It’s no secret that healthcare and college in the U.S. are absurdly expensive. And even that assertion is an understatement. From 1978-2012, college tuition costs climbed over 1000%—rivaled only by healthcare costs (which increased by over 600%). The real mystery for the majority of those who have become slaves to student loan and medical debt, is how exactly their indentured servitude came to be. How is it that a college degree and a hospital visit have become so expensive that a significant portion of one’s lifetime income should have to be garnished?

Both the cost of healthcare and higher education are on a race to the top, and while there are many contributing factors, each sector’s rise in cost do share a common component that doesn’t get much attention. In each, the mechanism and circumstances vary only superficial, but the core principal is the same. The story begins exactly where you’d expect: with money.

HOW money moves is EVERYTHING; this includes the proper identification of “whose money” and a society’s responsibility in balancing commerce and human need. Confusion over these roles are the primary goals of modern propaganda that seeks to conceal the true economic burden of healthcare and higher education, and who bears it. Deliberate efforts to shift the focus and responsibility of costs are common practices used to mitigate any potential backlash from citizens who suddenly become interested in WHY costs are so high in the first place. What readers will find in this article is a unique view as to why healthcare and higher education costs are completely out of control.

UNLIMITED DEMAND AND MONEY CREATES AN UNLIMITED RISE IN PRICES.

If there’s one thing you need to remember about high costs it’s this: prices depend on demand and money to meet that demand. That’s it. Imagine that Store A sold an item that no one wanted; the resulting price for that item would be quite low. Now imagine that Store A sold an item that EVERYONE wanted; the price on the item would certainly jump. However, there would be a limit to how high the price could go up based on demand alone: prices could only go as high as consumers could afford. The key here is understanding that the availability of money (either money saved through income, or credit) is as necessary for pushing prices upward as demand alone.

But imagine this: what if Store A could figure out a way to sell an item that absolutely EVERYONE needed, and what if they could also find a way to get paid for that item from a pot of infinite money—regardless of whether consumers’ wallets were big or small? If that were the case, Store A could raise the price of that item infinitely higher. A necessary item that EVERYONE must have would represent unlimited demand. And when unlimited demand meets unlimited money, you get unlimited price increases.

Welcome to the economics of healthcare and higher education costs in the United States.

FINDING THE CASH HOARDS.

So how do the healthcare and higher education industries dip into a well of infinite money from which to get paid, for services that cost more and more every year? It’s a secret hidden in plain sight. But to truly appreciate it, let’s start with this one simple truth:

Wherever there is a pile of cash, there are people and entities that want as much of it as possible.

This is almost entirely due to the fact that these persons and entities KNOW that the pile of cash exists. This is why, when negotiating a good price on a product or item, its best that the buyer never reveal how much they HAVE AVAILABLE to spend. Allowing sellers to know you have a huge cash pile to spend means they won’t have to negotiate a lower price—if they know you can afford to pay top dollar, that’s what they’ll charge you.

Remember that demand alone doesn’t necessarily drive prices up—money piles do. So if you want to charge high prices, you’ve got to find where the cash hoards are.

Look at what happened in the years that followed the financial crises of 2008; rather than dropping prices to make up for a lack of demand amongst hard-hit middle-class wallets, car companies simply went where the money was and charged more—they created a luxury class vehicle and sold it at a higher price point, to a wealthier income bracket. Now companies like KIA and JEEP have luxury class vehicles even though those brands have traditionally sold to middle and lower income brackets.

To further drive this point home, consider this:

Imagine that you win the lottery tomorrow. Then imagine the influx of calls you’ll received from relatives, charities, political organizations—pretty much any group, company, or person who’s looking to take some of that loot off your hands. Assuming you’ve won millions of dollars, how much do you think the average caller is asking for? Certainly not $10 or $20. If that were the case, they’d have been hounding you in the years before you hit it rich; but they weren’t, because they KNEW you didn’t have a pile of cash to throw around. Every caller after your newfound wealth is asking for thousands and thousands—even when acknowledging that they are competing with others who also want your cash. They know you’ve got enough to go around. And therein lies another key point: when providers in a market KNOW you have a lot of cash, or access to a lot of cash (maybe you opted for the monthly installments instead of the lump sum), they’re asking price goes up.

CREATING CASH HOARDS.

The lottery scenario illustrates how the movement of money from many small wallets can create the power of huge cash hoards. In the simple act of purchasing a $2 lotto ticket, a vast amount of people are contributing to a multi-million dollar (and recently, billion-dollar) cash hoard from which they may never directly benefit—but the money certainly goes somewhere (government programs in this case).

Therefore, if a market provider is looking to make a lot of money, and the majority of the interested consumers don’t have enough money to pay the prices it wants, it has to find or create a cash hoard to dip into.

The lottery is a fitting concept in this discussion as it resembles a taxation system, and taxation is used for only one purpose: to create a cash hoard; it’s free money given in exchange for the CHANCE that those who give will benefit at one time or another (maybe).

But although taxation is often identified as being a function of government and public spending, taxation happens in the private market as well; in the case of insurance, the taxation mechanism is called a premiums. Just like public taxes, premiums are monies you pay regularly to an intermediary agent EVEN IF YOU NEVER DIRECTLY BENEFIT. Much like how a wealthy person will pay taxes toward a public school their child doesn’t attend, the average person pays premium monies to a health insurance company whether or not they ever get sick enough to benefit from those paid monies.

So, similar to how taxation by government creates a cash hoard used to benefit the people through public programs, private insurance companies create multi-billion-dollar cash hoards through the collection of regular premiums (a private tax, if you will). In the case of the private market, funds collected through premiums are then grown by a series of policies that limit payouts from the cash hoards; we experience these “growth policies” as restrictions on services that increase premiums and cutback on benefits (technical loops holes or deductibles in the fine print that increase the probability that premium monies paid by customers will never come back to them in form of benefit payouts).

