This page was last updated on June 29, 2015.
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A reasonable discussion of the healthcare issue requires background information. As a result, please bear with me, as the first several sections below don’t jump right into a discussion of current healthcare proposals.
In an ideal world, everyone would have affordable (to them) and timely access to high quality healthcare to address their healthcare needs and wants. I believe most serious participants in the healthcare debate would like this to be true.
Keep in mind some supporters of a nationalized healthcare system do so for reasons not related to healthcare. As for most government programs, follow the money and the power. For leftist leaders and activists, nationalized healthcare is simply another way to increase the power of the state over the individual. In a 2009 Gallup poll, 80% of us were satisfied or very satisfied with the quality of medical care available to us and our families and 61% of us were satisfied or very satisfied with the cost. From 2009-2013, Gallup polls reported 67%-72% “Americans rated their personal healthcare coverage as excellent or good.” (Note: Even though Obamacare became law in 2010, insurance-policy mandates didn’t take effect until 2014. Therefore, 2013 medical-care insurance policies were still pre-Obamacare policies.) Given those poll numbers, what is the purpose of Obamacare if not for purely political purposes? Had Americans been told the truth about Obamacare (the opposite of “you can keep your medical insurance and healthcare providers if you like them” and “your family’s medical insurance will cost you $2,500/year less”) in 2009-2010, would their Democrat “representatives” still have voted for Obamacare? That said, rather than focus on potential motivations in this paper I try to focus on what really matters, the results.
Here’s a note about terminology. Proponents of a government-run, taxpayer-funded healthcare monopoly and/or steps in that direction [government-run healthcare insurance “company” (aka the “public option”) or government-funded healthcare insurance co-ops) have hijacked the term “reform.” If you propose reform that doesn’t ultimately result in a government healthcare monopoly, proponents of such a system claim you oppose reform and support the status quo.
Finally, I recommend you read the background topics covered in Appendix B. They should make following the rest of this paper a little easier.
Our Founding Fathers believed in limited government. That’s why the U.S. Constitution has the Ninth and Tenth Amendments. The Ninth amendment to the U.S. Constitution says, “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.” In other words, just because the Constitution doesn’t mention a specific right, it doesn’t mean we don’t have that right. The 10th amendment says, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved for the States respectively, or to the people.” What that means is the federal government doesn’t have a power unless the Constitution explicitly gives the federal government that power. The Constitution – including its amendments – does not give the federal government the power to control our healthcare. Of course, the same is true for Medicare, Socialist Security, and other government programs, but those are discussions for another day.
Though I have no legal training or experience, I believe the fact our Constitution doesn’t give the federal government power over healthcare should make this entire healthcare/healthcare insurance discussion moot. Unfortunately, too many of us don’t let a “little thing” like the Constitution get in our way. That’s why the bulk of this paper exists.
Do you remember when then-Speaker Nancy Pelosi (D-CA) told us, “But we have to pass the [Obamacare] bill so that you can find out what is in it, away from the fog of the controversy?” As ridiculous as it sounded when Mrs. Pelosi said it, she was correct. That’s because much of the Obamacare bill was the equivalent of “fill in the blank.” That is, much of the Obamacare bill merely specified the actual laws (aka regulations) would be written and enacted later by various government agencies and departments (headed by political appointees) and not subject to approval by Congress. As a result, no one knew the full extent of Obamacare because parts of it literally were not and have not been written yet. You can’t communicate what you don’t know. Again, that’s by design. That’s how the issue of forcing religious organizations to provide services that violate their beliefs popped up. This is unconstitutional as per the First Amendment. As for enacting law via regulation, please read my paper entitled “Economics.”
Unfortunately, the U.S. Supreme Court ruled (5-4) the core of Obamacare – the individual mandate - is constitutional.
Once you work through all the healthcare proposals mentioned in the media, you find there are really only two schools of thought regarding healthcare.
One school asserts the best way to address healthcare is for government to take complete control. This approach is referred to by a variety of names, including single-payer healthcare, nationalized healthcare, socialized healthcare, taxpayer-funded healthcare, universal healthcare, et cetera. In this model, taxpayers fund the system and healthcare providers effectively become government employees because – as sole payer of the bills – the government is the only “customer.” I refer to this as a government-run, taxpayer-funded healthcare monopoly.
Depending on the specific proposal, the single-payer healthcare approach employs communist or fascist principles or a hybrid of the two. In the communist implementation, the government takes direct ownership of healthcare providers (hospitals, medical practices, et cetera) either by forcefully buying out the current owners, confiscating the businesses, or by building its own facilities and driving current providers out of business. You can find other tactics in the section entitled “H.R. 676.” Hospitals and doctor practices would be government owned and run and all doctors and nurses would become government employees. In the fascist implementation, the healthcare industry would technically still be owned by the private sector, but government regulation would take sufficient operating control to make the government the de facto owners and doctors and nurses would be de facto government employees. You should note some nationalized/socialized healthcare system proponents object to this terminology (No kidding!) because most proponents don’t want their proposals associated with words like communism, fascism, and monopoly. It’s splitting hairs to say which of these approaches is worse. The bottom line is, “He who pays the piper calls the tune,” and the government becomes the only payer.
The other school believes the best approach is to minimize government involvement in healthcare in favor of a free healthcare market. In this model, we individuals are responsible for acquiring our healthcare and paying for it directly out of our own pockets. Government programs like Medicaid, Medicare, PACE, tax-exempt status for employer-based healthcare benefits, et cetera do not exist in a free healthcare market.
Some people try to straddle these approaches via proposals that allegedly “mix and match” the properties of both basic schools of thought. Ignoring all other shortcomings, the biggest problem is even a “small” government involvement will gradually grow back into the mess we have now or worse. It’s like not completely excising a tumor.
One tool used by proponents of a nationalized healthcare system is to avoid terms like nationalized healthcare, socialized healthcare, taxpayer-funded healthcare, or any term that accurately describes the proposal. Instead, proponents of a nationalized healthcare system like to use euphemisms like single-payer or universal healthcare. Why? Historically, Americans have not looked favorably on the idea of turning their healthcare over to the government. Face it; even if you ignore the freedom and personal responsibility issues, the government has a bad track record. After all, Medicare (already in deficit) and Socialist Security are on track to be insolvent within the next few decades. And let’s not forget education. Effectively, K-12 education is a government-run, taxpayer-funded monopoly requiring ever-increasing tax rates. Likewise, taxpayer-funded government education subsidies simply drive college tuition higher and higher.
Regardless, the idea of a government-run healthcare system is attractive to many people and it’s easy to see why.
First, proponents of a government-run, taxpayer-funded healthcare monopoly make a lot of unrealistic claims that nonetheless sound good as long as you don’t ask questions. Among those claims are:
· A government-run healthcare monopoly will provide everyone with “free” or very inexpensive healthcare.
· A government-run healthcare monopoly will provide everyone with timely access to healthcare.
· A government-run healthcare monopoly will provide everyone with high quality healthcare.
· A government-run healthcare monopoly will fully pay for all treatments deemed necessary by you and your doctor without question.
· A government-run healthcare monopoly would be cheaper for society because of lower administrative costs.
· A government-run healthcare monopoly would be cheaper for society because profit required by a private sector healthcare system would be eliminated.
· A government-run healthcare monopoly would be cheaper for society because government would set prices paid for healthcare services and prescription drugs.
· A government-run healthcare monopoly would unburden domestic businesses of a huge expense and would result in fewer jobs lost to countries with nationalized healthcare systems.
I probably missed some claims, but you get the idea.
While it may be possible to guarantee one of these claims at a time, there’s no way to achieve all of these results simultaneously and I believe most people know it. In the operations research world we’d call it an infeasible solution.
Second, deep down, most of us don’t want to worry about making the decisions required to provide our families with healthcare. We want to believe that even if we do nothing, our families will have the best healthcare available when we need it with little or no financial burden. This approach also absolves us of culpability should anything go wrong because we can always blame the government.
Another ridiculous claim made by government-run healthcare monopoly proponents is being coerced actually increases our freedom. Some of these claims go something like “Far from limiting your freedom, it would free you from any worry about healthcare bills,” you can choose whatever healthcare provider you want, or nebulous assertions like “Freedom of choice in healthcare would be expanded under Medicare compared to the extremely restrictive insurance companies” without any explanation. Of course, these folks ignore the fact having an insurer forced on you from the beginning more than negates any of the alleged “freedoms” granted by the coercion. That having a healthcare insurer forced on me actually frees me reminds me of the following quote from Henry Ford’s autobiography in reference to the Model T: “Any customer can have a car painted any colour that he wants so long as it is black.” As noted in my coverage below of H.R. 676, we have no options unless you consider paying twice (once via taxes and once directly for the service) an option.
H.R. 676 is the United States National Health Insurance Act (or the Expanded and Improved Medicare for All Act).
Provisions of H.R. 676 include:
· Whether or not you choose to use “Medicare for All,” you must pay the taxes for it.
· For-profit healthcare providers cannot participate [Sec. 103(a)(1)].
· Insurers aren’t allowed to sell policies covering procedures supposedly covered by H.R. 676 [Sec. 104(a)]. This is to stop people who aren’t happy with the healthcare service provided by the government plan from augmenting that service. Quebec, Canada, tried this prohibition after dissatisfied Canadians began purchasing supplemental insurance. The Canada Supreme Court knocked down the prohibition, saying, “Access to a waiting list is not access to healthcare.”
· Sec. 102(a) says, “The health insurance benefits under this Act cover all medically necessary services.” Those are nice words, but who decides what constitutes “all medically necessary services?” In their zeal to sell their government monopoly healthcare system, proponents of the bill claim things like “those decisions are made by you and your Doctor, no buraucrat [sic] involved.” That assertion, of course, is ridiculous, and isn’t how Medicare operates today. Whether a government or private organization provides insurance, the insurer must set rules as to what will be covered and at what price. No insurance program could afford to tell healthcare providers and patients “just do what you think is right and send us the bill.” That would be no different than handing out blank checks.
· Guidelines for healthcare provider salaries [Sec. 202(b)(3) & (4].
