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NATIONAL INCOME AND GROSS DOMESTIC PRODUCT: National income (NI) is the total income earned by the citizens of the national economy resulting from their ownership of resources used in the production of final goods and services during a given period of time, usually one year. Gross domestic product (GDP) is the total market value of all final goods and services produced within the political boundaries of an economy during a given period of time, usually a year. Although national income is generated by the production of gross domestic product, the value of production does not entirely result in earned income. In other words, national income can be derived from gross domestic product after a few adjustments.

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The Sick State Of HEALTH CARE

Our pedestrian's guide to the economy would be remiss if we failed to stroll past the Shady Valley Memorial Hospital and my very own physician's place of business, the Dr. Dowrimple T. Bedside Family Clinic, to examine the considerable controversy over health care. A debate has raged for years over health care in the United States, including, but not limited to, the quality of services, their cost, their slice of the economic pie, who pays, who doesn't, and who should.

One Big Chunk of Pie

The good old U. S. of A. has been devoting an increasing slice of economic pie to health care over the past several decades. As recently as 1960, about 5 percent of our pie (measured in terms of gross domestic product) was for of health care. In 1990, this number was closer to 12 percent. By the time you read this, the percentage will be even greater.

The health care slice has grown, in part, from rising health care prices, and in part, because we're using more resources on health care. We're not yet a nation of wealthy pediatricians, neurosurgeons, and orthodontists who do nothing but examine, diagnosis, and operate on each other, but we're getting there.

Yet, we are THE United States and should expect to have THE most advanced (and expensive) health care in the world, right? Unfortunately, we spend 12 percent of our pie on health, while other countries like Japan, Germany, Britain, Canada, and Sweden, spend a mere 6 to 9 percent of their pies, and their populations are as healthy or healthier than ours. They spend less, but get more.

The question is: Do we want the hungry health care monster to consume an increasingly larger share of our pie? If the answer is no, we need to get to the source of the problem. Let's start with doctors.

Those Overpaid Doctors

A frequent target for blame in the health care debate is the medical profession -- even my own friendly family practitioner, Dr. Dowrimple T. Bedside. Here is the physicians' contribution to our health care mess:

  • Market control . Health care professionals are a very select group who require extensive training (Dr. Bedside trained for over a decade), certification, and licensing. This keeps quacks, charlatans, and assorted con artists from performing brain surgery on unsuspecting patients. However, limited admission prevents otherwise qualified people from joining the health care ranks and gives physicians a fair amount of market control. With the suppliers' market control comes higer prices.

  • Information control . Prices, though, are not the only thing under the thumb of Dr. Bedside. Not only does Dr. Dowrimple T. Bedside and his colleagues control the supply of health care, they also have a great deal to say about demand. They diagnosis your ailment then recommend the cure that they provide. Because their incomes are based on both diagnosis and cure, they have a pretty good incentive to recommend more treatment than needed. (This is an example of the principal/agent problem.)
A Prescription for Market Control

Let's consider this market control side of higher prices. Physicians and the health care industry maintain a degree of market control in two ways.

  • Medical school accreditation. Physicians, through the American Medical Association (AMA), control accreditation of the nation's medical schools. Non-accredited medical schools are considered, at best, second rate. By controlling accreditation, however, the AMA also controls the number of physicians trained and the total number operating in the profession.

  • Certification and licensing. The AMA's market control doesn't stop with training. Once trained, health care practitioners need to be certified or licensed by state medical boards, which, as you might suspect, is comprised of professionals in the industry. This ensures quality control but it also reduces competition.

The bottom line is that Dr. Bedside and his cohorts have very little competition, a fair amount of market control, and can charge higher prices.

Trust Me! You Need the Operation

Now some details on information control. With the ability to recommend their own services, physicians and other health care types have a powerful inclination toward excessive treatment. Two common forms are:

  • Unneeded operations . Hysterectomies, caesarean sections, and gall bladder removals are three common -- and lucrative -- operations that are often cited as unnecessary. Other examples abound, way too many to list.

