Everything has a price, and we all have become accustomed to knowing how much something is going to cost before we buy it. Generally, we start with thinking about how much we are willing to pay, then finding what we need within the range of what we expect to pay. Whether it is shopping on Amazon.com, negotiating the price with a landscaper, or going out to eat, we get to weigh the options in advance of acquiring the goods or services. And, generally ahead of the purchase of big-ticket items, we get an itemized list of what is available.
I recently had to buy a car. Some of the many decisions that went into the purchase were whether to include some of the offered amenities, including:
- “Surround sound”;
- Seat heaters;
- Blind-spot indicator system;
- Premium floor mat package; and
- Built-in GPS.
My husband and I thought about the price of each of these line items relative to what we were going to “get out of it”—e.g., the value. Seat heaters in South Carolina? No, thanks. Surround sound? We had to flip a coin on that one. Safety features? Absolutely. Premium floor mat package? Only if they were guaranteed to be Fruit Roll-Ups-resistant.
Over the course of several negotiations, we picked and chose options that were highly likely to add value (safety, comfort, convenience) and omitted the rest. Then we settled on a total price, paid the negotiated price, and drove away fairly content.
Now, this doesn’t mean that we actually knew the cost of adding each of those amenities into our new car; would anyone actually be able to tell us exactly how much each of those features cost to innovate, create, and install? Probably not, but they might be able to give us a pretty good estimate, as well as an estimate of how much had been added in to ship it to the dealer, to pay the overhead for the dealership, and to pay the dealership staff (from the front desk to the CEO). And we could feel pretty certain that most buyers would be presented with similar prices, regardless of their personal characteristics.
So all in all, there was a reasonable amount of transparency around the cost and the price of the car and all of its amenities, as there would be in most industries. Except in health care.
A Ton of Money, for What?
There was a fascinating article in the March 4 edition of Time titled “Bitter Pill” that discussed the cost and the price of health-care services.1 It certainly is a worthy topic, as the U.S. spends about 20% of our gross domestic product on health care, whereas most other developed countries spend half of that. In fact, according to the article, the U.S. spends more on health care annually ($2.8 trillion) than the top 10 countries combined—Japan, Germany, France, China, United Kingdom, Italy, Canada, Brazil, Spain, and Australia.
About $800 billion of our health care is paid out annually by the Centers for Medicare & Medicaid Services (CMS). CMS is an ongoing and substantial driver to the depth of the federal deficit. When Medicare was enacted in 1965, they expected the cost in 1990 to be about $12 billion per year, which was miscalculated by more than a factor of 10.
And the federal deficit, while insurmountably important, pales in comparison to the sobering statistic that 60% of personal bankruptcies are filed due to health-care bills.