· Taxes to fund H.R. 676 include:
· An unspecified “modest and progressive excise tax on payroll and self-employment income.” [Sec. 211 (c)(1)(C)]
· Unspecified increased taxes on income and stock & bond transactions [Sec. 211(c)(1)]
Though some proponents of H.R. 676 assert it would be paid for by increasing the Medicare tax from 2.9% to 9.5%, as noted above the current version of the bill doesn’t quantify any of the tax rates. Further discrediting the claim is the fact H.R. 676 refers to a “progressive excise tax on payroll.” In leftyspeak, a “progressive” tax means the tax rate – not just the tax dollars collected – increases as your wages increase. This is how the federal income tax works.
H.R. 3200 is America’s Affordable Health Choices Act of 2009 and is over 1,000 pages long (as of August 10, 2009)! It is far too long with far too much legalese for me to read fully, but what I’ve read indicates some of its proponents are lying about its provisions. For example, how often have we heard something like “If you like your plan, you can keep it?” Go to Section 102 (page 16) of H.R. 3200 and you find this assertion is true only if “the issuer does not change any of its terms or conditions, including benefits and cost-sharing, from those in effect as of the day before the first day” H.R. 3200 goes into effect. Further, “grandfathered” healthcare insurance plans eventually “must meet the same requirements as apply to a qualified health benefits plan under section 101, including the essential benefit package requirement under section 121.” In other words, even if your insurer or employer doesn’t change your plan on their own, they will be forced to change your plan to comply with H.R. 3200 and future government requirements. The result is you don’t get to keep the same plan you had the day before H.R. 3200 takes effect.
The bill eventually passed in the House was H.R. 3962 (Affordable Health Care for America Act). At 2,014 pages, it’s nearly twice the length of H.R. 3200! With a vote of 220-215, 39 Democrats voted against and one Republican [Joseph Cao (LA-2)] voted for.
The bill passed by the Senate was H.R. 3590 (Patient Protection and Affordable Care Act), aka Obamacare. As 3962, 3590 is in excess of 2,000 pages. With a vote of 60-39, all Democrats voted for and all Republicans voted against [Jim Bunning (R-KY) was absent.].
To get 3590 up for a vote, Majority Leader Harry Reid (D-NV) had to buy the votes of a number of Democrat senators. For example, in what’s become known as the second Louisiana Purchase, Mr. Reid put in a provision to give Louisiana $300 million to get Mary Landrieu’s (D-LA) vote. In the case of Ben Nelson (D-NE), the bill includes a provision that means Nebraska doesn’t ever have to pay for Medicaid expansion; that is, the other 49 states will pick up this tab for Nebraska in perpetuity. Other payoffs were included for senators from Connecticut, Florida, Pennsylvania, Vermont, and so on. If 3590 is everything its proponents claim, why were the bribes necessary? I’m not a lawyer, but I suspect at least some of these bribes violate the “equal protection” clause of the 14th Amendment.
While 3590 allegedly doesn’t have single-payer or so-called “public option” provisions, it implements enough regulations to give the government proxy control over the healthcare and healthcare insurance industries. Government control of private businesses is the very definition of fascist economic policy. (Note: I’m not using the term “fascist” as a pejorative. Government control of private businesses is part of fascist ideology.) The bill provides none of the provisions that would give us the benefits of a free market (increased effective individual freedom via increased choices and reduced prices via competition).
Ultimately, H.R 3590 became the law we call Obamacare.
Two of the most important court challenges to Obamacare so far were King v. Burwell and National Federation of Independent Business v. Sebelius. Burwell v. Hobby Lobby addressed some religious freedom issues with Obamacare.
We routinely hear about people who don’t have healthcare. As with cost and price, too many people use “healthcare” and “healthcare insurance” as synonyms. With rare exceptions, a lack of healthcare insurance doesn’t mean a lack of healthcare; there are too many private and public safety nets to allow this.
This is a figure used primarily by people who want us to believe being without insurance is the same as being without healthcare. Even if it were true, the figure is bogus. The figures below come from early 2005, the last time I looked into this.
First, the Census Bureau acknowledged its 43 million figure overstated the uninsured because the survey is not primarily designed to gather this data.
Second, if you go without insurance for even a few days between jobs, you are counted as uninsured for the entire year. This alone greatly inflates the uninsured figure.
Third, the number of persons covered by Medicaid is underreported. For some reason, the number of persons who report Medicaid covers them is lower than that shown in Medicaid records. Another reason is some persons eligible for Medicaid don’t sign up.
At the time (early 2005), the Congressional Budget Office (CBO) estimated the chronically uninsured was roughly 9.1 million persons. Of that 9.1 million, approximately one million simply chose not to purchase health insurance because they didn’t feel they needed it.
How many chronically uninsured people want but can’t afford insurance? The CBO didn’t have this figure. A lot of those persons surveyed complained about the expense, but there are no figures to say how many of the 8.1 million really couldn’t afford insurance vs. how many simply chose to spend their money on other things.
Finally, how many wage earners would buy healthcare insurance if they weren’t burdened with the government taking 2.9% of their wages (Medicare taxes) to pay for someone else’s healthcare?
There’s no question we pay a lot more in constant dollars for healthcare insurance than we used to. Before we can search for solutions, however, we must understand how we got here.
I believe there are four major reasons.
1. There are more treatment options than we used to have. For example, prior to the late 1960s, there were no treatment options for blocked coronary arteries. Coronary bypass surgery and angioplasty did not exist. The only “treatment” was to prescribe relatively cheap nitroglycerin tablets to be taken at the onset of angina. This meant healthcare insurance premiums didn’t need to take into account the possibility of paying as much as $100,000 for bypass surgery. Therefore, even without reasons #2, #3, & #4 below, it’s possible healthcare insurance would still cost more (in constant dollars) today than it did decades ago.
2. Preventive medicine (an extension of reason #1). This probably doesn’t make sense since we’re always told preventive medicine is key to keeping healthcare costs under control. Stay with me, though.
Let’s say Bob rarely sees a doctor and has undetected high cholesterol, which causes him to have an immediately-fatal heart attack at age 50. While tragic for Bob, his family, and friends, his healthcare costs were relatively small.
Let’s say Bob’s friend Jim routinely visits a doctor and is diagnosed with high cholesterol. To decrease the chance of heart attack or stroke, the doctor prescribes cholesterol-lowering medication and it prevents Jim from having the heart attack Bob had at age 50. As time goes on, the doctor diagnoses other health problems and addresses them with combinations of medication and surgical procedures. Let’s say the aforementioned interventions over the decades were “successful” and Jim is now 90. Suffering from Alzheimer’s, Jim needs constant supervision and must live in a nursing home or similar facility.
Whose lifetime healthcare costs were lower, Bob’s or Jim’s? Bob’s, of course. Now don’t get me wrong. People shouldn’t forego preventive healthcare. I’m only pointing out that when people (often supporters of a government-run healthcare monopoly) claim the key to reducing healthcare cost is to increase preventive treatment, they may be selling snake oil.
Are there exceptions to this? Sure, and not smoking may be at the top of the list.
3. Healthcare insurance covers more than it used to. That’s because what we call medical insurance today is really a hybrid of insurance and prepaid healthcare. Until sometime after the 1960s, we usually referred to healthcare insurance as “major medical.” This was because healthcare insurance covered only major medical expenses (like surgery) and emergency treatment (like treatment for injuries suffered in an accident) that could be financially catastrophic to a family. When you went to the doctor’s office for “minor” afflictions, you paid for the visit and treatment directly out of your own pocket. Today, however, healthcare “insurance” also tends to cover routine visits to the doctor’s office, prescription drugs, et cetera. Look at it this way. How much more would you have to pay for auto insurance if the policy also covered routine maintenance (new tires, oil changes, et cetera), including preventive maintenance (inspections, 6,000 mile checkups, et cetera)? Insurance of all kinds works best when it’s used to protect against unlikely events with financially catastrophic results. Using insurance to pay for routine events makes no sense.
4. Federal and state government interference in the healthcare marketplace. This contributor requires far more space to address than the previous three reasons and constitutes the bulk of this discussion. I believe this reason and reason #3 are linked and I’ll explain that linkage later.
Policies and programs like special tax treatment for employer-based healthcare, Medicaid, Medicare, PACE, SCHIP, et cetera remind me of the saying, “Oh what a tangled web we weave when first we practice to deceive.” Each new policy and program is “necessary” to “correct” a previous “necessary fix” as we dig ourselves into a deeper hole.
Of these four contributors to higher insurance premiums, I believe the first three are fairly obvious and only the fourth requires detailed analysis.
On top of what a family pays for its own healthcare insurance, we need to remember the family also pays for the healthcare for beneficiaries of Medicaid, Medicare, SCHIP, et cetera. As a reminder, Medicare (like Socialist Security) is a “pay as you go” system. That is, current wage earners pay for the benefits for current Medicare beneficiaries. Though Medicare advocates routinely talk about a “trust fund,” it’s really nothing more than accounting sleight of hand. The Medicare taxes (2.9%) wage earners pay today are not set aside to pay for their future Medicare benefits; they pay for the benefits of today’s Medicare beneficiaries.
When you hear a proponent of a government-run healthcare monopoly talk about the high price of healthcare, invariably he claims the reason is a combination of high administrative costs and profits. This allows the person to demonize healthcare insurance companies and for-profit healthcare providers while ducking a thorough discussion of the factors contributing to higher than necessary prices. The claim is also rings hollow when you consider the government’s record when it comes to imposing income tax administrative expenses on us. See the “A nationalized healthcare system” section for more details.
While we tend to focus on increasing prices for healthcare services, it’s also important to recognize the prices – in constant dollars – for many treatments have dropped. Here’s one example.
My father had a single hernia repaired in 1967. The repair required conventional surgery, several days in the hospital, and even though my dad’s job didn’t involve lifting, he could not return to work for several weeks. Add the cost of the surgery and the hospital stay to the business cost of my dad being out of the mill for several weeks and this was a pretty expensive procedure.
