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Healthcare: High Prices and Few Kidneys

January 22, 2014
8116080125_65eba38273_zStart with a simple proposition: America does not have a healthcare problem. The services provided are the best on this planet, and people from around the world travel to its hospitals and clinics to seek treatment. If they can afford it, that is. If there is a problem it is not on the service side but rather with the costs. So, what is the main driver of these increasing costs? Bad government policies force costs out of line with what they should be, creating a disconnect between supplies and demands. In few areas is this more apparent than in the case of organ sales. It is illegal to sell your organs in the United States and most other countries around the world. In 2012 there were 95,000 men, women and children on a waiting list for kidneys but only 16,500 kidney operations performed. This translates to an implied waiting time of 4.5 years to get the simple organ. Nor is this an improvement over recent history. Just a decade ago the average wait time was 2.9 years. With all the recent attention afforded to healthcare and the piles of money driven into it, this situation has worsened and those in need are worse off than they have ever been. When supply is curtailed, as it is in the case of laws prohibiting organ sales, a black market develops to provide the good or a shortage occurs. Unfortunately, organ donation is not so straight forward and few are willing to trust a black market surgeon to perform the operation. This is unfortunate as our bodies come with a backup for most of our major organs just in case something goes wrong – a spare kidney, a portion of our liver, a lung or even an eyeball could all be given (or sold) to someone in need and we could still live a long and healthy life, except the law prohibits it. With no black market available to clear the market, those in need live in pain or die earlier than would otherwise be the case. Besides the pity of the pain and suffering, this situation is a shame because it is just not very cost effective. The black markets that do exist around the world suggest that organs are not very expensive. At least, not relative to the cost of healthcare and support to people in need of them currently in the United States. According to the World Health Organization, a kidney fetches around $20,000 in India, $40,000 in China and about $160,000 in Israel. In 2009 an American man offered one of his own on Craigslist for $100,000 and received several offers until the website removed his post. These prices might seem high, but consider the alternative. The annual cost of dialysis is about $80,000. Multiply this by the average 4.5 year waiting period for a new kidney and you’re looking at $360,000. Tack on something for your pain and suffering, and you can see that the current situation is not very cost effective. Exchanges are currently being pushed that try to match donors with those in need without a cash payment. This is a step in the right direction, albeit a very small one. The great thing about having a market price is that it simplifies the choice process immensely. Buyers can easily determine their opportunity cost to see if they would like to partake in a certain action, sellers can judge if it is worth their time to supply something, and best of all, supply meets demand – no shortages or surpluses! Though exchanges have grown in use in the United States since 2005 they still account for only 3% of all kidney donations. This isn’t surprising – using an exchange is like bartering for something, and as economists Gary Becker and Julio Elias note, “barter is always an inefficient way to arrange transactions.” In fact, Becker and Elias think that the price of a kidney need not be as high as one might think to clear the market, provided there is a legal market to do it within. About $15,000, give or take $10,000 should just about do it. In Iran, the only country in the world where one can legally buy or sell a kidney, the price is around $4,000 and wait times are largely nonexistent. Singapore and Australia have recently relaxed regulations on organ sales to get closer to these results which are completely normal in other markets – no waiting and low costs – but seem remarkable to the uninformed in the organ market. There is an idea floating around that selling organs is morally repugnant, and that somehow it is not “fair” to opt for the market solution as it would all but guarantee that only the wealthiest would have access to them. I’ve got news for you – who do you think is getting speedy treatment today? In markets where prices are controlled to ensure that the poor and less fortunate have equal access to these types of goods and services, the poor and less fortunate are paradoxically the least best served. This is so as the price is driven higher than would otherwise be the case, exacerbating their problem and the more fortunate souls have greater means to seek black market solutions or push their way to the front of the wait list. Regulations don’t just complicate our lives needlessly; they are a matter of life and death. One of Ludwig von Mises great contributions was his “critique of interventionism.” Originally published in German in 1929, then published in English in 1977, Mises’s book A Critique of Interventionism summed up his position this way:
“In a private property order isolated intervention fails to achieve what its sponsors hoped to achieve. From their point of view, intervention is not only useless, but wholly unsuitable because it aggravates the “evil” it meant to alleviate…. If government is not inclined to alleviate the situation through removing its limited intervention and lifting its price control, its first step must be followed by others.”
In short, interventions beget interventions. The mess in healthcare that we see today has nothing to do with healthcare, and everything to do with bad laws and regulations limiting consumer choices. If the government cared about getting costs under control, it would be better advised to relax and eliminate these needless interventions rather than carelessly throw more money at the problem. (Originally posted at the Ludwig von Mises Institute of Canada.) Photo Credit: Phalinn Ooi

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