I agree with you exactly for the reasons you gave.

The effective tax on our discretionary incomes that comes from rising prices related to higher fuel costs is comparable to the tax on our discretionary income that comes from higher healthcare and insurance costs that comes from a failed legal system that does more for trial lawyers than anything else.

If you want to give American's the biggest bang for their discretionary income buck, then reform the legal system to eliminate or severely curtail contingency fees for lawyers and put them on hourly rates. Also, give the trail lawyers some consequence for unethical or dishonest behavior that is actually enforcable.

If you cut down on the lottery mentality in our legal system, then you would see all insurance costs go down and all industries such as healthcare where insurance costs are such a significant cost of doing business.

I do not know that reforming the legal system would curtail healthcare costs.

High healthcare costs are due to productivity increases in the manufacturing sector.

As a side note, inflation is a natural and (when controlled) desirable part of a normal economy.

about healthcare costs not being affected by legal activity.

Lets review. First, we can all agree that liability insurance is a major line item for doctor's & hospitals. In some areas of specialization, it is so bad that it drives people out of the field. Second, I hope we can agree that liability insurance is primarily driven by the number of lawsuits and the average size of awards. Most insurance pricing is based on hard statistical data regarding occurance and severity. A common term for this sort of thing is "Risk Based Pricing". So, if we can accept that predatory lawyers and frivolous claims driven by plaintiffs who look at the legal system as a form of lottery are part of the problem, then we can acknowldge they are partially responsible for the higher liability insurance premiums. Since these premiums are an expense that is ulimately passed on to the consumer, then its fair to say the overly litigous system we have today does cause consumers to pay more for healthcare.

Please explain your comments about how higher healthcare costs are a result of higher productivity within the manufacturing sector. It seems to me like you tried to take a pat answer for inflation and apply it to rising healthcare costs without looking at the upward trends in specific line items of the income statement of a hospital or doctor's office. If I am mistaken, then please help me better understand your position.

Also, regarding your comments about inflation being a good thing I have to disagree again. Lets take our topic of healthcare. When healthcare costs go up then hard-working families have less to spend on everything else and seniors have to dig deeper into their retirment to stay healthy. How can these things possibly be good? I do not mean any disrespect, but you need to get out of the theoretical world and move into the practical world instead.

Ok, you do make some good points. I do not mean any disrespect, but what I refer to are basic proven economic princples.

First, service sector costs (healthcare, lawyers , education) are basically highly educated groups of people which require long terms of schooling. Now when joe-twelvepack gets a job at the local factory right out of high school, we agree that he should not be making as much as the the lawyer or the doctor that just shelled out a couple hundred grand on their education. Now as productivity rises at that factory, their compensation goes up. (Long term these trends are true, a factory worker today makes a lot more than 20-30 years ago). However how many more patients can a doctor see per day? Their productivity can not really increase. However we can not have a society where doctors make less than factory workers, no one would be doctors then. Therefore healthcare costs must rise to stay inline with manufacturing costs and attract people to invest in becoming a doctor.

Inflation is the result of a purchasing power decline as producers are able to produce more goods. Slight inflation suggests economic growth, and is a natural part of a healthy economy. Also inflation is the rise in the real cost of ALL goods. I just meant that as a justification for the first question posed about why milk and eggs cost more today.

Finally, I agree that the frivolous law suits are a drain on the economy. But I do not think that legal reform would really change the cost of healthcare. Insurance companies and healthcare firms just use lawsuits as a scapegoat for charging what they want for healthcare costs. In a practically sense I would blame the inefficiencies of the major HMOs and public ignorance to how they operate as a much more realistic factor as to why healthcare costs are so unaffordable to the average american.

Then again you can chalk that up to the way american's think. "Why should I pay for someone else to get healthcare?" is what I hear over and over again about the disagreement for government supported healthcare programs. Well this is what you get, it is controlled by private companies responsible for generating profits. They dont really care about your well being, if anything they want you sicker, it makes them more money. Any way this is a totally differant discussion for another forum.

Prices will climb ever higher...

These types of boards would be a lot more fun if there were more discussions with this sort of tone and less name calling contests between bomb throwers on the right and left.