When I had a double hernia repair in 2007, the repair was an outpatient procedure requiring no hospital stay. If I were still working, I would have been back at work within a week. (As a side note, my medical insurance which I pay for completely out of my own pocket paid for the repair and all related medical costs without a problem. Damn those evil insurance companies! <g>)
Here’s another example.
After the advent of coronary bypass surgery in the late 1960s, this very expensive procedure was the only treatment available. In addition to expense, this is high-risk surgery (even for patients who are otherwise healthy) and is not an option for many patients in poor health. Enter angioplasty in the late 1970s. Though some blockages still require bypass surgery, angioplasty is a much safer and much less expensive alternative when circumstances permit its use. Not only is angioplasty much cheaper than coronary bypass surgery, the patient is back at work within a few days making the business cost much lower.
The way most people discuss employer-based healthcare insurance, we’re led to believe the employer pays for the insurance. This is not true. Just as the “employer contribution” to Medicare and Socialist Security taxes is a myth, so is the idea your employer pays for your healthcare insurance. In all of these cases, the employee foots the bill.
Here’s why.
When a business considers hiring someone, it is only because the owner has already determined additional labor may allow the owner to make more profit. Without the incentive of earning more profit for the owner, there is no job. First, though, the business owner must determine the economic value of the potential job. The economic value of the job determines the total compensation the employer can offer an employee while providing the business with its target profit. Once things like overhead, workman’s comp, et cetera are subtracted from the job’s economic value, the employer can determine the total compensation offered. Total compensation includes wages/salary, the cost of benefits, and the mythical “employer’s contribution” to Medicare and Socialist Security taxes. The cost of benefits includes the premium the employer must pay for a healthcare insurance benefit. Though you never see it because it doesn’t appear on your paycheck stub, you pay for employer-based healthcare coverage, not your employer; it is part of your compensation, just like vacation.
If the premium for employer-based healthcare insurance comes out of your pocket anyway, you’re probably wondering why the employer goes to the trouble of offering healthcare insurance instead of simply paying you what the employer spends on the premium. You can thank FDR, World War II, and the federal income tax code for this mess.
FDR & World War II?
As odd as this sounds, it’s true, and we have those wonderful socialists in the FDR administration to thank. First, they instituted a marginal income tax rate of 94% - yes, 94% - on taxable income above $200,000! This meant a $1 business expense reduced tax liability by almost $1. Second, in an attempt to keep prices and wages from skyrocketing, FDR imposed wage and price controls. The wage freeze presented a problem for employers because they could not offer higher wages to attract employees. The wage freeze didn’t apply to employee benefits, however.
(As a side note, believe it or not, the 94% marginal rate was the Democrat-controlled Congress’ idea of a compromise. FDR actually wanted a 100% marginal tax rate! For individuals, he believed no one should have an income in excess of $25,000/year after taxes. This is about $327,000 in 2009 dollars.)
Between the confiscatory tax rate and the fact employee benefits weren’t covered by wage controls, employers had two major incentives to use healthcare insurance as a portion of employee compensation. First, the confiscatory tax rate gave employers the choice of allowing the government to confiscate profits at a 94% tax rate or using profits to keep employees happy. Most businesses figured it made more sense to keep employees happy. Second, because healthcare insurance wasn’t covered by wage controls and was tax-free to the employee, employers that could afford it could offer the insurance to attract and/or keep employees all without increasing the employee’s tax liability (income, Medicare, and Socialist Security).
As a result, employers began offering healthcare insurance as a benefit to attract and keep employees. Because the dollar value of the healthcare benefit wasn’t shown on the pay stub, it appeared to be “free.”
Even when the confiscatory tax rates and wage controls ended after WWII, employer-based healthcare insurance still appeared to benefit both employer and employee because of the IRS tax treatment.
On the employee’s side, healthcare insurance is a tax-free benefit as noted above. If the employer paid the employee in wages the equivalent of the insurance premium, those incremental wages would be subject to income, Medicare, and Socialist Security taxes.
On the employer’s side, there are two advantages. First, just as with wages, the insurance premium is a business expense that reduces taxable income. Second, because the benefit is tax-free to the employee, it’s cheaper to put $1 in the pocket of employees with healthcare insurance than it is via wages.
Here’s an example of what I mean. Ignoring income taxes, putting a net of $1 in your pocket via wages actually requires a gross wage of $1.153. The extra $0.153 is the sum of your Medicare and Socialist Security taxes. Based on recent federal and state income tax data, the average combined income tax rate for Pennsylvania residents is about 15%. At that rate, to place a net of $1 in your pocket via wages actually requires a gross wage of about $1.33 {1.33 = 1 + 0.153 + [(1/0.85) - 1]}. Of course, that figure varies depending on your actual income tax bracket, higher for higher income earners and lower for lower income earners.
Because the healthcare insurance premium is tax-free, it takes only $1 to put $1 in an employee’s pocket via healthcare insurance.
Finally, employer-based healthcare insurance means we don’t have portable healthcare insurance. Here are a couple of examples of what I mean.
If you lose or quit your job you no longer have healthcare insurance unless COBRA applies to your situation. For situations covered, COBRA permits you to continue to receive healthcare insurance from your former employer for up to 18 months as long as you pay the full premium. Otherwise, you need to acquire interim healthcare insurance or run the risk of catastrophic healthcare expenses.
Even if you go directly from one job to another with employer-based healthcare insurance, there’s no guarantee the new insurance will cover what your old job’s insurance covered.
In addition to the problems mentioned above, the lack of healthcare insurance portability ties many employees to their current employer because they are afraid they will lose some coverage (perhaps to what would become a pre-existing condition) or not have any coverage at all.
Above I explained why the tax code made compensation via healthcare insurance premiums attractive to both employer and employee. Given all that wonderfulness, why are businesses now either dropping the benefit or requiring employees to pick up part of the tab from their taxable income?
Actually, requiring the employee to pick up part of the tab is not new. Texaco – where I worked for nearly 23 years – had an excellent benefits package, yet employees always paid part of their healthcare insurance premiums, at least through the late 1990s.
The reason for the current situation is simple. Eventually, even favorable tax treatment could not compensate for rapidly rising healthcare prices. The insurance premium plus wages was making total compensation greater than a job’s economic value. This is especially true for lower-income earners because the healthcare insurance premium was a greater proportion of the total compensation. As a result, a business has two choices. Either drop healthcare insurance coverage or require employees to pay some of the premium out of their wages.
(As a side note, the rapid rise of insurance premiums is one reason why wages have not increased as much as some would like. That’s because employers had to use more and more of the funds available for a job’s total compensation for healthcare premiums. As we’ve seen, however, that approach is viable only for so long.)
As you will read in the next section, employer-based healthcare insurance is not an innocent victim of high healthcare prices; it is a contributing factor.
You’ve undoubtedly heard nationalized/socialized healthcare proponents claim we need a government-run, taxpayer-funded (aka single-payer) healthcare monopoly because the free market doesn’t work. This is not true because today’s healthcare market is not a free market.
Why? Because there is too much external interference by government.
Whether through government-run healthcare programs (Medicaid, Medicare, et cetera) or via tax breaks (covered above) for employer-based healthcare insurance, too many consumers are not exposed to the true price of healthcare.
Let’s look at employer-based healthcare insurance. For simplicity, in this example I’ll assume the employer pays the full premium and there are no deductibles, co-payments, et cetera. In this example, healthcare appears to be completely free to the consumer (employee) because he has absolutely no out of pocket expenses.
Here are a few behaviors to expect.
· When selecting a doctor, you (the consumer) will not consider the doctor’s rates because, regardless of expense, you believe someone else is paying. In other words, you are price insensitive.
· When deciding whether to visit the doctor, you will not consider the price of an office visit because you are price insensitive. For example, what’s $100 for an office visit for a minor cut or a minor cold when the money doesn’t appear to be coming from your pocket? What’s a several-hundred-dollar emergency room visit because you don’t want to wait a day to see your doctor in his office?
· When a doctor proposes treatment alternatives, you will not consider treatment expense because you are price insensitive. For example, opt for prescription drugs instead of exercise, diet change, et cetera.
While the above examples assumed you have no out-of-pocket healthcare expenses, it still applies even if you pay some of your premium, deductibles, et cetera. The above example also applies to government healthcare programs like Medicaid, Medicare, PACE, et cetera. As long as you don’t pay the “full ride” and do so out of pocket so the expense “hits you between the eyes,” you will be price insensitive.
Note, it’s not only important that you pay for your healthcare, but you must know you are doing so. In the above example, it appears your health insurance is free. It is not. You are paid the healthcare insurance premium; you just don’t know it because the premium payment never shows up on your paycheck stub. If your employer didn’t offer healthcare insurance as part of your compensation package, the equivalent of the insurance premium (less any tax effects) would appear in your wages and/or as some other benefit.
What happens when a vendor knows you don’t care about price? He keeps increasing prices until you push back and begin to patronize another vendor.
This is why healthcare insurers – and Medicaid, Medicare, et cetera – spend so much time negotiating/setting reimbursement rates with healthcare providers. Ultimately, though, we’ve seen it’s a futile process because price controls never work. The only “price control” that works is the free market.
Another thing that drives up the price of healthcare insurance is states mandating coverage for specific illnesses and treatment. For example, the Pennsylvania Autism Insurance Act (Act62) “Requires many private health insurance companies to cover the cost of diagnostic assessment and treatment of autism spectrum disorder and services for children under the age of 21, up to $36,000 per year.” (I’m not picking on families dealing with autism. This was just the first example that popped up in my research.) In any case, how much must the premium increase to handle a potential outlay of $36,000/year per child? Some states require coverage for in vitro fertilization. Again, that’s not cheap and adds to the price of healthcare insurance.
The healthcare industry has the same problems as most other industries when it comes to lawsuits.
In summary, the current tort process favors plaintiffs over defendants. Here’s how.
First, under current law, a plaintiff in a lawsuit generally has his attorney fees and court costs paid for automatically if he wins. When the defendant wins, he must counter sue the plaintiff to recover the cost of his defense. Though I have no statistics, I understand the recovery rate for winning defendants is much lower than for winning plaintiffs if for no other reason than the defendant wants to get on with his life.
