Healthcare is what is known as an inelastic commodity. As price increases for this commodity demand will barely decrease. According to a RAND study commissioned for the Department of Defense:

Despite a wide variety of empirical methods and data sources, the demand for health care is consistently determined to be price inelastic. Although the range of price elasticity estimates is relatively wide, it tends to center on -0.17, meaning that a 1 percent increase in the price of health care will lead to a 0.17 percent reduction in health care expenditures. (page xi)

The reason behind this is pretty simple. When someone gets sick or injured money is often the last thing on their mind. After all, if you don’t have your health, you don’t have anything. So basically, people will pay whatever is necessary to keep themselves healthy. This makes sense, but the inelasticity of health care as a commodity becomes a problem when you consider the incentives it creates for those involved in supplying health care.

In a pure capitalist system, if people are willing to pay almost anything for a product, it shouldn’t be surprising if the cost of it starts to float upwards. After all, the suppliers of health care exist for the sole benefit of their investors and shareholders. Corporations with higher returns on investments attract more capital and can thus become larger. Those that can provide a good return are the ones that grow and conquer. Therefore, the obvious incentive here for a health care corporation is to raise the price as high as possible, but not so high as to create a public outcry and have pesky regulations created.

Secondly, since the outcome of all quality health care is the same — health — health care businesses with satisfactory records providing care must compete for customers by using gimmicks and small but ultimately irrelevant perks. For instance, one that is quite common now is proclaiming the greatness of brand new therapies as being the most “high tech” available despite there being little or no actual improvement in results offered. Another common one is simply inviting new patrons by offering “VIP” treatment. Both of these offer no substantial improvement to one’s health but add to the costs of treatment.

Then, as prices inevitably rise health care becomes prohibitively expensive insurance becomes mandatory. Insurance, while not an intrinsically bad thing, adds yet another layer of profit on top of what is being charged by hospitals and physicians. Then to compound the problem for the average consumer is the fact that insurance corporations also exist for the sole benefit of their shareholders. As income is fixed by monthly payment schemes, revenue maximizing action is taken on the costs side. Minimizing costs as an insurance company is quite easy: simply deny coverage in as many instances as possible.

A Capitalist system of health care without significant and intrusive regulation will produce high costs and terrible coverage for this simple reason: the incentives are designed to maximize the good for investors and corporations at the expense of the average person. Health care providers are encouraged to raise prices as high as the political zeitgeist allows while innovating on sometimes very frivolous things. Costs thus become prohibitive and insurance companies, with a desire to minimize losses, begin deciding who receives treatment and who does not.

Pick your overlords carefully: the government responsible to voters, or corporations responsible to shareholders.