Amazing but True: If Free, People Will Take More

The August 14 issue of BusinessWeek also has a nice one-page article on the effect of Medicare on overall health care costs, "So That's Why It's So Expensive". A recent study by economist Amy Finkelstein at MIT has shown that -- in addition to increasing use of expensive technology -- the introduction of Medicare in1966 is to blame for spiraling health care costs. The obvious reason for this is what I state in the title of this posting: consumers opt for more care if someone else pays for it (in this case, the government -- which is to say, all of us, through our taxes).

The less obvious reason is that "insurance guarantees a steady source of revenue for hospitals and other health providers. Such ready cash encourages them to build new cardiac-care centers and stock up on the latest high-tech equipment, knowing it will be paid for." This is yet another unintended effect of government programs that end up having undesirable results... which then get politicians interested in creating further government programs to "fix the problems" that all of sudden have mysteriously arisen (in this case, rising health care costs).