This situation allows trial lawyers to solicit plaintiffs with come-ons like “Never a fee unless we get money for you.” This means plaintiffs don’t have to make a judgment about the legitimacy of their lawsuit. For example, if you didn’t have good reason to believe you would win, would you sue someone if losing meant automatically paying for the defendant’s defense costs? Probably not.
In this case, the potential trial lawyer must assess the likelihood of making a profit on a case. The trial lawyer figures out how much time his firm will consume to try/settle a case and compares that to the likelihood of getting a profitable settlement. If the risk vs. reward assessment isn’t favorable, the trial lawyer won’t accept the case.
It’s also important to recognize that while a potential plaintiff can choose whether or not to sue someone, a defendant has no choice in the matter. Once sued, a defendant must hire an attorney and – unlike plaintiff attorneys – defense attorneys don’t work on a contingency basis. That is, win or lose, a defendant must pay his attorney.
Second, unlike a criminal prosecutor, a civil trial lawyer doesn’t have to prove guilt beyond a reasonable doubt. The plaintiff’s lawyer only has to convince the judge/jury there’s a 51% likelihood (preponderance of the evidence) the defendant did something wrong.
Third, in many (most?) jurisdictions, the portion of an award assigned to a guilty defendant in a multi-defendant case has no connection to his culpability. For example, let’s say four defendants are found guilty of an offense and the judgment is $1,000,000. One is found to be 55% responsible, two are found 20% responsible each, and the fourth is found 5% responsible. Commonsense tells us one defendant would pay $550,000, two would pay $200,000 each, and the fourth would pay $50,000. Now let’s say the first three defendants have no insurance or any other means to pay the judgment, but the fourth does. Under the “law of deep pockets,” the defendant with the least culpability could end up paying the most simply because he can.
Fourth, the ridiculous size of some jury awards scares some doctors and/or their insurance carriers into settling cases out of court. Here’s a non-medical example of what I mean. In the mid-1990s, an Alabama BMW purchaser learned his new car had been repainted by the dealer to correct acid rain damage and sued BMW. The jury awarded actual damages of only $4,000, but it awarded punitive damages of $4,000,000! Though the Alabama Supreme Court reduced the award to $2,000,000, ultimately the U.S. Supreme Court found even the reduced award was excessive (500 times actual damages!) and violated the 14th Amendment (due process clause).
How frequent are out of reason awards? I don’t know, but the point is they don’t have to be frequent to drive up malpractice insurance because the insurer must be prepared to pay huge awards when they occur. The only way to be prepared is to charge high enough premiums to build up enough assets to cover potential awards.
Fifth, both actual and punitive damage awards go to the plaintiff. If punitive damages are really to punish the defendant – not reward the plaintiff, why don’t punitive damages go to “the people?” If punitive damages went to the government, I suspect we’d see fewer and smaller punitive awards.
Before I proceed, I need to issue a terminology warning. Socialized medicine proponents know the American people tend to be suspicious of a government-run healthcare system. The “Hillarycare” proposal going up in flames in the early 1990s didn’t go unnoticed. As a result, proponents choose words intended to mislead us. Regardless of what government-run healthcare system proponents claim, the following descriptions are equivalent: government-run healthcare, taxpayer-funded healthcare, nationalized healthcare, socialized healthcare, single-payer system, universal healthcare, et cetera. For further deception, I’ve even heard proponents try to work in “free market” to describe their government-run program.
Some people believe the solution to high healthcare prices is a government-run, taxpayer-funded healthcare monopoly like that described in H.R. 676. The first logical question is “How?”
The answer is usually a tie among reduced administration costs, a non-profit model, and government “negotiation” with healthcare providers regarding price.
I don’t have facts to argue against or for the reduced administration costs claim, but when was the last time government regulation reduced administration costs? For example, the Tax Foundation reports taxpayers spent $265.1 billion in administration costs to comply with the federal tax code for the 2005 tax year. That’s on top of the approximately $1.2 trillion taxes collected. As noted by the Tax Foundation, “This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects.”
Is our goal to provide the best healthcare for the most people or to minimize administration costs? I don’t know the level of administrative costs that enables the optimum delivery of healthcare at the lowest overall price. Here’s what I mean. If admin costs were close to zero, it’s fair to assume there would be tons of inappropriate and/or wasteful services provided due to a lack of oversight. It’s also fair to assume customer service would be non-existent. Likewise, too much money going to admin costs would result in higher prices and/or less money actually going to healthcare. I don’t know if the optimum is 4%, 30%, or somewhere in between. The bottom line is, low admin costs don’t assure either quality or low-price healthcare.
The assertion a non-profit model reduces the price of healthcare ignores simple economics, human behavior, and the fact all actions have ripple effects. Eliminate the potential to gain from taking a risk (going to medical school and opening a doctor’s practice, for example) and you eliminate the incentive for people to provide a commodity/service. People who would otherwise look to provide healthcare goods/services will simply “find a better line of work” (a website poster’s words) where risk has the potential for being rewarded. This means lower supply, and lower supplies means higher prices and less accessibility, choice, quality, timeliness of treatment, et cetera.
Let’s extend the “logic” behind going to non-profit healthcare. If the non-profit claim were true, shouldn’t we nationalize all businesses because it would make all products/services cheaper?
The “negotiation” claim is really price control.
Why?
Since the feds would be the one paying the bills, there would be only one customer. You and I wouldn’t be the customer, the government would be. When there’s only one customer and that customer is the U.S. government, you either accept the government price offer or go out of business.
As I noted previously, one of the allures of socialized healthcare is the myth of improved economic competitiveness. The myth is that a government-run, taxpayer-funded healthcare monopoly would unburden domestic businesses of a huge expense and would result in fewer jobs lost to countries with nationalized healthcare systems.
This argument leads us to believe socialized healthcare would allow businesses to eliminate employee healthcare insurance as an expense. This is a deception for at least three reasons.
First, as discussed elsewhere in this paper, employees pay for employer-based healthcare insurance, not the employer.
Second, I believe you’ll find most (all?) of the healthcare competitive disadvantage issue is related to providing healthcare insurance for retirees. Why? When insurance premiums go up for current employees, businesses can compensate in at least two ways. The employer can require or increase out-of-pocket premium payments by employees and/or the employer can cut back on wage increases. Because of contractual obligations made long ago, employers don’t usually have similar flexibility when it comes to retirees. Currently, anywhere from $1,000 to $1,500 of the price of a U.S. car comes from retiree healthcare costs. In some cases, this is more than the cost of the steel used to build the car.
Third, given the misguided idea that employers have some inherent responsibility to provide employees with healthcare insurance, the government would expect businesses to “contribute” at least as much in healthcare taxes as they compensated their employees in healthcare insurance premiums. In other words, the expense appearing on the business’ income statement would simply change categories from employee compensation to tax. This isn’t conjecture because states are already making the attempt. In January 2006, Maryland passed a law requiring businesses with more than 10,000 employees to allocate at least eight percent of payroll to healthcare insurance or pay a healthcare tax to the state. According to The Washington Post, 30 other states were considering similar legislation. Though the Maryland law was subsequently struck down twice in federal courts as violating federal law (ERISA), it clearly illustrates common government thinking on the topic. A federal socialized healthcare plan requiring employers to pay healthcare taxes would not violate ERISA. In any case, just as with Medicare and Socialist Security taxes, you and I would be paying the tax, not the employer.
Of course, the economic competitiveness argument ignores the fact that government tax breaks pretty much drove businesses into providing healthcare insurance in the first place. Remove that well-intentioned but detrimental interference in the market and businesses likely would begin to drop healthcare insurance as part of an employee’s compensation in favor of higher wages.
Finally, let’s look at healthcare using an analogy. Let’s say you had a disease your doctor had been treating unsuccessfully for 50+ years. (Please ignore the fact no one would let this situation fester for this long.) Not only were you not cured, but also your health got worse. If your doctor told you he could cure you simply by doing more of what he had been doing, would you have any reason to believe him?
As in all discussions, some participants seek to avoid a rational discussion and instead attempt to demonize their opponents. In the healthcare debate, a person may claim you lack compassion simply because they disagree with your position. I find the cause of this behavior is the offending participants either haven’t done their research, or they know the facts don’t support their position. One example was when House Speaker Nancy Pelosi (D-CA) demonized healthcare insurers when she said, “It’s almost immoral what they [healthcare insurance companies] are doing. Of course they’ve been immoral all along in how they have treated the people that they insure. They are the villains. They have been part of the problem in a major way.” When it came to ordinary people who showed up at “town hall” meetings to express their opposition to a government-run healthcare system, Ms. Pelosi accused them of “carrying swastikas and symbols like that.”
Rep. John Dingell (D-MI) accused the opposition to a government-run healthcare monopoly of being racists when he asserted, “Well, the last time I had to confront something like this was when I voted for the civil rights bill and my opponent voted against it. At that time, we had a lot of Ku Klux Klan folks and white supremacists and folks in white sheets and other things running around causing trouble.” [Since Mr. Dingell didn’t tell us which “civil rights bill” he referred to (1957 or 1964) or who his alleged opponent was, I have no idea if this part of his comment is true. If it is true, the odds are the opponent was a primary opponent since Republicans supported the civil rights bills in a much higher proportion than did Democrats. For the 1964 Civil Rights Act, over 80% of Republicans voted for it while less than 65% of Democrats voted “yea.” Over 80% of the “nay” votes were by Democrats. Senate Republicans also helped break a Democrat filibuster of the 1964 CRA.]
Not to be outdone, on December 7, 2009, Senate Majority Leader Harry Reid (D-NV) said the following on the floor of the Senate: “Instead of joining us on the right side of history, all the Republicans can come up with is, ‘slow down, stop everything, let’s start over.’ If you think you’ve heard these same excuses before, you’re right. When this country belatedly recognized the wrongs of slavery, there were those who dug in their heels and said 'slow down, it’s too early, things aren’t bad enough. When women spoke up for the right to speak up, they wanted to vote, some insisted they simply, slow down, there will be a better day to do that, today isn’t quite right. When this body was on the verge of guaranteeing equal civil rights to everyone regardless of the color of their skin, some senators resorted to the same filibuster threats that we hear today.”
