In this excerpt from Regulation: The Cato Review of Business and GovernmentThomas Lambert of the Cato Institute perfectly sums up why we have such expensive healthcare in the United States. When third party payers (Medicare and Insurance companies) pay for nearly all of the health services in this country, no providers are competing on price. This is only going to get worse with the advent of PPACA. Get ready to see a rise in your insurance premiums everyone! I have always been a big proponent of fair pricing, price transparency, and competition amongst healthcare providers so that patients can make an informed decision, getting the best possible care at the best possible price. This is why I clearly post my prices right on my website
When it comes to the medical costs that underlie insurance premiums, the glaring omission in the ACA is its failure to address what is perhaps the primary driver of health care inflation: the lack of price competition among providers of medical services. In competitive markets, price is driven down to the level of the producer’s incremental cost (which usually falls with technological development and increased specialization) as competing producers vie for customers. But producers will lower their prices only if doing so brings them more business, and lower prices will enhance sales only if customers (at least “marginal” customers–those most price sensitive) actually shop on price. When a third party pays for the consumer’s purchase, the consumer has little incentive to consider price when determining from whom to purchase. Thus, health insurance tends to make consumers price-insensitive, thereby destroying the providers’ incentive to compete on price.
-Thomas A. Lambert