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Tuesday, January 19, 2010

Small Biz Health Care Daily: Health Care Costs

On the New York Times “Prescriptions” blog on January 12, David Herszenhorn asks, “Why Does Health Care Cost So Much?”

This is a critical question in the current health care debate, especially given the fact that the cause for rising costs has been badly misdiagnosed by advocates for more government involvement in health care.

While Herszenhorn says that he looks at both sides of the political spectrum for an answer, in reality, he leans heavily on the liberal side in his analysis, and therefore, largely misses key points.

While health care costs certainly go higher with new, improved and expanded health care treatments and services, that’s not a bad thing. That’s a positive.

But in terms of negative costs, Herszenhorn misses three critical points. First, while briefly and vaguely hinted at in his piece, central to the cost problem are third-party payments. That is, when someone else – whether employer-provided coverage or the government – picks up the tab, then consumers and providers have no reason to be concerned with costs. Second, the third-party payer problem grows worse when the third-party payer is the government, as politicians and their appointees are spending other people’s money. The result is runaway costs, with the eventual response being rationing of care. Third, regulations and mandates drive health care coverage costs higher.

Unfortunately, the current direction on health care reform would make each of these problems far worse.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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