  • Unneeded tests . Simple laboratory tests, X-rays, and cat-scans are just a few of the tests that may be unnecessarily recommended to reach a diagnosis. Two tests may be just as good as one, but they're twice as expensive. Because doctors do the tests and get paid for them, this adds to their incomes and health care cost.

In defense of my good friend Dr. Bedside and other physicians, health care is an inexact science -- each patient's illness is unique. Physicians seek as much information as they can get before making a diagnosis and recommending therapy. Because doctors aren't generally inclined to kill their patients or get sued for malpractice, they tend to recommend a few extra tests that might be unneeded, but could improve their diagnosis.

Insurance Picks Up the Tab

The best thing about rising prices, extra tests, marginally justified operations, and higher health care costs for most of us is that we pay only part. Our insurance companies (mine is Smilin' Ted's Allcomers Insurance Agency) pay the rest. Or if you happen to be poor, retired, or disabled, the government pays a bunch of it through Medicare and Medicaid. Is this a great system, or what? Yes and no. Unfortunately, this system of third-party payments by private and government insurance helps keep the cost high. Here's why.

You tend to buy more of a good when the price is lower. This holds for coffee, Hondas, movie tickets, and health care. If you pay only 20 percent of your health care bill, then you're prone to buy more that if you paid it all. Okay, maybe you won't have elective open heart surgery, but you might be more inclined to visit your doctor, get a few extra tests -- just in case -- and have some elective plastic surgery.

Who, though, really pays this other 80 percent? In the case of private insurance, the other policy holders pay. In the case of government insurance, like Medicare and Medicaid, taxpayers foot the bill. While you might not pay the physician directly, you end up paying indirectly through higher insurance premiums and taxes.

Cutting a Smaller Slice of Health Care

Market control of the industry by the likes of Dr. Bedside encourages extra treatment and greater cost. Third-party payments through government programs and private companies like Smilin' Ted's insurance agency encourage greater demand at higher prices. It's difficult to keep health care prices and cost down with both sides working against us.

The real cost, though, is not so much what we pay, as what we give up. Given our first and most fundamental fact of economic life -- a limited economic pie -- when we use more resources for health care, we give up other stuff.

There are, however, a few things that you can do to control your health care expenses.


Consumer Health Care Tips

  • Make sure that your doctor has a very good reason to for any recommended tests. If you think your doctor is conducting too many tests, then make your feelings known. If you don't get a satisfactory answer, then find another doctor.

  • Make sure that an operation is truly the best cure for your ailment and don't be afraid to get a second opinion on any sort of non-emergency, elective surgery.

  • If you have any questions about health care expenses and treatments, contact your insurance company. As they try to hold down their payments for health care, they can help you get the best service for the buck.

  • It also wouldn't hurt to stay healthy. High health care prices don't hurt if you don't buy.


Unfortunately a single person alone can't prevent the meteoric rise in health cost. This leaves it up to the actions of government. Here are a few policies that might help keep the cost down.


Health Care Tips for the Voting Booth

  • More competition in the health care profession . Quality standards can be maintained without overly restricting the supply of professionals. Movement between occupations, such as physicians and nurses, would help. Nurses, paramedics, and physicians assistants can establish their own practices to provide health care without the specialized training of physicians.

  • National health insurance . As a general rule, private insurance let's you pay a small amount to avoid paying a larger amount for an illness, accident, or disaster. A national health insurance, whether run by government or a government-authorized private agency, could provide a similar service. While this won't prevent people from demanding more health care, it can help balance the market control of providers.

  • Fee schedules . Government Medicare and Medicaid, as well as many private insurance, have begun adopting standardize fee schedules for health care services. For example, they might reimburse surgeons, at most, $2,000 for a standard appendectomy. This would prevent providers from raising some prices. Unfortunately, the providers tend to tack the extra fees onto patients who aren't constrained by fee schedules.

  • Preventative health care . Health care costs can be controlled if no one gets sick. A number of health problems, many of which require some of the most expensive health care, are preventable. These include, but certainly are not limited to, heart disease, cancer, and car accidents. Preventative health care can begin with regular doctor visits, but would also include healthier lifestyles, eating properly, reducing smoking and drinking, and improving automobile safety.

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