graph. However, if you keep in mind that the average
commission by insurance companies is upwards of 20% (as high as 50%) of what
you pay in premium then you can be pretty sure that all of that extra cost is
not a good thing.
So, why is this a bad
thing? Q3 is close to Q4, it might
even be greater. So hopefully less
people will die and live in discomfort because of lack of medical services. Sure, people in general are unhappy with how
much they pay for insurance but ultimately that is mostly a direct transfer to
doctors which are much happier. Is this
a problem?
Yes! Currently the US spends 13% of our GDP on health
insurance. This is 4 times as much as
other national on the planet. This rate
is only growing as health insurance becomes mandatory. Simultaneously a larger portion of the
population is growing elderly which corresponds with much higher rates of
illness and higher medical costs. The
status quo of many people being unable to afford health insurance is not ethically
viable. The alternative proposed of
everybody receiving health insurance is not economically viable.
In what kind of a
world do we live where a person could spend his/her entire life savings paying
for a single operation that costs 2 to 10 people 5 hours of their lives?
