Regarding the debate as to whether or not the government should be involved in covering health care costs for those who cannot pay, many statists have argued that cost shifting alone justifies government involvement in the health care industry. Cost shifting is the practice of charging customers two separate rates. The first group of customers cannot afford treatment, but hospitals admit them for free out of charity. The second group of customers can afford treatment. Cost shifting implies that the second group of customers is charged a higher rate to compensate for the losses incurred on treating the first group of patients. Advocates of government intervention will argue that if the government simply covers the cost of the nonpaying patients, hospitals will charge the paying customers less.
There’s only one problem with this statist argument. Cost shifting does not exist in the real world, and it never has. A simple glance at economics will explain why. When firms (hospitals included) decide what price to charge paying customers, they face a tradeoff. A lower price will attract more customers but a higher price will entail higher revenues per unit sold. If a firm charges a price too low, it will risk earning too little on each unit to earn the money needed for day to day operations. If a firm charges a price too high, it will risk selling too few units to earn the money it needs. Each individual firm will find the optimal price to charge paying customers to maximize earning potential.
In other words, it would not be in a hospital’s best interest to respond to the admission of nonpaying patients by raising prices on patients that do pay. If the hospital were to change the price charged to patients in any way that deviates from the optimal price, the hospital will earn less money than it otherwise could.
However, let’s give our statist friends the benefit of the doubt. What would happen in the health care industry if the government were to pay for non-paying patients rather than let hospitals incur the cost? Hospitals would soon realize what a big checkbook the government has, and realize that if they were to start raising prices out of reach for most patients the government would simply look at these patients as if they were non-paying patients in need of the government’s help. In other words, hospital prices would skyrocket. As for dissenters who say that hospital prices have already been rising in our supposedly free market health care industry, I’ll point out that prices have only been rising rapidly since the government began to get involved in health care spending (think Medicare, Medicaid, etc).
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I don't understand your basic argument against the non-existence of cost shifting. It sounds like you are saying that care providers can absorb significant cost increases without any increase to their rates and remain profitable. Where is the cost hiding? Are the providers simply settling for less and less profit? That would seem to indicate a previous inefficiency in the market.
I think the optimal price for a product is more than a matter of customer preference. Costs have to be figured in there somewhere.
Care providers absorb the full cost of treating patients who don't pay, because if care providers were to raise rates for people who do pay they would lose even more money. Think of it as a strategy to minimize losses.
Also, low profits would not indicate market inefficiency. An artificial shortage of care would indicate market inefficiency.
As for costs factoring into the optimal price, they do. Variable costs are considered by a firm when figuring out the optimal price, but not fixed costs - and patients who are treated for free represent a fixed cost. Due to brevity, I tried to keep this post within 450 words and did not feel it was necessary to delve into all the economic analysis behind the issue. All you need to know is that firms do absorb the full cost of treating patients who do not pay, and any firm who attempts to raise prices on patients who do pay will only incur greater losses.
Sounds interesting. Do you have any links to something more in-depth?
Businesses absolutely pass costs onto the consumer and absolutely subsidize losses via additional revenue streams. Think about the obvious example of fuel prices. State, local and federal taxes constantly account for changes in fuel prices in addition to the factors that determine any natural demand for said fuel.
People who visit emergency rooms for "free" are having the government pick up their tab either directly (via Medicare/Medicaid, etc.) or indirectly (via EMTALA, which is essentially the govt holding hospitals hostage by threatening not to make Medicare/Medicaid payments.) Hospitals need to account for any losses incurred by the latter situation otherwise they will eventually go out of business. Period.
As for your final assertion, correlation absolutely does not imply causation. There are myriad factors that have contributed to rising health care rates such as rising private insurance rates (malpractice, liability, etc.) as well as the profit motives of private health care providers and insurers.
That is not correct. Facts DO exist in science. The problem about facts and laymen is that laymen don'z realize that in science, facts are the lowest order of evidence.
An excemple: all living things die. Fact. However, the knowledge gained from that fact is minimal. Understandig why and how living things die is the realm of hypotheses and theories and it is the realm which allows for the most inspiring knowledge to be gained.
FOR MORE INFO PLEASE VISIT:
http://abimago.com/index.php?title=Main_Page/
http://zandersanimation.com/index.php?title=Main_Page/