The Illusion of Cost Control

Just as people are starting to notice that both the Republicans and the Democrats are off in never-never land about the fiscal deficit, so Robert Samuelson thinks that the Obama administration is dealing in illusions about cost savings in the health care reform package.

Here's the thing, and I've said this before (and I'll probably say it again), you can't reduce prices by increasing demand. According to the fundamental rules of economics, increasing demand (all other things being equal) causes increased prices. One of the reasons that health cares costs are as high as they are is that Medicare, Medicaid, and various employer-paid insurance plans have increased the demand for medical services. Providing another 30 million people with health insurance will increase demand that much more, and that means higher prices. Samuelson goes into this at a more detailed level.

In an article in the Atlantic I recently read (November 2009 issue, I believe), the author pointed out that the insured and the uninsured spent about the same amount of their own money on health care each year. The insured, however, spent about three times as much of other peoples' money than the uninsured. So, you can expect spending by those 30 million to quadruple once they have insurance, and that, together with the provisions disallowing "pre-existing conditions" clauses is going to push up costs.