Mr. Reid apparently counts on people being ignorant about history. First, the Republican Party was founded on an anti-slavery platform. Second, while neither the Democrat nor the Republican parties can lay claim to unblemished civil rights records, Democrats stood in the way of civil rights from before the Civil War all the way into the mid-1960s and one of their current U.S. senators [Robert Byrd (WV)] once belonged to the Knights of the Ku Klux Klan, said he would not serve in integrated armed forces, filibustered and voted against the 1964 Civil Rights Act, voted against the nominations of Supreme Court Justices Thurgood Marshall (1967) and Clarence Thomas (1991), and referred to “white niggers” during a 2001 television interview. To compare the drive for civil rights to the drive for a government-run healthcare monopoly is objectionable for another reason. Civil rights is all about effective individual liberty. A government-run healthcare monopoly is about reducing effective individual liberty.
I have one final comment about Mr. Reid’s remarks. Why was Mr. Reid complaining about Republicans anyway? At the time Mr. Reid made his comments, Democrats had a filibuster-proof majority, meaning they didn’t need one Republican vote. Democrats could have done pretty much whatever they wanted to do and Republicans were powerless to stop them. As I noted previously, sure enough, Senate Democrats passed H.R. 3590 on December 24, 2009, on a straight party line vote (60-39).
In January 2010, Republican Scott Brown won the late Edward Kennedy’s seat, claiming he would vote against the existing healthcare bills. This win by Mr. Brown meant Democrats no longer had a filibuster-proof majority. Now that Democrats no longer had a filibuster-proof majority, they decided to circumvent standard Senate rules and approve future final changes with the House using the budget reconciliation procedure that requires only 51 votes for passage.
President Obama himself participated in the mudslinging and targeted doctors at least twice. The first time, during a White House press conference (July 22, 2009), Mr. Obama said, “Right now, doctors, a lot of times, are forced to make decisions based on the fee payment schedule that's out there. So if … your child has a bad sore throat, or has repeated sore throats, the doctor may look at the reimbursement system and say to himself, ‘You know what? I make a lot more money if I take this kid’s tonsils out.’” (On a side note, this was the same press conference during which Mr. Obama, after admitting he didn’t have the facts, asserted “Cambridge [Massachusetts] police acted stupidly” by arresting one of his friends and implied race was a factor. You may recall black, white, and Hispanic officers on the scene supported the white arresting officer and an investigation determined the officer acted properly. Mr. Obama never apologized either to the Cambridge police or the arresting officer.)
The second time, during a healthcare town hall meeting (August 11, 2009), Mr. Obama opined that in a diabetes case, doctors may favor amputation over treatment because “they might get reimbursed a pittance [for treating diabetes]. But if that same diabetic ends up getting their foot amputated, that’s $30,000, $40,000, $50,000 -- immediately the surgeon is reimbursed.” Ignoring his apparent low opinion of doctors, Mr. Obama’s reimbursement figures were pure fabrication. The American College of Surgeons responded “Medicare pays a surgeon between $740 and $1,140 for a leg amputation. This payment also includes the evaluation of the patient on the day of the operation plus patient follow-up care that is provided for 90 days after the operation. Private insurers pay some variation of the Medicare reimbursement for this service.”
I believe a free market represents the best approach to providing the best combination of healthcare accessibility, choice, price, quality, timeliness of treatment, et cetera. Assuming you accept what you read above, here’s what I believe we need to do to get to a free healthcare market.
First, we need to phase out government healthcare programs regardless of how they are funded. Whether funded by general taxes or gambling/lottery taxes/revenue, government healthcare programs have the same deleterious effect on the healthcare marketplace. Note that I wrote we need to phase out these programs. It would not be right to pull the rug out from under people we made dependent on these programs. To be fair to the most people, it would likely take a few decades to phase out Medicare. Medicaid and the like could be eliminated within a few years since they are pure handouts.
Note, the above excludes government healthcare programs for U.S. military veterans. Of course, the most important reason is we owe most veterans a debt that’s difficult to repay, especially if the veteran was wounded in service. In other words, veterans earn it. Second, the number of veterans relative to the population is very small. As a result, subsidizing veteran healthcare would have an insignificant impact on the overall healthcare market.
Second, we need to eliminate special tax treatment for employer-based healthcare insurance. Employer-paid healthcare insurance premiums must be subject to the same taxes – income, Medicare, Socialist Security, et cetera – as wages.
Third, we need to let insurance companies compete across state lines. Regulations that prohibit consumers from buying medical insurance from insurers in other states reduce competition and drive up prices. We don’t have that limitation for things like auto and life insurance; why have it for medical insurance?
Fourth, we need to get government out of dictating what illnesses, injuries, treatments, et cetera will be covered by medical insurance policies. That is, let consumers and insurers determine what will and won’t be covered by a given policy. For example, if I want to purchase only “major medical” insurance, and an insurer wants to sell it, that should be OK. Forcing consumers to buy more coverage than they need and/or want drives up prices.
Below is a concession I previously published I thought was reasonable, though I didn’t like it.
“In return for getting government completely out of the healthcare business, I could be convinced – kicking and screaming – to support a plan requiring all citizens to purchase emergency treatment coverage. Additional coverage would be purchased at the discretion of the consumer. Requiring emergency treatment coverage would deal with the problem healthcare providers have when patients skip out on their emergency treatment bills. Remember, hospitals are required by law to provide emergency treatment regardless of the patient’s ability to pay. As with auto insurance, emergency treatment coverage would not be to protect the consumer, but to protect emergency treatment providers against losses incurred by treating a patient. That said, I really, really, really hate the idea of forcing citizens to buy a good/service as a condition of citizenship.
“The major flaw with this concession is I believe forcing anyone to purchase any amount of medical insurance is unconstitutional as I noted early in this paper.”
The more I thought about it, however, the less I liked it, and now I don’t propose it. Other than in the context of our general legal framework, government has no business getting involved in healthcare. The primary reason is individual liberty, but allowing government to mandate emergency treatment coverage would put us on a slippery slope. Even if we came up with a reasonable definition of emergency treatment coverage in the beginning, the nature of government is we would gradually expand the definition of emergency treatment until we would be back where we are today, or worse.
Of course, no approach – either private or public – is perfect and some people won’t be able to afford healthcare or healthcare insurance no matter how inexpensive it is. Do I believe people who need help because of unforeseen circumstances should get it? Of course, but via private charities funded by voluntary contributions.
As noted previously, even if I believed (which I clearly don’t) the idea a government-run, taxpayer-funded monopoly could deliver healthcare cheaper than a true free market system for a given level of accessibility, choice, quality, timeliness of treatment, et cetera, I’d oppose it because my freedom isn’t for sale. Given that, why would I have a “point/counterpoint” section in this paper? After all, since anything remotely like H.R. 676 is a huge infringement on liberty, aren’t all arguments in its favor moot?
This section is for those of us not completely convinced by the freedom argument and presents points stated by proponents of a system like “Medicare for All.” The objective is to illustrate that even if you exclude the problem with infringement on freedom, the arguments in favor of a socialized healthcare system don’t hold up. Most of the points presented are based on comments posted by proponents on the Beaver County Times website and, where possible, are direct quotes. Most of the information in the counterpoints can be found in previous sections of this paper.
Point: The U.S. pays more for healthcare than any other country and gets less than any other country. Most of these claims compare alleged healthcare spending as a percent of GDP.
Counterpoint: All these claims come from groups that openly lobby for nationalized healthcare. As a result, the credibility of the claims is suspect and there’s no realistic way for you and me to verify or refute the claim. That predicament is not an accident.
Point: “The waste is huge, 33% [The exact percentage varies.] of every healthcare dollar going for administration costs?”
Counterpoint: When I checked into this in 2006, I was unable to corroborate the claim with any sources not promoting a nationalized healthcare system. It doesn’t mean the claims are wrong, just that I couldn’t confirm them. At the time, Blue Cross/Blue Shield (BCBS) reported its administration costs were 11% as of 2001. That’s a far cry from 33%. That said, I have no way to validate the BCBS claim, just as I can’t verify the 33% claim.
Is our goal to provide the best healthcare for the most people or to minimize administration costs? I don’t know the level of administrative costs that enables the optimum delivery of healthcare at the lowest overall price. Here’s what I mean. If admin costs were close to zero, it’s fair to assume there would be tons of inappropriate and/or wasteful services provided due to a lack of oversight. It’s also fair to assume customer service would be non-existent. Likewise, too much money going to admin costs would result in higher prices and/or less money actually going to healthcare. I don’t know if the optimum is 4%, 30%, or somewhere in between. The bottom line is, low admin costs don’t assure either quality or low-price healthcare.
Finally, I don’t have facts to argue against the reduced administration costs claim, but when was the last time government regulation reduced administration costs? For example, the Tax Foundation reports taxpayers spent $265.1 billion in administration costs to comply with the federal tax code for the 2005 tax year. That’s on top of the approximately $1.2 trillion taxes collected. As noted by the Tax Foundation, “This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects.” For 2003 that compliance cost was 24.8%.
Point: Going to a non-profit model for providing healthcare will result in lower prices.
Counterpoint: This assertion ignores simple economics, human behavior, and the fact that all actions have ripple effects. Eliminate the potential to gain from taking a risk (Going to medical school and opening a doctor’s practice, for example.) and you eliminate the incentive for people to provide a commodity/service. People who would otherwise look to provide healthcare goods/services will simply “find a better line of work” (a poster’s words) where risk has the potential for being rewarded. This means lower supply, and lower supplies means higher prices and less accessibility, choice, quality, timeliness of treatment, et cetera.
