Why is the lack of universal health care coverage can raise health care costs?

Answer 1

The answer is fairly complex, in part because the question isn't perhaps sophisticated enough to capture all the issues associated. First, one can legislate price limits on any service or good one likes. This would immediately reduce the cost of health care, if desired. The natural consequence of a price ceiling, however, is a shortage. That is, if you limit what people are allowed to charge, more people want the service than want to provide it. This is why waiting lists exist in public health care systems, demand outstrips the desire of the market to supply.

Secondly, one could suggest the existence of cartel-like behavior on the part of, for example, health care providers or insurance companies. If such behavior exists, then prices will be artificially inflated. The presence of a universal provider would then undercut the cartel's behavior and put an end to the inflated prices. Generally, however, cartels don't survive anyway because new, naturally arising competition can undercut the cartel. It's only through anti-competitive behavior that the cartel can survive and I don't have sufficient knowledge to suggest whether such activities are present in, for example, the US health system. I suspect not.

Thirdly, one has to be careful how one defines cost. For example, a high claim-rejection rate would allow an insurance company to charge lower premiums as it would have lowered its costs. The cost to the consumer, however, is that they sometimes miss out on health care that they expected or, worst case, required. One also has to ask, what the cost to society is of not treating ill people, in terms of loss of productivity, social unrest, distress, international embarrassment/condemnation and such like. Also consider that a private system has the somewhat undesirable outcome of making health care professionals answerable to insurance companies, not to their patients. The unique position of professionals is that consumers of their service are incapable of independently judging the appropriateness of their advice. As such, the system encourages doctors to provide cheap rather than the most effective solution to patients while patients are not capable of determining that they are being short-changed. This is another non-monetary cost to a fully private system. Given a public system, private health care, as a point of difference, needs to provide better quality, faster health care to justify customers paying the usually higher cost (due to the lack of government subsidy).

Additionally, as a final economic consideration, taxation is a highly efficient means of collecting money for a particular purpose. In addition, public systems don't need to advertise, provide profits to shareholders, can take advantage of economies of scale etc. As such, the bureaucracy and overheads associated with administering a public health system can in fact be lower than a private system. Whether this actually is the case is debatable and I would suggest is likely not the case. If the electorate demands reform, however, watch how quickly it becomes a key policy issue. In a somewhat related matter, how the government arranges the tax burden on the electorate of paying for the public system may, in fact, make the cost of health care personally more or less expensive for you and other members of society.

In general, however, I would suggest that in purely monetary terms, a public system can be expected to be overall more expensive. This is because the kind of impoverished people who cannot afford insurance are more likely to suffer health problems in the first place. A public system can be seen as a single, compulsory insurance company, where everyone subsidizes the smaller proportion that actually need health care in exchange for the certainty that they can afford health care if they require it. Therefore, a universal system will incorporate a number of people who will have proportionally higher needs for health care without a commensurately higher ability to contribute to the system. The question, then, isn't whether a universal health care system will provide cheaper health care, (it probably won't), but whether it will provide better value. In the vast majority of developed countries, the public clearly believes that this is the case.