Let’s try to understand the health care crisis in the simplest possible terms, from the elementary level of supply and demand. Recall from basic economics that in any free market, the market will clear at a price where willing supply at that price equals willing demand at that price. For example, if suppliers are willing to supply 100 units of some product at price X and there is demand for 100 units of that product at price X, then the market price of that product will be X. Also, importantly, note that consumers who aren’t willing to or cannot pay price X (i.e. their maximum price is something lower than X) are effectively shut out of the market, i.e. they cannot and do not purchase and consume the product. Supply and demand is the most fundamental and accepted principle of economics.
Most of the time our society is perfectly happy with this outcome for most commodity and consumer products. For example, while everyone would love to have a top-of-the-line 54 inch LCD HDTV, not everyone can afford the around $3000 price tag and thus some must go without having this product. We regard this outcome as perfectly acceptable and normal; such consumers are expected to just be content with not owning such a high end product (they would rather use their limited funds elsewhere where they get better value, for example), or to be content with less expensive alternatives (smaller screen size, not HDTV, etc.)
While this model of markets applies to most products, such as TVs above, cars, etc., it most certainly is not how we as a society want health care to work. It is an implicit assumption of our society and the health care debate going on now that everyone must be fully covered, i.e. everyone in our society should have access to top-notch health care and all efforts should be expended towards treating and saving the lives of patients. In other words, the best health care is a right of all. This is a moral issue --- society as a whole generally feels it is morally correct that everyone should have health care. I personally agree with this from a moral perspective as most people would. Unfortunately, markets are stubborn things and this general moral desire of the people runs into serious trouble in the reality of the marketplace.
Consider the outcome if markets for health care worked the same as markets for HDTVs as above. For example, say the service to be supplied is “lifesaving heart bypass surgery” and we are considering this purely from the perspective of supply and demand. Let’s say the market clearing price for this service is $8000, so anyone willing and able to pay $8000 can receive a heart bypass surgery and have their lives saved. For people who cannot afford to pay this much, well, that’s just tough luck, you’re shut out of the market and so you die. Society rightfully regards this as morally reprehensible, but unfortunately this is how markets work and free market capitalism, even though it isn’t perfect, is the best economic system mankind has discovered and this is the logical conclusion in a pure market system.
Let’s consider how enforcing society’s moral imperative of health care for all skews the marketplace. Essentially, if we decree health care for all then demand will always take on its maximum value --- i.e. everyone who gets some sickness or health problem (e.g. the need for a heart bypass surgery) MUST have access to the best health care to solve their health problem. In other words, while the normal demand curve goes up as price goes down (and goes down as price goes up), by enforcing the right of everyone to have access to health care we are essentially forcing the demand curve to be a flat line where the quantity demanded is the maximum possible --- i.e. we are saying as a society that, at any price, everyone must be able to consume. Note first that, in effect, the market clearing price will thus be MUCH HIGHER than if we simply let the market run the same as we do for TVs and such. Because the demand curve is now flat and at its maximum demand level, the price where the supply curve intersects this high, flat demand curve (i.e. the market clearing price) will now be much higher. This is because supply curves are the opposite of demand curves, i.e.the level of willing supply goes up as price goes up (and decreases as price goes down), so price must go up a lot for there to be enough supply to service the maximal demand.
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