How much are those “obscene” profits? Based on the aforementioned BCBS report, the healthcare insurance “vampires” (a poster’s description) realized a profit of about 2.7% in 2001. According to Fox News reporter Shannon Bream during the July 30, 2009, edition of “Special Report with Bret Baier,” Morningstar (an independent investor research company) reported the net margin of the top five healthcare insurers for 2008 ranged from 1.5% to 4.5%. For the last 50 years, the average net margin for all businesses has been 5.5%.
According to an Associated Press story (“Fact Check: Health insurer profits not so fat”; Calvin Woodward; October 25, 2009), “Health insurance profit margins typically run about 6%, give or take a point or two. That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones. Profits barely exceeded 2% of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans. … Health insurers posted a 2.2% profit margin last year, placing them 35th on the Fortune 500 list of top industries.”
Point: “[G]o to the video store and rent ‘SICKO,’ [sic] then explain to us why decent health care for all has been available in other countries for some time, at less cost, with people liking it, and somehow, we have to have the more expensive noncoverage [sic] for all.”
Counterpoint: For those of you unfamiliar with it, “SiCKO” is a Michael Moore film intended to drum up support for a U.S. government-run healthcare monopoly. Telling someone to view “SiCKO” to learn about healthcare is like recommending someone view “Reefer Madness” (the original 1936 version) to learn about marijuana. Seriously, though, I don’t treat entertainers/pundits as data sources regardless of their ideological orientation.
Point: “[Y]ou would be more free, never having to think about paying for healthcare on your own ever again.”
Counterpoint: This nonsense reminds me of Newspeak in Nineteen Eighty-Four and the Party’s slogan, “War is Peace, Freedom is Slavery, Ignorance is Strength.”
When did “never having to think” ever make anyone “more free?” Using this “logic,” we’d achieve ultimate “freedom” by giving complete control of our lives to the government. Since the government would provide everything and we’d need no wages (one less worry), all we would need to do is show up at our government-assigned job.
Of course, “never having to think” is exactly the wrong way to go if we want to preserve our liberty. Because the government would make us “more free” by confiscating more taxes from our paychecks, pension checks, et cetera, we would also be “more free” to worry about how to pay for other things we didn’t have to worry about before we had less take home pay. As the saying goes, there ain’t no free lunch.
During the warrantless wiretap debate we constantly heard the Ben Franklin quote, “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.” Is the quote any less true for healthcare? That is, “[t]hey who can give up essential liberty to obtain” healthcare, deserve neither liberty nor healthcare.
Point: A government-run healthcare monopoly is “sort of like the ‘commons’ we all share. Like the roads, sewers, etc.”
Counterpoint: Roads and sewers are not good comparisons to healthcare. After all, there are physical reasons why it makes sense for government or quasi government agencies to deal with items like these. In any case, we constantly read about road/bridge neglect and failing sewer systems. Alcosan is one local example. More appropriate comparisons would be education, mass transit (BCTA, PAT, et cetera), and public housing. No matter how much money we throw at these programs, it’s never enough and we’re always complaining about the quality of service. Why would a socialized healthcare system be different?
Point: “Do yourself a favor, go to PNHP.org . Read some about their proposal, this is a site where Doctors are fo [sic] National Healthcare. There is a ton of info there.” A variant is “Just google [sic] Physicians for National Health Care, and you’ll get solid information from the best doctors in the country as to why single-payer is the way to go.”
Counterpoint: Note the drive-by assertion PNHP represents “the best doctors in the country.” These folks fail to note the American Medical Association opposes a government-run healthcare system. The objective is to “puff up” PNHP while denigrating doctors who disagree with PNHP. The manmade global warming gang uses the same tactic. In reality, Physicians for a National Health Program (PNHP) is simply a leftist political advocacy group (aka special interest group). Read the PNHP mission statement and the rest of the website and see for yourself. Below are a few quotes from the mission statement.
· “PNHP views this campaign as part of the campaign for social justice in the United States. PNHP opposes for-profit control, and especially corporate control, of the health system and favors democratic control, public administration, and single-payer financing.”
· “PNHP believes this program should be financed by truly progressive taxation.”
· “PNHP is an independent, non-partisan, voluntary organization. PNHP’s work is supported by our members’ dues and contributions, and by grants from progressive [my emphasis] foundations.”
Whenever someone writes about “social justice,” it’s a red (no pun intended) flag the position is coming from the left. In this case, also mentioning an opposition to profit seals the deal.
“[T]ruly progressive taxation” is a euphemism for “truly regressive taxation.” In leftist ideology, “progressive” taxation means the more you earn, the more government takes from you and the less you get to keep to provide for your family. Many lefties believe 100% of earnings above a certain level should be confiscated. As noted previously, FDR tried this during World War II, but the Democrat-majority Congress “compromised” on 94%.
Lefties also use “progressive” as a euphemism for leftist, liberal, Marxist, socialist, et cetera. Thus when the mission statement says “progressive foundations” fund PNHP, it really means leftist foundations. It would be nice to know the names of the organizations giving grants to PNHP, but they aren’t identified on the PNHP website.
Finally, note the PNHP refers to itself as “non-partisan.” Lefties routinely use “non-partisan” to describe themselves, though they tend to be more careful than we saw here. In one sentence the PNHP describes itself as “non-partisan,” and in the next proclaims it’s supported “by grants from progressive [leftist] foundations.”
Point: “You make it sound as if the present system is ‘lean and mean’, it is simply ‘mean.’” Variations of this include claiming you support waste, untreated patients, oppose “spending less and getting more,” and on and on.
Counterpoint: This is a straw man tactic. Regardless of how many times you state you support a free market healthcare approach over the status quo, nationalized healthcare proponents claim your opposition to their plan is support of the status quo. In their “defense,” though, lefties tend to believe anything not 100% controlled by the government is a free market. Nationalized healthcare proponents assert our current approach is “mainly a private enterprise operation” and “most of it’s [sic] coverage [is] in the private sector.” These folks want us to believe “private enterprise” and “private sector” are synonyms for “free market.”
Point: Proponents of “Medicare for All” routinely imply – or outright assert – we have options.
Counterpoint: This point usually pops up when you object to having your liberty infringed upon. It reminds me of the following quote from Henry Ford’s autobiography in reference to the Model T: “Any customer can have a car painted any colour that he wants so long as it is black.” As noted in my previous coverage of H.R. 676, we have no options unless you consider paying twice (once via taxes and once directly for the service) an option.
Point: Healthcare services “would be determined by the Doctor. Not by some buraucrat [sic] of an Insurance Company as is the standard practice now.”
Counterpoint: I covered this myth in my previous coverage of H.R. 676, but I’ll repeat it here for convenience. Sec. 102(a) says, “The health insurance benefits under this Act cover all medically necessary services.” Those are nice words, but who decides what constitutes “all medically necessary services?” In their zeal to sell their government monopoly healthcare system, proponents of the bill claim things like “those decisions are made by you and your Doctor, no buraucrat [sic] involved.” That assertion, of course, is ridiculous, and isn’t how Medicare operates today. Whether a government or private organization provides insurance, the insurer must set rules as to what will be covered and at what price. No insurance program could afford to tell healthcare providers and patients “just do what you think is right and send us the bill.” That would be no different than handing out blank checks. Any program – either private or public – that attempts to cover everything without qualification will fail in its mission to provide an optimum level of service (accessibility, quality, price, timeliness, et cetera) to the most people.
Point: “[T]he ultimate test of a healthcare system is length of life.”
Counterpoint: Not exactly. Studies frequently quoted tend to fail to account for deaths by homicide, highway deaths, diet, lack of exercise, et cetera. None of these have anything to do with the healthcare system yet they all contribute unfavorably to U.S. life expectancy relative to other industrialized countries. I’ve read that once you correct for these non-healthcare system related deaths, U.S. life expectancy is higher than nearly every other industrialized nation.
You’ll also find studies favorable to nationalized healthcare systems tend to include ratings of suspect parameters apparently intended to puff up the ranking of those systems. For example, is the number of women involved in national government really a measure of healthcare system efficacy?
Point: “[S]ingle-payer isn’t a monopoly. Anyone who wants to buy their own insurance, buy boutique add-ons, or just pay cash at the door is free to do so.”
Counterpoint: If a single payer (customer) for any good or service isn’t a monopoly, what is? Can we opt out of the system? No. Can we choose our insurer? No. Can we choose our level of coverage? No. Can for-profit healthcare providers participate? No. If I don’t like the service provided by “Medicare for All,” can I supplement that coverage by paying (in addition to my Medicare taxes) another insurer to cover procedures supposedly covered by “Medicare for All?” No. All of this is as per the current H.R. 676.
Point: A nationalized healthcare system will provide more services to more people at a lower price because administrative costs will be greatly reduced and profits will be eliminated. A variation of this is “I say, ‘business’ has no business in healthcare, making money from peoples illness or injury is immoral.”
Counterpoint: When did earning a profit from providing a commodity/service become a bad thing? Eliminate the potential to gain from taking a risk (Going to medical school and opening a doctor’s practice, for example.) and you eliminate the incentive for people to provide a commodity/service. People who would otherwise look to provide healthcare goods/services will simply “find a better line of work” where risk has the potential for being rewarded. This means lower supply, and lower supply means higher prices and less accessibility, choice, quality, timeliness of treatment, et cetera.
As for the comment about “making money from peoples illness or injury is immoral,” how does this person expect doctors, nurses, et cetera to make a living? If they can’t make “money from peoples illness or injury,” they will find other jobs where they will be paid for their work.
I covered the claim of reduced administrative costs in a previous point/counterpoint.
Point: In addition to the allegation of reduced administrative expenses, President Obama says he wants to control the price of his healthcare plan by cutting payments to healthcare providers.
Counterpoint: How will cutting payments to doctors, hospitals, nurses, et cetera improve our healthcare? Shouldn’t the market decide how much we pay – either more or less – for healthcare? When did price controls ever help?
Consider this comparison to public education. We’re constantly told we need to pay our teachers more because that will ensure better results for students. Numerous studies show that claim to be false, but that’s what we hear nonetheless. In the case of healthcare, however, we’re being told the key to better healthcare is to cut the pay of healthcare providers. Why do the positions differ? Politics, and politicians supporting a government-run healthcare system hope we don’t notice the inconsistency.