Still, I have to disagree with you. If a factory becomes more productive, there is a possibility that labor wages will go up. The real driver will be competition for employment. Its not like these workers are equity holders in the company and their wages are some form of profit sharing. If the factory down the road is offering 50 cent per hour more, however, then they may have to raise their labor rates to compensate. As such, I do not see a direct relationship between increased productivity and increased labor without some other factors. For example, much of the productivity increases come from two sources. First, some piece of equipment is bought that allows the work to be performed more efficiently. A PC for example makes an Accountant more efficient if its used properly. The other likely source of improved productivity comes from logistical improvements. Better incentive structures, benchmarking of performance, inventory management, etc. While the more efficient machinery could result in a need for more training and this could make the worker more valuable on the open market, this is due as much to his increased training as anything else. Its just not clearly a productivity issue and there is not a linear relationship between productivity coming from better equipment and increased wages. Regarding the logistical improvements, I also do not see a linear relationship. Maybe a better commission structure for sales people will result in increased sales, but these sales increases will more likely come at the expense of another company in the market. Taking market share is different from creating market share. In a pure manufacturing environment, lets look at just in time inventory management. If some office worker can save the company money by reducing the time inventory sits in a factory, that does not really mean the workers are going to get any more pay for the innovation of the office worker or that the office worker will receive some pay increase directly related to the savings he created for the company.

In fact, I would say that increased productivity in a competitive market is more likely to drive down prices since companies will often use their lower cost as a means of taking market share away from a competitor by dropping prices. With lower production costs, gross margins can be maintained and profits can actually rise on larger sales volume numbers. Maybe the textbooks say it a different way, but the textbooks are not always right.

Back to the health care costs, I have to disagree again. I do not know of any doctors making less than 100,000 per year and quite a few making much, much more. There is no way you can tell me their rate increases are to make sure some auto worker does not take home more than they do.

I do know many doctors, however, and they talk to me about the rising burden of paying for insurance. Superficially the burden of paying for medical malpractice insurance. This specific cost component is the single fastest rising line item on virtually all doctor's income statements. As such, it is the single biggest reason they have to raise the prices they charge us.

You seem like a nice guy so I hate to keep disagreeing with you, but the oversimplification about the rising insurance rates being a matter of greedy insurance companies is another place we have to disagree. Let me explain the risked based pricing concept from earlier.

Insurance pricing models are similar to a big proforma. They get an idea of likely occurrences for events such as illness in health insurance by doing a statistical analysis for a very large population over a period of time. Then they segment it by factors such as "are you a smoker" or "how much do you weigh" or "what is your age" and then determine the statistical probabilities within those subgroups. Since an overweight smoker over the age of 50 is more likely to have a negative event such as heart attack or a stroke, this person will pay more for his or her health insurance. They take the likelihood of a medical event and then compare it to the likely cost of such event. Lets say 1 out of every 1,000 people with similar characteristics is likely to have a medical event in any given year that will costs 50,000. Then its safe to say a $50 per person component of your annual health insurance cost will be to cover this event.

Now that we understand how the statistical probability of events by the insured person's observable characteristics can affect the likely costs to be paid in the form of benefits, its easy to see how lawyers add to this burden by artificially increasing the forecasted costs the insurance company will have to pay out. If the insurance company expects to earn some constant level of return on investment that justifies the investor capital needed to start and grow the insurance company, then it has no choice but to raise rates as lawyers become increasingly predatory and plaintiffs increasingly look for lottery type suits that can allow them to retire early. Also, for "The Big Bad Insurance Companies" to be artificially raising prices due to greed would require a collusion between all of the Bigs that just isn't possible. The execs who run the big insurance companies would sell the mothers for a 0.25% change in market share so they definitely will not be raising prices without the other companies following along.

Now for the record, I am not against lawyers in general and I am not against a person's right to use the courts to resolve a matter. I am only against the abuses in this system that are not being addressed and the resulting "tax" on everyone's discretionary income in the form of higher prices.

Well first of all I have to agree with you completely with the first and the last statement. I hate trying to have intelligent conversations with punctationally impaired extremists. Also, I completely agree that abuses of our legal system is taxing the system. I mean just look at the backups in some of the civil courts, and our obsession with real court shows as entertainment to know the legal system may be in need of some reform.

