Health care economics and market dynamics

¶ … local hospitals have been criticized for charging greater fees for service to the uninsured than to those covered by insurance. While it is easy to understand the emotional reaction to this policy, it is difficult to provide any sound financial underpinnings for the brouhaha. Indeed, if were the hospitals to act otherwise, they would not only be violating several key, and easy to understand, economic principles. They would also be undermining future health care for these patients and all others, both currently and in the future.

Particularly taken to task for the fee differentials was The Advocate system, which serves "the most patients of any private health care group in the Chicago area, and treats more uninsured patients than any other private Cook County hospital system." (Handschel 2003)

No one has complained recently about a glut of doctors and nurses and other medical staff; on the contrary, the dearth of such medical personnel is frequently the source of comment. A quick look at the Employment ads in any big-city newspaper will reveal that hospitals in many cities are actually offering bounties to nurses to get them on board.

So, in respect to the simplest of supply laws, it makes perfect sense to charge more for certain services, in order to incentivize those who provide those services. In fact, paying bonuses to attract nursing staff is the only way to serve those very low-income patients, many of whom rely on public hospitals as their primary care centers.

While increasing revenues is necessary to continue to provide quality health care services, that doesn't' address the issue of charging more to one group of care-care services users than others. There are two answers, both of which are in accord with standard, accepted economic principles.

First, the lower prices granted to members of health insurance programs result from the negotiating power of a large group of people all seeking the same benefit. Just as collective bargaining works to get better wages for some classes of health-care workers, so collective negotiating works to get better prices for some classes of health-care services users.

Second, it has been pointed out that a great many of those without insurance are illegal aliens. While we would not refuse to treat people because they lack insurance, which would certainly be inhumane at the very least, neither should we encourage excessive use of health care services by those who are not legally entitled to be in the country. Were they legal, conceivably they could obtain jobs that offered health insurance. It is, therefore, an inducement for the illegal workers to seek permanent, legal status so that they can legally participate in the entire system.

Additionally, there is demand law at work. At higher prices, there is less demand. At the very least, if an uninsured worker must pay $6,000 for treatment at a hospital that he or she could have had at a physician's office for a fraction of that, there is an inducement for that patient, next time, to find primary care outside of a hospital emergency room.

Finally, there is wisdom in billing these patients, even though it is unlikely that they can pay the entire bill. We are not unwilling to negotiate with them and recover some of the costs, at least, sparing that burden being shifted to raising costs for insured patients, or seeking additional funding from government or other sources, or, at worst, curtailing some services.