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The Healthcare System is Ill and the Facts Will Make You Sick

November 10, 2009
 by Alberto Arredondo


With the one of three federal hurdles overcome to bring greater control of your medical care to the government, we are one step closer to exacerbating a problem of the government's making. With the unceasing mantra of the rising costs of healthcare, those pitching the solution don't reveal a devastating fact: the administrative costs of Medicare and Medicaid are two of the three major contributors.

The House’s 2,000 page bill to reduce the costs of health care recently gained approval. Proponents paint this as a victory against corporate greed run amok and ignore an underlying motivation for the push for healthcare reform. According to a 2008 Government Accounting Office (GAO) Study, “the magnitude of [the growth in government spending on health care] presents long-term sustainability challenges for all levels of government.” In other words, when the government speaks of the costs of health care, they are referring to the costs of their own programs, though they paint the issue exclusively as a problem native to private insurance. Doing so insinuates private insurance is a free market construct, and that the free market is the problem. This kind of distortion by our elected officials leads to unnecessary divisions among the public serving to further the interests of those favoring government solutions to government problems blamed on capitalism. The result is passage of an opaque piece of legislation championed by a credulous public.

What does the government’s solution provide us? Lower costs presumably. That is, after all the publicly stated reason for pursuing this expansion of government power. However in 2009 testimony before the Committee on Finance, a director in the Congressional Budget Office (CBO) stated that, “steps to substantially expand coverage would probably increase spending on health care and would generally raise federal costs.” The CBO reaffirms the GAO by stating that, “over the longer term, rising costs for health care represent the single greatest challenge to balancing the federal budget.” The government claims to be looking after our well-being but their actions are eerily self-serving.

Solutions pondered by the CBO show that constraining markets lead to exponential complexities and ultimately prove that the market is the most efficient means for reducing costs. When analyzing the effect of subsidizing the uninsured, the CBO states that “the cost per newly insured person can grow sharply because a large share of the additional subsidy payments is going to otherwise insured individuals," but this can be solved if “the government could limit eligibility for subsidy payments to individuals who are currently uninsured. That restriction, however, would create incentives for insured individuals to drop their coverage.” The comedy continues as the CBO discusses the possibility of targeting subsidies to lower income individuals but “those with income just above the threshold would have strong incentives to work less or hide income in order to qualify for subsidies...” No doubt within the two thousand page bill passed by the House, there is new power given to the IRS to monitor this kind of behavior.

When analyzing mandates of coverage, the CBO mentions that “penalties would generally increase individuals’ incentives to comply with the mandates.” But the government looks to remain benevolent by encouraging participation by “enrolling individuals automatically, giving them the option to refuse that coverage or switch to a different plan.” The government solutions can not match the simplicity of market solutions.

The CBO virtually bolsters the market argument when discussing insurance purchased privately by individuals. “Premiums of policies purchased in the individual insurance market are, on average, much lower... [they] cover a smaller share of enrollees’ health care costs, which also encourages enrollees to use fewer services.” In contrast, “the government might specify a minimum level of benefits that the coverage must provide in order to qualify for a subsidy or fulfill a mandate; such a requirement could have substantial effects on the proposal’s costs.” They explain that as more costs to the patients are covered, enrollees are lead to use more services. They also indicate that “health care spending for the uninsured would increase” under government programs because, currently, “[the uninsured] either pay nothing for [care] or pay less than the amount a provider would receive for treating an insured patient.” This further bolsters the case for market solutions. If people are unable to pay, providers must charge less. If they don’t a competitor will find a way to be profitable while taking less.

The absurdity of the complexity required in a non-market solution can be summarized with “Option 106” that “would impose a new excise tax on sugar-sweetened beverages.” But not all the options studied by the CBO can be dismissed as government-as-usual. In Option 45, the government steps into the role of medical researcher “that compares the effectiveness of different medical treatments.” Can you imagine the kind of persuasion a doctor or a patient would need to gain approval for some course of treatment not favored as most effective by government research?

We’ve seen that the spiraling costs are largely a reflection of inefficient government programs. A 2007 Kaiser Family Foundation study describes complementary reasons for increases in medical spending in the United States. First, there is a correlation between societal prosperity and health care spending. Second, the population is aging. Third, “lower cost sharing at the point of service likely encouraged consumers to use more health care, leading to expenditure growth.” And fourth, “tax subsidies for health insurance and public coverage for certain groups...reduce the cost of health care, encouraging people to use more of it.”

The answers to the systemic problems can be seen directly by understanding the causes which essentially boil down to inefficient government and the distortion of the economics of medical care to the consumer due to government intervention. Prescribing more government intervention is akin to prescribing blood-letting to someone with hemophilia. Yet in this case it isn’t blood we’d be losing...it's liberty.

Related Content:

The Conceit of Centralized Health Care - Richard Sutton
Obama's Health Care Plan will Result in Rationing - Jim Iannuzo
Plaster of Paris - Alberto Arredondo

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