Point: “Medicare, Medicaid, [S]CHIP and the VA, which show the US gov is in fact capable of operating a HC [healthcare] system.”
Counterpoint: First, though “Medicare, Medicaid, [S]CHIP” interfere with the healthcare market, they are not “HC system[s].”
Second, even if you go along with the bogus point Medicare is “a HC system,” consider this. According to the Medicare Trustees in their report to Congress in 2009, Medicare is now in deficit (outlays exceed Medicare tax revenue) and will be bankrupt in 2017. How does this “show the US gov is in fact capable of operating a HC [healthcare] system?”
Finally, though I’m in no position to assess the efficacy of the VA healthcare system, there are differences between a system limited to caring for injured veterans (an important but tiny portion of the population) and one intended to cover everything for everyone.
Point: “You forgot to factor the insanely high premiums being charged by private insurers when predicting the demise of Medicare. If a fraction of those premiums went to operating the program rather than to insurance companies, Medicare would stay flush forever.”
Counterpoint: This is the point you get after presenting the counterpoint above.
First, Medicare (like Socialist Security) is funded using a Ponzi scheme. That is, Medicare requires an ever-growing Medicare taxpaying population and a high multiple of current Medicare taxpayers relative to current Medicare beneficiaries, and/or ever-increasing Medicare tax rates, and/or ever-decreasing benefits. Any such system has failure built in.
Remember, your Medicare taxes don’t pay for your benefits. Your taxes pay for the benefits of current Medicare beneficiaries, just as tomorrow’s Medicare taxpayers will (hopefully) pay for your benefits. Socialist Security operates the same way.
Second, the fact that everyone eligible can get exactly the same Medicare benefits regardless of how little/much they paid in Medicare taxes is also a factor. H.R. 676 includes this trait and the Ponzi scheme funding.
Third, insurance premiums have nothing to do with Medicare’s financial problems. Medicare sets the reimbursement rate and pays providers directly. In those cases where someone has supplemental insurance, the reimbursement rate remains the same. Further, the insurance providers offload Medicare of some of its administrative costs.
Point: “In the private system we have now, the agenda is to make money, not treating patients. The sickest patients are to be avoided at all cost. The method used is simply the price of care for those who actually need services. Rationing by making the cost so high that one who is ill, simply can’t afford it. Denying care for those already enrolled is another. This is the ultimate right wing agenda, ensuring that ones [sic] bank account is their only worth to society. A totally immoral position I might add.”
Counterpoint: The above is more of a baseless emotional rant than a point, but is indicative of what to expect. One thing worth noting, however, is the reference to rationing. Whether we like it or not, all approaches to healthcare ration services. In a free market approach, market forces (we patients) handle the allocation of resources. In a government-run monopoly, bureaucrats and/or politicians do the rationing.
Point: Healthcare “should be a human right” and is not a commodity.
Counterpoint: Whenever the left wants something, it’s “a human right.” Using this “logic,” we should also have government-run, taxpayer-funded monopolies for the production/distribution of clothing, food, housing, et cetera.
Claiming healthcare isn’t a commodity is a nice sentiment but all of our experience shows we treat healthcare just as we treat any other good or service.
Point: “[E]veryone pays into single-payer via their taxes, and everyone takes out. There are no free riders.”
Counterpoint: Let’s look at two cases. In both cases I’m using the claim H.R. 676 funding comes from a flat 9.5% payroll tax. In case # 1, Joe is single and Bob has a family of four. Both men earn the same wage and under H.R. 676 both pay exactly the same healthcare tax dollars. As a result, just to cover himself, Joe pays as much as Bob pays to cover four. In case #2, Joe and Bob both have families of four. Joe’s wage is twice that of Bob and under H.R. 676 Joe pays twice as much in healthcare tax dollars as Bob. Isn’t Bob getting a free ride in both cases?
Point: We don’t want a single-payer system. We simply want to provide a public (government) insurance alternative to private healthcare insurance so people have options.
Counterpoint: This point is what we’re hearing from supporters of government-run healthcare who recognize too many of us know what a single-payer system means and falls into the “how stupid do they think we are?” category. “Public option” is simply a euphemism for a government owned and operated healthcare insurance “company.” The latest attempt at deception appears to be government established healthcare insurance “co-ops.”
First, according to BusinessWeek (The Tight Grip of Health Insurers; Catherine Arnst; Aug. 2, 2009; page 23) there are over 1,300 healthcare insurance providers in the U.S. How many more options do we need? Second, there’s no way a private business – either for-profit or non-profit – can compete with a government “business” subsidized with tax dollars. Third, even if the government “business” weren’t subsidized with tax dollars (“When pigs fly” comes to mind.), the private insurers would be “competing” with a competitor who makes the rules. Fourth, the government can print money to pay healthcare providers; private insurers can’t. Finally, even those who chose a private insurer would still be paying taxes to support the government insurer. It’s the same problem parents have when they want to send their kids to a private school. They can send their kids to a private school, but they still have to pay public school tuition (school taxes) on top of the private school tuition.
Could we have better competition? Sure. There are plenty of federal and state laws that prohibit customers from buying healthcare insurance from insurers across state lines. This is yet another example of government interference in the healthcare market. These laws should be relaxed to the extent possible or outright eliminated.
If the proponents of a “public option” were sincere about improving competition, they would have been lobbying for Medicare competition.
If the above isn’t enough to convince you of the real purpose of the “public option,” consider the following comment by Rep. Barney Frank (D-MA) on July 27, 2009. “If we get a good public option it could lead to single payer. The best way to get single payer — the only way — is to have a public option and demonstrate the strength of its power.” What caused Mr. Frank to let his guard down and let the truth slip out? Mr. Frank was speaking to people upset he wasn’t actively pushing a government-run monopoly and wanted to get them off his back.
Finally, let’s not forget Rep. Jan Schakowsky (D-IL), a proponent of a government-run healthcare monopoly. During comments on April 18, 2009, Ms. Schakowsky said, “And next to me was a guy from the insurance company who argued against the public health insurance option, saying it wouldn’t let private insurance compete. That a public option will put the private insurance industry out of business and lead to single-payer. My single-payer friends, he was right. The man was right.”
Point: President Obama constantly says that with his plan, “First of all, if you’ve got health insurance, you like your doctors, you like your plan, you can keep your doctor, you can keep your plan. Nobody is talking about taking that away from you.”
Counterpoint: Not exactly. First, though, when Mr. Obama refers to his “plan,” keep in mind he doesn’t have a plan he can show anyone. That’s why when Mr. Obama says people are wrong about aspects of his alleged plan he can’t refer them to specific text. A lot of people seem to assume Mr. Obama supports H.R. 3200, but he hasn’t even implied he supports that bill.
Getting back to addressing the point, all Mr. Obama really means is the government won’t explicitly force you out of your existing healthcare insurance. If you have employer-based healthcare insurance, there’s nothing to stop the employer – and there shouldn’t be – from dropping his healthcare insurance plan. One reason the employer might do this is if the government fine/tax for not providing a healthcare insurance benefit is cheaper than providing the benefit. An employer may have no choice to remain competitive.
If you buy healthcare insurance yourself, the so-called “public option” (a government-run healthcare insurance “company”) will eventually make it financially impossible for your insurer to continue to offer your plan.
As a reminder, H.R. 676 actually prohibits competing healthcare insurance offerings.
In the case of H.R. 3200, go to Section 102 (page 16) of H.R. 3200 and you find Mr. Obama’s assertion is true only if “the issuer does not change any of its terms or conditions, including benefits and cost-sharing, from those in effect as of the day before the first day” H.R. 3200 goes into effect. Further, “grandfathered” healthcare insurance plans eventually “must meet the same requirements as apply to a qualified health benefits plan under section 101, including the essential benefit package requirement under section 121.” In other words, even if your insurer or employer doesn’t change your plan on their own, they will be forced to change your plan to comply with H.R. 3200 and future government requirements. The result is you don’t get to keep the same plan you had the day before H.R. 3200 takes effect.
Point: A single-payer healthcare system would make our businesses more competitive with the rest of the world because they would no longer be burdened with providing healthcare insurance for employees.
Counterpoint: I covered this in detail in “A nationalized healthcare system.” The best way to relieve businesses of the burden of healthcare insurance is to follow my recommendations in “What to do.”
Point: A single-payer healthcare system will improve the U.S. economy.
Counterpoint: This is a variant of the previous point.
Point: The healthcare insurance industry is raking in big bucks and that explains the high price of healthcare insurance.
Counterpoint: The following was reported during the July 30, 2009, edition of “Special Report with Bret Baier” on Fox News. According to reporter Shannon Bream, Morningstar (an independent investor research company) reported the net margin of the top five healthcare insurers for 2008 ranged from 1.5% to 4.5%. For the last 50 years, the average net margin for all businesses has been 5.5%.
Counterpoint: Yet another rant. When you’re losing the debate and/or the facts aren’t your friend, demonize your opposition.
Point: A major problem with the current system is it is a “fee for service” model, not a “fee for quality” system.
Counterpoint: “Fee for service” has become a boogeyman catchphrase for supporters of a government-run healthcare monopoly. In fact, almost all economic transactions are fee for service (and/or goods). As you can tell from how they use the term, these folks want us to believe “fee for service” and “fee for quality” are mutually exclusive; they are not. A free market automatically addresses the issue. If a person isn’t satisfied with a good or service, he takes his business elsewhere. Except for the “evil rich” <g>, that would be hard for the vast majority of us to do with a government-run healthcare monopoly. That said, we don’t have a free market healthcare system, and anyone who supports a government-run healthcare monopoly doesn’t want a free market.
Point: Jane/John Doe died because she/he didn’t have medical insurance and/or healthcare.
Counterpoint: You’ll find many of the high-profile examples are bogus. The latest example was when President Obama said, “I got a letter -- I got a note today from one of my staff -- they forwarded it to me -- from a woman [Melanie Shouse] in St. Louis who had been part of our campaign, very active, who had passed away from breast cancer. She didn’t have insurance. She couldn’t afford it, so she had put off having the kind of exams that she needed.” That was a convenient story for Mr. Obama’s healthcare crusade, but it was false. According to the St. Louis Post-Dispatch, Ms. Shouse had medical insurance but “put off going to a doctor” until it was too late.
