Health Care Bubble?

I have been reading a lot about economic bubbles lately. There may be a commodities bubble. There may be an agriculture bubble. We all know about the housing bubble that burst (it’s spreading around the globe now).

Well, that got me wondering. Could there be a health care bubble?

Not being an economic whiz, I turned to some online resources.

The Financial Dictionary says: “A temporary market condition created through excessive buying, and an unfounded run-up in prices occurs.”

Some have argued that we buy too much health care. The foundations of rising prices are not clear cut.

Next to the trusty Wikipedia to find a foolproof system to determine when a market is bubbly. Turns out there are no hard and fast rules. Excerpts follow:

The cause of bubbles remains a challenge to economic theory. While many explanations have been suggested, it has been recently shown that bubbles appear even without uncertainty, speculation, or bounded rationality.

OK, good to know.

Most recently, it has been suggested that bubbles might ultimately be caused by processes of price coordination or institutionalization.

We have laws in place to discourage price coordination, but a true market has little impact in determining health care prices. Institutionalization: health care is highly regulated.

Because it is often difficult to observe intrinsic values in real-life markets, bubbles are often identified only in retrospect, when a sudden drop in prices appears. Such drop is known as a crash or a bubble burst.

So we won’t know until afterward.

Not extremely helpful. But take into consideration some of the issues we’re dealing with: building boom, worker shortages, Medicare’s trust fund issues, drug costs (up), labor costs (up), expensive new technology (the efficacy is debatable in some products)…care to add more?

Very little in health care is governed by real market incentives (that could be good or bad, depending on your thoughts). The problem remains: it all just keeps going up. The spending may be able to continue; it may not; but reality is that health care continues to become more expensive. Because we try to sustain all parties (and try to keep them happy) in the health care industry, the requirement (like, when we have no choice) for change is quickly arriving.

If we get to that point (when reform is not by choice, but by necessity), some party(s) must lose. That is when the health care bubble will bust.

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