In a new article, Bitter Pill: Why Medical Bills Are Killing Us, Time Magazine delves into why medical bills are so high. 

I had a fibrous cyst creating a boil on my neck several years ago. After a round of antibiotics, a doctor performed a 15 minute outpatient surgery, assisted by a nurse, in an examination room. It wasn't even an operating room. Local anesthetic was used. The incision was about 3/4", and I was given a prescription for Vicodin I really didn't need before I left. 

The bill was about $850. I was shocked. I might have expected $250, but $850?

Well, $850 is nothing in today's medical world. 

Time describes instances of non-life threatening household accident injuries that run up bills in the five figures. More serious problems like treating cancer can run up bills in the six- and seven-figure range with ridiculous line items described in excruciating detail in the article.

What makes the pain of high healthcare costs worse is that the health care providers seem to be profiteering with markups that are as outrageous as they are unjustified. So-called "nonprofit" hospitals are actually profit-making institutions. Have you noticed how your local hospital is adding on new additions like crazy while the rest of the economy is slow. It's a boom economy in healthcare, forcing unjustifiable costs on a public suffering in a totally separate economy.

The article argues something I've already written about here: the healthcare industry isn't a normal market and doesn't really operate in the normal economy the rest of us have to live in. It doesn't compete for the business it gets and there's very little operating to restrain their costs. Yes, your insurance company probably gets a discount of 40%-50%, but even with that discount it's hard to justify the line items on the bills. 

Of course, there are people who can't pay their bills and become write-offs and they become part of the high cost of healthcare, but not such a large part that bills need to be as high as they are. Likewise, insuring themselves against lawsuits filed by people who can't accept that (a) shit happens or that (b) some people's conditions are terminal no matter WHAT care they get is a costly problem.

Putting some controls on the legal problems the industry faces is an obvious need, and one that can be addressed. However, the reasons for high healthcare have mostly to do with greed—getting whatever the traffic will bear—rather than providing the best service possible at a reaonable price. It's an industry that has forgotten that its primary purpose is to provide a service, not to break the back of those it serves with unjustifiably high expenses.

Look, I like capitalism, but I've come to decide that there are places where capitalism doesn't work. We don't want police and fire departments, libraries, and parks to be run on a "what the market will bear" basis. I would think that we especially don't want our healthcare system run that way.

You have no better argument for socializing medicine than the system we have now.

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The playing field is definitely not level - which is what I was referencing when talking about the need for balance between capital and labour rewards.

For added perspective on the concepts of work and reward, consider the factors of inheritance and class mobility. The paydays of the poor and middle classes really are based on the work they do. The paydays of the wealthy are based on the accident of their births.

A child born to wealthy parentage will almost certainly be a wealthy adult. A child born to middle class parentage will likely grow up to have a middle class income. A child born to poor parents will likely grow up to be poor.  

The reward you get has more to do with who your parents are than with the work you do. The aristocracy lives.

"Some people are born on third base and go through life thinking they hit a triple." -Barry Switzer

Yes, well it seems that social mobility is a strong indicator of hard work - within the middle class and heavily restricted to those born into the middle class.  That was enough to keep people pretty happy for the last 60 years.  The trouble is that the aristocracy, through their capital, are now pressing that middle class into a thinner and thinner margin just above the upper limits of poverty.

The paydays of the wealthy are based on the accident of their births.

While I agree with your post, one thing worries me about this line of thinking. I want to be able to leave something for my kids when I die (I'd like for my parents to leave me with an inheritance, too). Don't you? How can we say that inheritance is not fair? Would it be more fair to say that any wealth you die with is forfeited to the state? I just don't feel that way.

While I agree with your post, one thing worries me about this line of thinking. I want to be able to leave something for my kids when I die (I'd like for my parents to leave me with an inheritance, too). Don't you? How can we say that inheritance is not fair? Would it be more fair to say that any wealth you die with is forfeited to the state? I just don't feel that way.

I only mean to dispel a misconception that capitalism is based on the concept that reward is based primarily on work. While there is a grain of truth to that, it's generally overlooked that our reward and station in life is based on who our parents were. 

What should we do about it? Should we do anything about it at all? Is there a better system? I don't know, Stutz. What do you think?

