> > so they need to charge a lot... why? - I honestly don't know.
> Does anybody else know the answer to this?
They don't _need_ to. But they do charge a lot because they can -- they know that doctors can afford to pay it using future earnings. And now we're back up the stack in terms of explaining high costs.
Part of it is the Baumol effect as explained by Tabarrok et al [1]. But I believe most of it is due to the nature of the healthcare industry when there are no govt-imposed limits on prices: there is no incentive for hospitals and doctors to lower their prices, since they are not in competition with each other for patients. The insurance industry is just passing the cost to the employers. I could even argue that this explains some of the wage stagnation -- costs went into health insurance premiums.
> Does anybody else know the answer to this?
They don't _need_ to. But they do charge a lot because they can -- they know that doctors can afford to pay it using future earnings. And now we're back up the stack in terms of explaining high costs.
Part of it is the Baumol effect as explained by Tabarrok et al [1]. But I believe most of it is due to the nature of the healthcare industry when there are no govt-imposed limits on prices: there is no incentive for hospitals and doctors to lower their prices, since they are not in competition with each other for patients. The insurance industry is just passing the cost to the employers. I could even argue that this explains some of the wage stagnation -- costs went into health insurance premiums.
[1] https://marginalrevolution.com/marginalrevolution/2019/06/sp...