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Why medical care in the US is so expensive

This post was inspired by one of Mike Munger's recent TAITC episodes.

The big issues with spiraling health care costs in the US are (a) that the market has been distorted (mostly by regulation and cartel behavior) into a completely perverse state where normal price signals and competition are broken; and (b) that there's no single payer central planner dictating prices to keep them as low as they can be without driving every worker out of the medical field. (The latter is only a "solution" in one sense, in that it optimizes for price over every other consideration; see my last paragraph below.)

Fundamentally, there is no reason why health care should be any different from any other market, like for TVs or cars or landscaping or home furnishings, where buyers and sellers collectively negotiate prices for various goods and services. (Witness the low and very public prices for Lasik and other completely elective procedures not covered by insurance.) Unfortunately, every government virtually everywhere in the developed world has been messing with this market in a counterproductive effort to control costs, and everything they've done in an attempt to paper over the problems this has created has just made them worse.

In virtually every other market, market forces over time bring prices down (inflation adjusted, of course) through competition that drives inefficient suppliers out of business and encourages innovation for productivity. In medicine, (a) cartels keep doctors from competing against each other (supply is kept artificially low via limits on medical school seats and residencies; and doctors are *literally* not allowed to advertise by AMA dictat); and (b) prices are completely hidden from consumers, disconnecting price and cost from demand and making it impossible for the market to collectively find a market-clearing price for a particular procedure.

The objection you often hear as to why medicine is Really Different™ is that no one is going to shop around for an oncologist when they have stage 4 cancer; but that's not how functional markets work anyway. I don't shop around for barbecue sauce, and yet I know a priori that I'm never going to pay some giant premium at any major grocer over the lowest available price because the rest of the market would have already punished that particular grocery store. Market-clearing prices are an emergent phenomenon across many transactions: they are not found in an individual transaction.

Until price signals are restored and the stranglehold over care supply (number of doctors; restricting particular procedures to medical doctors rather than nurses; etc.) none of this will change. Single payer would just make things worse over time by killing the productivity gains that every other country on Earth depends on the US to provide them, more-or-less freezing the quality/standard of care at the point where single-payer is implemented, with the only productivity increases and technological innovations coming in areas where the central planners approve and fund them, rather than allowing the market to perform its seemingly-magic highly-parallelized optimization via exhaustive search and creative destruction.

The best way to think about free markets (and this goes for AI, as well) is that you take one step back in order to take ten steps forward, and everyone living in 2026 is far better off for us having made that trade-off than we would have been were the precautionary principle to have killed the car to protect buggy whip makers back in the early 20th century. It's essential we take the long view, and that is why I say that growth matters more than virtually everything else: because we are biased towards seeing on the immediate pain from market disruption despite having had a few hundred years of proof that the free market approach improves QoL for everyone living a few decades after that disruption is long forgotten.

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