@Stutz

Leaving money for your children shouldn't be a problem.  The problem comes when capital gains are taxed at 5% and labour earnings are taxed at 20% or more.  A person should be able to contribute to retirement through labour, and then be able to shield that retirement income from high taxes during retirement - but when you inherit huge amounts with hardly any estate tax and then pay next to nothing on revenues from that capital all your life while those working for a living are taxed through the nose it's just not fair.

I often wonder what the real tax rate is when one considers that as a dollar circulates, the government tax a sizeable cut at almost every turn. 

Say I do a job earning me a $1000 profit and I pay $250 in taxes. I turn around and pay someone to work on my car and he makes a $1000 profit and pays $250 in taxes. He pays someone to design a website for him and that person makes a $1000 profit and pays $250 in taxes. He then needs some physical therapy and pays the therapist a fee resulting in a $1000 profit resulting in $250 in taxes. 

The government gets many bites at the apple and yet why are taxes so high?

I look at taxes going the other direction.  I have a farm in a society where people only eat turnips.  I pay $1/hr for people to pick turnips and I sell my turnips for $1/ea - wholesale, before shipping.

In that society, if you introduce a 20% tax on labour, I must now pay $1.25/hr in order for my workers to earn $1/hr.  This means that I must sell my turnips for $1.25/ea in order to maintain the same margins.

The trouble is that although my workers are now clearing $1/hr as before, turnips now cost them $1.25 - so they cannot afford to buy as many turnips as before the tax.  They want more money, but of course that would just drive up prices.  I am losing money because workers cannot afford as many turnips - so I am driven to lay off workers and demand that those remaining increase their production.

This scenario is only dealing with wholesale cost before shipping.  When you add in the multiple levels that it takes to get a product to market you find that the cost of typical consumer goods may well be more than 50% tax.

Labour tax is the most detrimental form of government revenue.

The problem comes when capital gains are taxed at 5% and labour earnings are taxed at 20% or more.

That's the golden rule, Heather. He who has the gold, makes the rules.

@Gallup

Thanks for that link - it was a great read.  It truly encapsulates the message that I want to get out to the general public.  Unfortunately at least 75% of our society lacks the literacy to understand such a message.

The government gets many bites at the apple and yet why are taxes so high?

Unseen, I'm guessing you're playing Devil's Advocate again. The US actually has one of the lowest overall tax rates in the world. And then there's the difference between the official and effective corporate tax rates, which respectively are 35% and as low as 0%, thanks to thousands of loopholes the corporations pay to have inserted in the US tax code.

"The problem comes when capital gains are taxed at 5% and labour earnings are taxed at 20% or more."

Talking US numbers, the 5% was only for individuals earning less than $36k and which wasn't from "speculation". For the vast majority, capital gains (excl. dividends, which counts as income) will be taxed at 18/20%. As corporations in the US is taxed at 35%, the technical tax rate is thus 52%/53.3%.

Taxes have the effect of discouraging whatever is taxed (technically speaking, it distorts the behavior of market actors). Every tax is a weigh off between the need to be efficient (raise revenue) and effectiveness (hard to avoid).  In general, the higher a tax is and the ease of which it can be avoided tend to decrease efficiency. The higher the effectiveness of a tax, the more it will be considered "unfair". I.e. fuel tax, VAT, property taxes, toll roads, TV licence, etc., are very efficient and also among the taxes which are complained the most about.

Taxing labor is a bad thing as it discourages people from working, however it is quite efficient and effective as labor is not particularly mobile. Taxing investment is at least as bad, and it is not particularly effective as wealth can be transferred quite easy, thus leading to low efficiency. 

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In general, I am much more in favor of taxing property, consumption and bad things, and let people keep most of the money they earn from their labor and the returns on their investments.

As a last thing, I think the country which introduces finance as a class from middle school and up will find it to have a worthwhile return on investment. 

Capitalism rewards those who pursue monetary gain. It is not a very good meritocracy. innovation is often repressed and gotten rid of out of fear of impact to their business wihtout regard to public or social innovation. Thisis why it is failing. the medical and insurance companies are proof that capitalism is not sustainable. rewarding individul effort based on what you can do which is different than what i can do. Are you saying that money is a better indicator of who's effort is more important than another's? because then we will have judgement calls that money will be the only answer for. I don't consider money an approriate judge of anyones worth. because money doesn't what a blind person see's.

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