We are obsessed with the cost of healthcare and the many disparities between the same service costing different amounts. The wannabe economics major that I am makes me think about a couple of interesting concepts that seem to be very weird when it comes to healthcare. This week, the New York Times published an article showing how a particular lab charges $380 for a Covid test. Woah, price-gouging, right? Well, not so fast, a law introduced a way for some labs to charge any price they wished.
Ironically, I am in the car with a family member as I write this and, my family member was just talking about a free iPhone from Verizon, but the $75 charger (a normal car charger) and case were both overly-expensive. So, was the phone really free? No. In B-School, I learned how McDonald’s, the fast food chain known for burgers, does not make their money off of the burgers. “McDonald’s sells a lot of food. Like, a lot of food. We’re talking enough food to serve more than 70 million people every day, with more than 75 burgers sold every second.” It is the real estate, the franchising, and even the soda… everything but the burgers.
Back to Covid, I know you haven’t read enough or seen enough of Covid, right? Ok, I will pause for the big eye roll. Ok, now that you are back, although a rapid Covid test is usually less than $20 at a drug store, “over a dozen testing sites owned by the start-up company GS Labs regularly bill $380. There’s a reason they can. When Congress tried to ensure that Americans wouldn’t have to pay for coronavirus testing, it required insurers to pay certain laboratories whatever “cash price” they listed online for the tests, with no limit on what that might be.” According to legal documents, GS Labs pay “approximately $20” for the rapid test. The high price is reflective of the “premium service” provided to patients. I didn’t read anything about patients getting a cut and color, what is the premium service that comes with the test? Oh, the patient could get their results faster. Was that the only reason for the markup? I’m so glad you asked. No, silly rabbit, there was also a $37 million in start-up cost for building their laboratory network in less than a year.
Thinking about one of my favorite concepts in economics, the Big Mac index, I think about the application of it here. This index was invented by The Economist in 1986 “as a lighthearted guide to whether currencies are at their ‘correct’ level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.” I am very excited to watch the cost of a Covid test in different countries as people go back to traveling and tests are required for entry to a country. According to NBC’s Why do Covid rapid tests cost so much even after Biden’s push for lower prices?:
- USA – the cheapest over-the-counter Covid test is the Abbott Laboratories BinaxNOW two-pack, for $23.99.
- Germany – grocery stores sell rapid tests for under $1 apiece.
- India – they’re about $3.50.
- The U.K. – provides 14 tests per person free of charge.
- Canada is doling out free rapid tests to businesses.
So, question – how much did you pay for your test? I took 2 or 3 tests last year and I never paid anything, but it goes back to the adage: my insurance paid for it, so why should I care?