How American Healthcare will die.

The simple assumption underlying America's approach to healthcare is that the market price is wrong. In any market where one adjusts prices for these sorts of reasons, there is either a glut or a deficiency. Here, if the assumption that the market price is too high, one will produce deficiencies.

The underlying assumption, which is not entirely wrong, is that there is a price-fixing cabal which is driving the prices up "faster than inflation." This is an assumption which discards other reasons for price increases - that efficiency is lowered opposite the general trend over time where innovation decreases costs; or that inflation drives prices up artificially. The cabal might well be the government-industry tangle which has been forced upon the healthcare market. This is getting treated with Steroids now, being bulked up.

One element which I believe to be central is that "inflation" and the "healthcare CPI" are one and the same. There are other things in the artificial "CPI index" which cause it to be reported as abnormally LOW. Several economists, such as John Williams on Shadowstats, believe that inflation is actually MUCH higher than reported. Until 2009, the decade's inflation rate has been about 6% - which brings us to about 60% in constant dollars to what we had in 2000.

And efficiency IS lowered - not because healthcare is a free-market commodity, but precisely the opposite. Few people realize that much of physicians' reimbursements are set by Medicare already. The private insurers then negotiate reimbursement as a Percentage of Medicare. Doctors salaries are adjusted politically by measure of the mean state income and "costs" in the various states.

We pretend that lowering price and raising demand will force the innovators to improve quality. The system is seen as burdened by overhead and profit-taking. Overhead cannot be signficantly improved until such things as internal auditing, measuring and "efficiency charting" are reduced. That will not happen.

It takes a certain bit of punitive and harsh attitude to ram changes through at the expense of a certain sector. There is certainly that sort of ire against American healthcare now, and it has been simmering for a long time.

Unfortunately, "punishing healthcare to make it better" is likely to fail.

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healthcare, economics

On the Law of Scarcity

Being unfamiliar with the formal principle called the "law of scarcity," I have paused for an inadvertent education on the matter. My initial supposition was that with a fixed limit of product, demand which is at least equal to that product will "order the queue" of demand by means of price. One does not need to posit "unlimited" demand; rather, demand in excess of supply will suffice.

But I also learn that the price can be manipulated by threatening one's rights or property; or the alternative, offering an unearned windfall. People will not demand something as much as when they are persuaded that it is "theirs." Also, people who are persuaded that they have stumbled upon a treasure, will pursue it more ardently than if it were just offered in the marketplace without persuasion.

The "Marketing Minute" blog by a Chip Cummings offers:

Can you create a sense of urgency in your marketplace? Limited access to a conference call; only $1.2 million in this particular loan program available; offers only accepted for 7 days; only 38 people allowed access; 10% discount only for the next 72 hours…..

You get the idea - use Scarcity to get your market to act quickly. This works well with customer retention strategies, initial prospects, and special events. There are a couple of rules:

1. Be sure to FOLLOW THROUGH on your promise! A limit is a limit. By holding your ground, they will respond accordingly NEXT time.
2. Set clear guidelines and expectations. Be sure to TELL the prospect EXACTLY what to do!

If heathcare is perceived as a fundamental right, than people will ardently pursue its fulfillment. To some degree, they are correct in doing so, because the ultimate measure of fundamental rights derives from the rational basis of the individual. Unfortunately, the "rational" part has left by the roadside in this approach.

Canute has a bad rap these days. I read in Wikpedia the following:

Henry of Huntingdon, the 12th-century chronicler, tells how Cnut set his throne by the sea shore and commanded the tide to halt and not wet his feet and robes; but the tide failed to stop. According to Henry, Cnut leapt backwards and said "Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws." He then hung his gold crown on a crucifix, and never wore it again.

Unlike modern rulers, he got the point on the first try. He's head-and-shoulders a better empiricist (and thus, economist) thank the DC Boys these days.

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economics Canute