First of all, the argument that health insurers regularly don't pay is complete nonsense. If you really believe that then go buy shares in an insurance company. I actually own shares in one (GNW) and the stock is down 70% because it turned out they miscalculated the premiums for the long-term care insurance. The business is competitive and the margins are not that big, so as a result of the mistake they are losing money every quarter. They would rather get out of the LTC business, but they can't because they've signed contracts.
So yes, if an insurance company doesn't pay, you sue them and you win.
Uhhh... that's not how the private healthcare industry works. There's no supply-and-demand free market economics. Nobody in the current system is incentivized to product MRIs that are 90% as effective as the top-of-the-line systems for 10% of the price. Prices are set by third-party payers and providers. They're incentivized to make the most bleeding edge devices available at the greatest expense -- the $30,000 Space Shuttle toilet seat equivalent -- while there are no incentives for efficiencies in cost reduction, manufacturing optimization, etc.
And along with that is the creation of a Byzantine system set up to pass the buck for liability whenever someone gets sick and a medical bill needs to be paid.
I cannot see how that's more efficient than anything a Khrushchev-era Soviet system would create. We have the most expensive healthcare in the world and we're getting less than half of the benefit as everyone else. It's fucked.
This is just complete misunderstanding of the basics of economics. Of course the producers of medical equipment have incentive to make cheaper and better products in a market system, because the hospitals are profit-maximising companies. Take the MRI example, if company A sells an MRI for 2 millions and company B sells the same or similar MRI for 1.8 million, the hospital has incentive to buy from B and pocket the 200k. And A and B have incentive to compete both on price and quality. It's amazing that I even have to explain this to you. I know you haven't studied economics, but it should be obvious.
Your logic is a lot more valid if the hospital is public. Then the manager has no incentive to cut costs and maximise profits. What happens often times is they buy unnecessarily expensive equipment to get commissions.
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Still don't buy it. Medical and drug companies go after treating the most defensible drugs, patents, and devices they can make to ensure profits. Good for them. But that means there's that much more money flowing into limp dick medications and anxiety pills for yuppies than, say, basic immunizations that ensure broader public health.
Medicines that produce cures rather than converting ailments to chronically treated conditions are far less profitable to the public market: better to have a lifetime subscriber than a one-time customer. This creates a society of drug-dependent people at very high overall medical expenses while curing nothing. This is what the free market economy wants, but is that really the best for the society overall, let alone GNP? Free market economies are a gross failure when it comes to healthcare.
Sounds like John le Carre on a bad day. I’ll give you two different proofs why this is wrong because the better one seems to be hard for non-economists to understand. Let’s look at one hypothetical example with HIV.
1. Say company A has the patent on some anti-retroviral drug that you need to take every day for a lifetime to manage the disease. In a monopoly it would have no incentive to invest in R&D of a cure. But in a competitive environment it’s totally different. You also have companies B, C, D, etc. None of them have a good anti-retroviral, so A is a temporary monopolist and can charge whatever price it wants. The competitors have incentive to invent alternative anti-retrovirals (they are earning 0 now). More competition means A is not a monopolist any more so the price goes down. A’s profits go down. Now all companies have incentive to invent a cure because they’ll be a monopolist and charge the optimal (profit-maximising) price. In reality, A should be looking for a cure even when they are a monopolist, if they are rational, because they know their profits will be eroded when alternative antiretrovirals come out or when their patent expires.
2. Say company A has invented both the antiretroviral and the cure (never mind why) and is a monopolist. It will sell whichever is more profitable. They calculate that the profit-maximising price for 1-years supply of anti-retrovirals for a single patient is $20 000 (assume the cost of production is 0). Based on the average age and life expectancy of the patients, they expect to sell the drug for 20 years on average to one patient. Assume a discount rate of 5%. The NPV of the profits is about $270 000. The NPV of the cure (it’s a one dose magic pill) from one patient is simply equal to the profit-maximising price of the cure. But what is it? We don’t know, but it’s clearly greater than $270 000! Everybody is willing to pay more for a cure than a drug that only manages the disease. But the benefit to company A is even greater in this case – they avoid the risk of a competitor inventing a cure and taking their profits.
Your argument is flawed, but it makes for great stories about the evil pharmaceutical companies.