A short guide to healthcare finance

There is a lot of activity and discussion around reforming healthcare finance right now.  It's clear that the members of Congress and the Executive Branch are the wrong people to come up with a good long-term solution.

But solution to what?  What's the story here?

A few things to think about:

People consume healthcare services.  In any given year, some people consume a lot, some people consume less, some consume little or none.

There are many arguments over whether people use too many services, the wrong kind, etc.  I presume there are process improvements possible here and there, maybe even significant ones, but the distribution of use is pretty much dependent on whether people are sick or injured, and actually need them.

Reform question: are services distributed differently than health distribution would lead us to expect?

The amount of services consumed in aggregate will increase over time.

More and better services are constantly available, and as our aggregate wealth increases, we will want to get more of them.  This will happen even if the average person doesn't get less healthy.

Reform question:  are more services provided and consumed that these conditions would lead us to expect?

These healthcare services cost something.  Salaries, supplies, and facilities are paid for.

We may, again, argue about whether this or that costs too much (it's rare that someone says something like "OTC anti-allergy medications are absurdly cheap given their effectiveness"), but as the amount of services consumed goes up, so will costs.  People who provide healthcare tend to be high-value employees who provide one-on-one services and thus are paid a lot;  the devices, drugs and procedures used are precise, highly regulated, have to pay off a lot of research, need to be sterile, etc. etc., so healthcare is more expensive than other industries where the risk of killing or damaging you isn't so high.

Reform question:  are unit costs significantly higher than these conditions would lead us to expect?

Some people can afford many healthcare services, some a few, some almost none

So poor people whose conditions require a large amount of healthcare services either go without, or we take money from those who can afford more and buy healthcare services for them with it.  If healthcare services are cheap relative to average incomes, fewer people need assistance.  If they are expensive relative to average incomes, more people need assistance.  If too many people need assistance then there is no one to contribute money for others.  Note that the distribution of "can't afford" and the distribution of "use a lot of services" don't correlate particularly.

Reform question: how many people genuinely can't afford the healthcare services their health conditions require?  How many more could afford them only with some financial pain?  How much financial pain is "too much"?

So now what?

You can push down on aggregate healthcare service consumption or on costs per unit consumed, once you know that one or the other is "too high".  You can distribute money to enable necessary consumption among those who cannot otherwise afford it.  Pushing down on aggregate costs would decrease the amount of money that needs to be distributed, but not eliminate the need for distribution.

And that's about it.  Everything else is detail.  But no one wants to be clear about any of this, so I really don't know what any of us should do.