The Economics Of Dem Healthcare Reform For Dummies

With everything that is currently being tossed at us since way before the 2008 election, quite a few things get missed just because we don’t have the time to read everything, all the time.

I ran across an article today from economist David Buckner which I think explains the dems’ plan pretty simply in economic terms.  Here are a few tidbits; make sure to go over and read the whole article.

The Snake Oil Sales Pitch: A Question of Healthcare Economics

Unfortunately, facts tend to be the first casualty of political banter.  As one commentator noted this morning, if you tell a lie enough times, people will begin to believe it.  So, lets return to the facts and basic economics 101 (a class all law makers should be required to take prior to starting their first term and every two years thereafter).

Fact #1:

If you increase the demand for a product without increasing the supply, there will be a shortage.  Let me say that a different way:  if you increase the number of people buying a product without increasing the number of products (suppliers) there will be a shortage.  There is no way around this.

Application:

If you insure 15 million more people without adding any doctors, there will be a shortage.  Say what you will, promise what you may, all the kings horses and all the kings men will never be able to put 15 million more humpty dumptys together again, UNLESS you increase the number of doctors!!  Nothing in the current legislation offers such an incentive or allowance–if anything, quite the opposite.   Time and again the question has been asked and each time the response is “everyone will be covered,” as if that answers the question.

Bottom line:

Shortages WILL occur until there are more doctors, more nurses, more hospitals, more clinics.  Promises of “universal coverage” cannot overcome the reality of “universal shortages”.  One might accurately argue we will have equal opportunity shortages.  That statement would be true.  Nevertheless, there will be shortages and the sellers KNOW IT!

Fact #2:

Shortages cause prices to increase and providers to ration their services.  Again, this is an Economics 101 principle overlooked (or neglected) by the salesman.  If you create a shortage for any product, prices will increase or the shortage will REQUIRE doctors to ration their time and their resources.

Application:

Doctors will charge more for less.  With more demand than they can manage, they will have to determine where they spend their time and how they allocate their resources.  If they are paid the same for an easy case as they are for a difficult one, you do the math.  Daily triage will be compounded by the mere volume of patients now in their waiting room.  They can choose to serve 15 patients who need a simple check-up, or use that time to manage the chronic care of a single aging cancer patient.  Triage favors the healthy.

Bottom Line:

Rationing will occur.  To be clear, rationing will always occur to some degree.  At present it occurs based on who can pay and who is covered, which is the “market force” approach to rationing.  You want it, you can get it if you pay for it.  If you can’t pay for it, the government will.  However, a universal government run system would create a false market and remove the patient from the decision as it has with Medicare and Medicaid.  If you want it, you MIGHT be able to get it.  You the patient will no longer control that process and doctors will no longer respond to real demand.  Doctors will get paid whether they serve the patient or not.  In fact, to reduce costs as promised, the government will have to limit what doctors can do.  The incentive to listen to the patient is removed as the government is the customer, not the patient.

Fact #3:

If you lower prices, demand for a product goes up.  Again, said another way, if you offer insurance at a lower price (the government option), people will buy that insurance.

Application:

This may sound good initially.  But beware!  One must consider the fallout and false perception created from such a move.  Promises that a government run option WILL NOT put insurers out of business are false.  Technically, the government will not physically go in and shut down the insurers.  However, they might just as well do that, as the results will be the same.  If you offer a government plan at a lower price, with the same coverage as a private plan, everyone will buy it.  They are not required by law to buy that plan but if the price is lower for the same products, why wouldn’t they?  To say this is an OPTION would suggest that other alternatives will continue to exist.  They can’t!  They can’t compete when the pricing of the government plan is a false price.  The very thrust of the government promise is to lower prices without offering less.  This is snake oil in its purest form!  Unless the government addresses COSTS rather than PRICES only, this option is a fraud.  It is healthcare “dumping,” the very practice the U.S. has blamed China and other countries of doing to capture markets and create an anti-competitive environment.

Bottom Line:

A government option is essentially healthcare “dumping” which will result in a removal of healthcare insurers, leaving a monopoly subsidized by tax payers.  False prices without addressing real costs leaves a gap that can only be filled by taking more from the taxpayer.  Promises of cost reductions and fraud elimination under a government plan beg the question, WHAT ARE YOU WAITING FOR?  Why should we believe the government, acting as a monopoly, would now be motivated to find and eliminate fraud more than ever before?  What changed?  Why now?  Why haven’t you done it already?  Once the monopoly owns the market, prices can skyrocket as there is no competition to place a check and balance on the government.  If history serves us well, this would mean U.S. Postal Service style healthcare.  No service, not incentive, no market efficiencies.

Of course, there is more to consider before buying:

– The government has never run an efficient system (of any kind).

– There are no successful examples of efficient government run healthcare (anywhere).

– There is no incentive to innovate if prices are fixed.

– Costs are never avoided.  They are just passed along to taxpayers.

– A call for change doesn’t mean a mandate to “JUST DO SOMETHING

Any questions?

7 thoughts on “The Economics Of Dem Healthcare Reform For Dummies”

  1. He certainly did hit the nail on the head.

    The comment I would make on this is in the situation where there is no “public option,” but only government telling insurance companies that they must insure everyone. By so doing, the government is doing to the healthcare insurance industry what it did to the bank mortgage lending industry through the CRA… forcing businesses to do things that are economically/financially unsound… and eventually forcing them into their own demise.

    The results are the same… just a matter of how quickly it occurs. It still all amounts to a government takeover of healthcare.

  2. From a health economics perspective, the main argument is flawed: ¨if you increase the demand for a product without increasing the supply, there will be a shortage¨. Why? Because health markets are imperfect, in many ways. For example, because of the ¨moral hazard¨ problem, more healthcare resources are consumed than the amount required for satisfying the needs –which are not necessarily the same as wants and demands–. As a result, the US, already destines about 16% of the GDP to health care, more than any other nation in the world (most expend less than 10%). The main challenge, therefore, is how to redistribute the existing resources more efficiently, in order to make room for all. Other nations have a better record.

    • One more thing – “other nations have a better record” – I don’t know if that is true, but let’s say it is – who had the best health care in the world – those countries with a better record or the US?

  3. Here is what I have been striving to learn about the President’s plan is this portion about pre-existing conditions… Is there any stuff in the bill about wether or not there is a limit on what insurance companies can require if you have a pre-existing disease?

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