Any way, back to to the issue at hand. First about the insurance companies. I understand how insurance premiums work, and I think maybe you may have understood what I was saying. I am arguing that insurance and (especially) healthcare companies find it easier to sell claim that frivolous lawsuits are the cause of high health care costs. The public is alot more interested in the person who sued a doctor for malpractice than they are about inefficentcies in the health care system. They are more apt to buy into that sort of reasoning. I am not saying that the insurance companies are in a collusion, although I don't think they are doing too badly. I think that the effect of obsession over high health care costs as a result of legal problems, loosens the competive environment in the industry and allows these inefficentcies to linger. I know my father has gotten multiple bills for the same treatment, and they set my mother a bill for medical treatment she was supposed to have recieved 3 months after she died. The health care system has been able to float in an environment where it is easier to blame frivoulous lawsuits instead of concentrating on better business strategies. (there are no price setters in this industry, they all price followers, it is a form of non-cooperative collution) Finally it is the doctors who are feeling the pinch, and you and I who are paying for it. Basically I am arguing that the health care system needs to be reformed to help reduce health care costs. I am not letting the legal system off the hook though, it has problems too.

I still think we are missing the point with each other. If one company inflated the cost beyond what another company thought was reasonable, then the second company would keep its prices lower and attempt to gain market share. In a competitive market, the algebra between gross margin and volume does not allow for inflated prices.

Yes there is room to make things more effecient, but its not all on the healthcare providers either. Many healthcare providers estimate that betwen 7-10% of all Medicare receipts go towards the billing & compliance burdens imposed by Medicare? Think what that means in terms of staff requirements alone for hospitals and doctor's offices.

Yes there are some inefficiencies with healthcare providers, but I could give you similar examples in almost all industries. To hold the healthcare industry up to some standard other industries cannot follow is not really the solution.

This is not necessarily true, differant kinds of industries have differant kinds of competition. In some industries, is some industries you have the drive to cut prices in attempt to increase market share. When this happens you could have companies that cut their prices to match, or they could maintain their current price level. Companies could even raise their price levels, and thus have other companies match or stay the same. There are all kinds of price theories and behavior. I am just argueing that what we see in the health industry is a bunch of price followers. No company finds the desire to cut their prices. Prices remain similar across all industries with noone really striveing to better the other. Companies do not have to be in a formal collusion to maintain collusion like priceing strategies. This is a result of a inelasticity in price to demand ratio for health care. Raising or lowering the price will not change demand as greater than the effect of the price change. For example, say that we are both in the business of selling bread. Let's just assume that everyone needs bread and for our purposes here that customers are rather loyal to one company for convience. Cost of production equals .80 per loaf of bread. I set my price at say 1.00 a loaf and I get 100 customers. (total profit 20) You set your prices at .95 and you have say 150 customers. (total profit 22.5). Now, let's say that I drop my price to .90 and I pick up 40 of your cutomers plus 10 others who didn't get bread before. I know make .10 per loaf profit and have 150 customers. (total profit 15). You now keep your price and make 16.5. There is really no benefit to me dropping my price. We both lose. Now maybe you raise your price to 1.05 and lose same amount of customers to me, plus lose 10 who would not be able to afford bread. You know have 100 customers at .25 profit and make 25 total. I make .20 per 140 customer total - 28. We both win. Why would we cut costs? If anything we can let prices rise, we won't lose enough customers to lose profits. If anything we are gaining profits. I might just raise my prices too, and then we would both make a lot more than when prices were lower. When you have an industry that is part of a basic necessity (ie Oil) you can raise prices without losing too many customers.
This is the kind of industry we see in health care. You don't even have to be in cooperation with you to know that
if you raise your costs, we could both benefit. *note this is the best example I could think of off the top of my head, it is no means perfect
or takes account other factors. Purely a simple example.

Yes this is true. But sort of based on the example I provided before. There is no incentive to cut costs. People desire health care and are willing to pay high costs for it. Just because the price goes up a small increment, there will not be a big effect in how many customers will no longer pay that amount. Compare that to some of the manufacturing industries which are very touchy about prices to demand ratio. Think of how successful places like
Walmart have become just because the price of one good there may be a few cents cheaper than a place down the street. Local shops are virtually extinct because of it. In that industry there IS incentive to cut costs and make goods as cheap as possible. But you find that it is not the same environment in the healthcare industry.

I think we have both given this a lot of thought, but I do not think either will change the perceptions of the other one.

I enjoyed the exchange and look forward to more.