<I have a friend who just got out of the hospital after being treated for pneumonia for three weeks. No expensive diagnostics, No transplant, no bypass, no chemo...no insurance.

$75,000



Market forces at work, or to be more precise, a massive monkey wrench jammed into market forces.

Medical care costs what it costs because the customer is insulated from them, both by private insurance and, more importantly, a vast government subsidy program. A chart in Consumer Reports, which I wish I could dig up, showed the cost of medical care over the years, much of it a slowly rising curve. In the mid-1960s, when Medicare/Medicaid was instigated, the curve bent sharply upward and shot skyward. Cause and effect? I can't prove it just from the graph, but I'd bet on it.

To put it simply, it was $75,000 because he didn't have to pay it. Either his insurance or the government will pick it up. Obviously, if there was no such thing as insurance, he wouldn't be able to pay. Neither would anyone else. Now what would the hospital do? Go out of business, or think of something else? How many cars would you sell downtown if your price tag was $10 million? What would you do about it? What would the grocer charge for steak if the government was willing to pay for it instead of you? How many people would demand steak instead of hamburger if meat was free?

The free market always works, but it hasn't been allowed to work in the medical field for decades. By any economic standards, why should a hospital room cost ten times what a suite in a luxury hotel costs? Why should aspirin be several dollars a tablet? Because they can get it.

My wife had a hip replacement, and I watched the billing dance at it took place. The hospital first issues a huge, eye-watering bill that puts you into shock. Then--and here it gets weird--the insurance company kicks in, and cuts all the prices. The hospital agrees to the new prices, and issues a second bill, with lower prices that merely make you faint. The insurance company then pays a big percentage of the second price list. You wind up paying a small fraction, and your bank account lives another day.

What the hell is THAT all about? Why issue that first bill if everyone involved knows nobody is going to pay any attention to it? The system is so thoroughly messed up--I've been studying it, and I still don't know half of what's going on--that there may not be a way back to a market system again, although medical savings accounts have some potential.