MICRO-COSTING
Health care costs is one of the major social problems of our time with devastating impacts on individuals, households and the society and economy at large. Economic theory offers the theoretical foundation for valuing costs and effectiveness in assessing health care and public health interventions. In a perfectly free market economy, without market failures or distortions, the market price of resources can be used as real resource costs—the opportunity costs—of a given intervention or program. Health care and public health programs, however, do not operate under ideal market conditions; thus, prices cannot be used to value resources, and costs must be empirically estimated.
A stumbling block in health economics has been inaccurate conflation of prices, charges and costs, indeed many health economic evaluations use charges, prices, or payments as proxies for cost. However, using these measures, rather than the true costs of resources, results in inaccurate estimates, even cost-to-charge ratio adjustments, significantly miscalculates costs. This is because health care market prices or charges do not reflect opportunity costs to society of resources used to produce services and goods. This is due to market failures and inclusion of profits in excess of actuarially fair allowances of risk and return on investment, which only occurs under perfect competition (price = marginal cost) and does not exist in health care or
insurance markets, particularly in the United States.
We developed an alternative costing methods approach. Solving this problem is significant. In the United States alone, where health care costs exceed all other nations on earth, it is a $3.5 trillion or 18% of the economy problem, vital to the nation’s economic well-being.
