Prices & Costs

Due to the pathetic state of affairs concerning the average persons' lack of economic acumen, politicians have long been able to demagogue many issues. But the greatest con they've been able to perpetrate is the one where they purposely confuse prices with costs. This is rather easily accomplished because most people haven't got a clue as to what the differences are. To them, the price they pay for something is the cost. But when accountants and economists use the term cost, they are talking about all the costs, not just what an individual pays out of their pocket.

The confusion is exploited by politicians who like to tell people that they will provide something to the voter at a lower price than he pays now. He says he'll lower the cost, but he's really just lowering the price.

When the average guy talks about the cost of health care, he's referring to what he pays, the price. He might be talking about what he pays for care, or he might be talking about the price he pays for health insurance. But the cost of health care contains things like $100,000 tuition for medical school for the doctor, or the estimated $800 million it takes in research and development cost to bring a single new drug to market. There ARE ways to lower some of those costs. For instance much of that $800 million bringing a drug to market has to do with FDA regulations that some consider restrictive. There's an argument that you might increase the possibility of approving a drug that's harmful if you ease those regulations, but it's debatable and it would hold the potential to actually lower costs. Subsidizing health insurance for private citizens does not lower costs, it lowers the price. And prices are what we use to cover costs. So what happens when the price is not enough to cover the cost? That's where the laws of supply and demand take over.

Let's say a guy borrows $100,000 goes to medical school and becomes a doctor just as the government takes over health care. He's got a lot of debt and is hoping to pay it off in 5 years. But all the doctors work for the government now and the starting pay isn't what it used to be. The prices are not covering the cost. That will lead to a reduction in supply. That can happen two ways, quantity or quality. If less and less people see doctoring as a lucrative career, you'll get a reduction in quantity. If the very best and brightest no longer see a medical career as desirable, you'll get a drop off in quality. Britain's health care system has been run by the government for decades now. They haven't been able to train their own doctors for some time and the majority now come from other countries where the training might not be up to the same level as in Great Britain. As you can imagine, such changes are very gradual and hard to measure. But the ones who really suffer the consequences, are those receiving substandard care without being aware of it.