Such policies are specifically designed to grow cash hoards bigger and bigger—which is important for understanding the parallel rise in the cost of payouts (costs paid by insurance companies to providers) and premiums: bigger cash hoards lead to bigger prices because market providers KNOW the money is there.

THE CASH HOARDS AS MIDDLEMEN.

Cash hoards created by taxation, either through public taxes or private premiums, are essentially creating a middleman between contributors (premium payers, tax payers AKA: buyers) and those who provide products or services (a doctor or a college, AKA: sellers) to contributors.

The key thing to understand about a cash hoard middleman is that, when such a middleman is introduced, personal control over one’s money and the PRICES one is willing to pay for services is transferred to that middleman. When people have personal control over their money, providers that wish to profit must satisfy the ENTIRE customer base—which includes charging prices that match their willingness (and ability) to spend.

When buying power is transferred to an intermediary cash hoard outside the personal control of the people, providers that wish to profit from the masses need not please them, but only need to satisfy the demands of the single entity that controls the cash hoard (insurance companies and governments). In this case, prices and payouts are determined NOT by the size of contributors’ individual wallets, but rather, by size of the CASH HOARD that was created from their combined monies.

CREATING UNLIMITED ARTIFICIAL DEMAND.

The market is dumb. It doesn’t think or breathe or care about what humans do, or need, or want—it just reacts. The market can’t tell the difference between a need and want; it only knows that there is demand and money to pay for those demands. This is one of the principal errors in allowing market forces to freely govern healthcare and higher education costs.

Prada and Gucci bags are exclusively marketed to those persons who have a lot of disposable income; those brands target a particular kind of consumer. But everyone needs healthcare, and a case for the necessity of higher education can be made as well. Getting sick isn’t a matter of IF but WHEN. And higher education is certainly MORE necessary than a Louis Vuitton bag, especially when the majority of living wages exist in positions where a college degree is required. But to keep our focus, let’s not quibble over the philosophical necessity of healthcare and high education. Instead, let’s simply focus on the understanding that healthcare and higher education APPEAL to a much wider range of customers than every brand of luxury bags combined—that is, many more people are either USING or WILL BE USING both healthcare and higher education services, than there will ever be people buying luxury brand products.

That being said, there will never be a large enough demand for Prada bags and Louis Vuitton purses that would allow either brand to raise their prices as fast as healthcare and higher education have. This is because both luxury brands sell DIRECTLY to consumers, and that means prices can only reflect the average desire and wallet of all potential customers. But cash hoards change everything.

But unlike luxury products and services, demand for healthcare and higher education is a distortion of market forces that projects the appearance of unlimited demand. This unlimited, artificial demand, is derived from the uniqueness of healthcare and higher education services that are both essential and appeal to a customer base that includes the majority—if not the entire—population of the United States. But as stated earlier, an increase in demand for goods and services requires much more than a greater appeal to a broader base of customers; it requires money. With the cash hoards acting as middlemen through insurance companies (premiums) and federal student load programs (taxes), healthcare and higher education are free to infinitely raise prices that seek more revenue from plentiful cash hoards—regardless of whether or not consumers could ever personally afford services.

THE BOTTOM LINE

While there exists a myriad of reasons why healthcare and higher education costs continue to rise faster than almost any other expenses in the market, systems where cash hoarding is the primary means of paying providers presents a unique problem with respect to market checks and balances.

In the case of healthcare: With the control in the hands of private insurance companies that seek to increase their cash pile through premium hikes and claim denials, providers—being aware of the hoards—will only continue price hikes to get a bigger cut. As long as there are insured persons who hardly get sick, but are paying into the system, the cash hoard grows along with the prices. As a private entity, insurance companies need not heed the voice or vote of contributors about matters concerning how the cash hoard is controlled or how provider prices are negotiated. Under current healthcare conditions, both the insurance companies and providers are free to divide cash hoards amongst themselves, while any “cost increases” are simply passed on to contributors through premiums and lack of care.

In the case of higher education: As direct public funding is slowly drained from universities, the cost burden of educating our nation is clandestinely transferred to students in the form of student loans. Tax money channeled through students in the form of loans are forwarded instantly to universities, and then paid over time by the student. This clever rouse allows universities to access the “promise” of a cash hoard TODAY, even though it hasn’t yet been paid for, and likely, won’t be paid in full for many years. This indirect access to public tax hoards by universities has completely changed how higher education institutions function, where course standards, curriculum, and recreational amenities now reflect a system that only scrambles to plug budget deficits. In the tradition of gambling, universities must attract and admit as many prospective students as possible to cover potential losses, with nearly 80% of their budgets depending on student’s easy access to public cash hoards in the form of loans.

If healthcare and higher education providers were to be paid from the pockets of individuals, only IF and WHEN they required services, prices would be quite low. Similarly, if healthcare and higher education were fully funded through universal federal budgets like many other modern nations, costs could be negotiated through public forums—instead of by private administrators looking to enrich themselves with “free money”. (It’s a lot harder to raise taxes than it is to raise premiums).

But current cash hoard regimes change the game by creating the illusion of unlimited demand in the private market, because both premiums and public taxes are collected WHETHER NOR NOT patients get sick or citizens go to college.

As long as unchecked cash hoards for healthcare providers are paid from private cash hoards (insurance premiums) and universities are paid from public ones (public taxes in the form of student loans), prices hikes will NEVER slow down.

Healthcare and higher education costs share the same story: patients and students will have their full wages delayed for decades so that healthcare providers and universities can get paid TODAY, from plentiful cash hoards that strategically rig market forces to create the illusion of unlimited demand, for unlimited profits.


Also published on Medium.