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Is Health Care a Monopoly?

July 5, 22012

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Is Health Care a Monopoly?

The problem? Rising health care costs. The solution? Well, according to the law of demand, if prices rise, then the quantity demanded should fall. Unfortunately, the demand curve for health care services is very inelastic -- when you are having a heart-attack, you aren't in a position to shop for the best price.

At the same time, health care providers such as hospitals, doctors' offices, prescription drug companies and insurance providers, are following the same trends as other industries, and consolidating services. For example, it's estimated that the top five health insurance providers control 50% of the U.S. market. In 38 states, the top two insurers control nearly 60% of the business. This may not be a monopoly per se, but some wonder whether it is heading dangerously in that direction.

Of course when it comes to health care, price is not really one of the determinants of demand anyway, at least for those who have health insurance. When most costs are covered under insurance, there isn't much incentive to shop for the best price. Those without insurance avoid going to the doctor altogether, because they know it will set them back at minimum $100-$300 a visit, depending on what tests are run.  If they need an MRI or colonoscopy, that's $1,000 extra.

As a result, the health care industry is protected from price competitiveness. And maybe that's a good thing -- you'd hate to think that someone would die from cancer simply because they couldn't afford the $30,000 needed to treat it. That's why people have health insurance, to protect their finances, and pay for the unthinkable. Under Medicare and Medicaid, the government steps in to pay for those who don't work for employers who can subsidize the insurance, and can't afford it themselves.

Of course, that still leaves 32 million Americans who aren't below the poverty level guidelines, or who just don't want insurance. The Obamacare bill attempts to address this gap. However, is this just compounding the problem by giving more customers to the monopolies? What's your opinion?

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