Point: We need “to address medical insurance companies [sic] exemption from anti-trust matters.”
Counterpoint: My research indicates the “medical insurance companies [sic] exemption from anti-trust matters” (a partial exemption, not complete) applies to all insurance companies, not just “medical.” This law, the McCarran-Ferguson Act, was enacted during the FDR administration. The alleged concern about this law appears to be a red herring, however, because the partial exemption applies only to insurance companies regulated by a state. As far as I can tell, all states regulate insurance companies doing business in their state. If they existed, unregulated insurance companies would not be exempt “from anti-trust matters.” The thinking behind the law appears to have been that if an insurance company does what state regulators tell it to do, the feds shouldn’t be able to hold the company responsible for the effects of those regulations.
Even if I believed (which I clearly don’t) the idea a government-run, taxpayer-funded monopoly could deliver healthcare cheaper than a true free market system (which we haven’t had since at least WWII) for a given level of accessibility, choice, quality, timeliness of treatment, et cetera, I’d oppose it because my freedom isn’t for sale.
When we went with a government-run, taxpayer-funded monopoly to educate our kids, we gave up a bit of our liberty. Very few families can afford to pay both public school tuition (school taxes) and the tuition of a private school. Thus most of us can’t choose the schools our children attend. We lost another bit of freedom with the enactment of Socialist Security, another bit with Medicare, and so on. Since the line of thinking used by nationalized/socialized healthcare system proponents also applies to every other industry, where do we draw the line? Do we stop at healthcare, or do we move onto the next industry whose “overhead and administrative expenses” are deemed “excessive” by someone?
The infringement on freedom isn’t limited simply to how we provide healthcare. In the name of controlling healthcare spending, a government-run healthcare system opens the door even further to control individual behavior. For example, if the system is spending “too much” for diabetes treatment, expect to see taxes on foods that adversely affect blood sugar and/or contribute to obesity. You’ll recall offsetting healthcare expenditures by Medicaid and Medicare was a rallying cry behind the confiscatory taxes we see on tobacco products. (No, I’m not and haven’t been a tobacco product consumer.) Heck, New York City imposed restrictions on the salt content of food and the size of “sugary drinks” (the latter judged unconstitutional but under appeal) just because the NYC government thought it was a good idea. It doesn’t take a lot of imagination to see where this will go. When the government wants to control an “undesirable” activity, it will find a way to link the activity to healthcare then argue the action is necessary in the name of controlling healthcare costs.
Every time we turn over a personal responsibility to the government, or push a local government responsibility to the state or feds, we sell our liberty one piece at a time.
During the warrantless wiretap debate we constantly heard the Ben Franklin quote, “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.” Is the quote any less true for healthcare insurance? That is, “[t]hey who can give up essential liberty to obtain” healthcare insurance, deserve neither liberty nor healthcare insurance.
For many of us, our eyes glaze over when someone starts talking about economics. While that’s understandable for discussion of more esoteric aspects of economics, the economics most of us need to know is mostly knowledge/recognition of simple human behavior.
Some participants – you can guess who – in the debate tell us the overarching concern is compassion or morality, not economics. That’s a naïve proposition because economics is a necessary factor in most decisions. For example, wouldn’t we be more “compassionate” if welfare benefits let recipients live in luxury and we didn’t place any time limits on receiving those benefits? One reason we don’t do this is because of economics; we can’t afford it.
Healthcare is no different.
Many people writing about healthcare – and other topics – appear to believe “cost” and “price” are synonyms. They are not.
When you talk about the cost of a good or service, the cost is the sum of the expenditures paid to purchase the labor, raw materials, et cetera used to produce the good or service. For example, if the total expenditures used to produce a widget is $1, that’s the cost of a widget.
Price, on the other hand, is what you pay to purchase a good or service. The marketplace governs the price of a product. Depending on supply and demand, the price a business can get for a good or service may be more or less than the cost.
For example, if demand outstrips the supply of widgets, their price could be $5 while their cost is only $1. Conversely, if demand drops and a vendor gets stuck with a lot of inventory, the vendor may price the widget at $0.50 just to recover what he can.
In general, when people write about the high “cost” of healthcare, they are really writing about the price.
We learned about supply and demand in high school. You likely remember the graph showing the supply and demand curves intersecting at the equilibrium point. The equilibrium point is where supply equals demand. At any other point along the curves, supply and demand are out of balance and market forces tend to push us toward equilibrium.
For example, when supply exceeds demand, prices tend to fall in an effort to increase demand and/or reduce supply. Likewise, when demand exceeds supply, prices tend to rise in an effort to reduce demand and/or increase supply.
While there are a few requirements for a marketplace to work properly, I’ll stick to the one most relevant to this discussion.
For a consumer to make a “correct” buying decision, he must be exposed to the true price of the product. There must be direct and immediate feedback. When a price is artificially raised or lowered by forces external to the market, the consumer will be induced to make a decision he would not make otherwise.
Below are a couple of examples of what I mean.
When a product price is subsidized, the artificially lower price may induce the consumer to make a purchase he would not make otherwise. For example, let’s say the local ice cream stand charges $1 for an ice cream cone. If you are willing to pay only 50¢, you won’t buy an ice cream cone from that vendor. Now let’s say the local government wants to “help” local ice cream stands and decides to reimburse the stand owners 50¢ for each ice cream cone sold, which allows owners to charge consumers only 50¢. At a visible price to you of 50¢, you will now buy an ice cream cone.
Likewise, high taxes that artificially drive up prices may deter consumers from buying a product they would purchase otherwise. In 1990, Congress and President “read my lips, no new taxes” Bush #1 assessed a 10% luxury tax on private airplanes, pleasure boats, cars, furs, and jewelry whose price exceeded specified levels. The tax on pleasure boats costing more than $100,000 nearly killed the U.S. pleasure boat industry. Customers either delayed their purchase or made their purchase overseas. Translation: American workers in the pleasure boat industry lost their jobs. The luxury tax on pleasure boats was repealed in 1993 after it was shown to produce no significant revenue while it killed jobs in the pleasure boat industry.
During the healthcare debate you’ll hear proponents of a government-run healthcare monopoly claim U.S. healthcare will remain a free market because the actual healthcare providers will remain private enterprises. There are at least several problems with that bogus assertion.
First, and most obvious, it can’t be a free market when you have only one “choice” for insurer and that insurer sets the price (healthcare taxes) paid for the insurance, determines the covered services, and sets the prices it will pay for those services.
Second, our existing healthcare “system” isn’t currently a free market and hasn’t been since at least World War II. (See “Employer-based healthcare insurance” for more details.) Since WWII, special tax treatment for employer-based healthcare insurance and all the government healthcare programs (Medicaid, Medicare, PACE, et cetera) interfered with the healthcare market by subsidizing healthcare. The effect was to drive prices higher than they would be otherwise.
Third, there’s nothing “free” about prohibiting for-profit healthcare providers to participate.
Fourth, when there’s only a “single payer,” isn’t that a monopoly? Further, though the healthcare providers technically remain private enterprises, that’s not the effect in practice. As soon as the government becomes the single payer (a monopoly), every provider in the healthcare industry that accepts Medicare payments becomes a de facto government enterprise. As noted previously, H.R. 676 sets salary guidelines for certain providers.
At various points in U.S. history, someone thought the best way to control prices was by government fiat. The most recent examples were during the Nixon administration and the so-called “windfall profit tax” on crude oil imposed by the Carter administration. Doing so, however, displays complete ignorance of economics and simple human behavior. Perhaps just as important, history shows price controls don’t work.
In no particular order, here’s what happens when government applies price controls.
When the price is too low, fewer healthcare providers will choose to provide the product or service because many providers won’t be able to recover their costs and show a profit. This results in shortages and lower quality.
Unwittingly, the “universal healthcare” crusader Beaver County Times conceded this point. The editorial “In poor health” asserted, “one reason it was hard to find a dentist is that only 900 of Maryland’s 5,500 dentists accept Medicaid patients. (Don’t be too quick to knock the dentists. The [Washington] Post reported that reimbursement rates for dentists remain low nationally. In addition to low rates, dentists often are frustrated when they have to deal with Medicaid bureaucracy.)” Note the comment about the “Medicaid bureaucracy” and remember proponents of a government-run healthcare system claim it would reduce administration costs.
A shortage manifests itself in waiting lists for affected medical procedures. In some cases, being on a waiting list is a death sentence.
Lower quality is a result because the “best and brightest” will switch to other areas where their compensation can match their skill. For example, a topnotch physician may refuse to accept patients who choose to have the government pay their bill. Instead, the doctor may choose to accept only patients who can afford to pay directly out of their own pocket.
Lower quality also results because of unwise shortcuts intended to mitigate the effect of artificially low prices.
This is not simply a hypothetical scenario; it happened. Despite the government healthcare system, people in Canada started buying private healthcare insurance and guess what the government “solution” was. You guessed it, the Quebec government felt so threatened it enacted a law to prohibit people from buying private insurance for procedures covered by the public system.
The Canada Supreme Court struck down the law stating, “Access to a waiting list is not access to healthcare. The prohibition on obtaining private health insurance might be constitutional in circumstances where healthcare services are reasonable as to both quality and timeliness,” but it “is not constitutional where the public system fails to deliver reasonable services.” Ouch!
As noted above, the Quebec provision is currently part of H.R. 676.
Ultimately, we’d see two healthcare systems. There would be the healthcare system run by the government, and the one in which private citizens pay for their healthcare directly out of their own pockets. In general, do you care to guess which system would have the better doctors, nurses, facilities, medications, et cetera?
I’m not into the class warfare thing, but who would be able to afford the better doctors and procedures? That’s right, we’d have one healthcare system for “the rich” and another for the rest of us.
© 2004-2015 Robert W. Cox, all rights reserved.