Re: What is the root cause of the rising cost of health care ?


<royls@xxxxxxxxx> wrote in message
news:46d832c6.206890@xxxxxxxxxxxxxxxxx
On Wed, 29 Aug 2007 19:00:56 -0500, "Peter Olcott"
<NoSpam@xxxxxxxxxxxxx> wrote:

<royls@xxxxxxxxx> wrote in message
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On Mon, 27 Aug 2007 18:16:40 -0500, "Peter Olcott"
<NoSpam@xxxxxxxxxxxxx> wrote:

You completely ignored my example about Nexium didn't
you?

Yes, because it did not mean what you thought it meant.

Nexium is much more expensive than Prilosec, yet because
of
the subsidy of health insurance Nexium is cheaper for me
than Prilosec, so I choose Nexium.

That has nothing to do with demand being unconstrained
by
price. It's

Sure it does. My demand for Nexium only exists because I
don't have to actually pay the price myself directly.

No. Your demand for Nexium or an equivalent product
exists because
you need it. Inelastic demand is a characteristic of
medical goods
and services, but that is not what makes them expensive,
as the low
price of Prilosec proves (and if Prilosec is equivalent, I
don't know
why your insurance would make Nexium cheaper). What you
are missing
is _why_ Nexium is much more expensive than Prilosec.
What allows the
manufacturer to charge so much more for it?


The fact that it is cheaper than alternatives for people
with insurance is what allows manufacturers to charge the
much higher price. If health insurance did not exist, and
instead people had health savings accounts where they had to
pay every dollar, the demand for Nexium would plummet.

Suppose we talk about water instead of Nexium. You need
water to
live, probably even more urgently than you need Nexium.
Because it is
necessary to life, your demand for water is likewise
unconstrained by
price: whatever the price, you would pay it as long as you
could
afford it, because the alternative is death. But because
the _supply_
of water is not restricted, you pay almost nothing for it.

Get it? Price does not just depend on demand, no matter
how price
inelastic it might be.

If I
had to actually pay the price myself directly I would
choose
the more cost effective alternative.

You're not paying attention:

about price being unconstrained by market competition.
Hint: how much
(if any) more does it cost to _make_ Nexium than
Prilosec?

What governs Nexium's price, the inelasticity of your
demand? Nope.
The low price of Prilosec proves it is the restriction of
_supply_
that makes Nexium cost so much, not inelastic demand.

-- Roy L


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