Tuesday, March 02, 2010
The President's Plan will make the real problem with health care worse
The President of the United States and his allies in the United States Congress seem determined to pass so called health care reform. Part of the reform is to provide government money to assist people with paying health insurance premiums. The cost of premiums is a problem. A bigger problem is the cost of health care in general.
The administrative costs are far too high in health care. Services are outrageously priced. There are reasons for that.
First, health care is not the typical market choice. No one can be expected to make a rational economic choice in the back of an ambulance after an auto accident or when told that they have cancer. Most people will choose to be in debt the rest of their lives to extend their lives.
That brings in the second factor of why health care costs so much. Financial minds working for profit based medical service providers have an idea of what the average person is worth and can “cough up” for a procedure. With medicare and insurance subsidizing the market, health care providers can take whatever that set price per person is and multiply times five.
Here is an example. Suppose the financial people of a for profit health care provider determine that the average person can afford to pay $20,000 for a procedure. The average person’s medical coverage, after a deductible, covers 80 percent of a major medical procedure. Thus, in the effort to gain the most money and profit, the for profit health care provider can set the price for the procedure at $100,000, knowing that the insurance company or the government programs will cover $80,000. The patient, after paying premiums for years, is still stuck with the $20,000 bill he could either afford or finance in the first place.
A government subsidy via tax credits or direct payments for health insurance will not solve the problem. If anything, it will only drive up the cost of insurance while insurance and government programs continue to subsidize the actual cost of health care.
If you doubt the above, just look at what happened in South Carolina state government with two well intentioned measures. Back in late 1990s, the South Carolina General Assembly widely approved a program that gave money to local governments to reduce property taxes. Since then, local governments have grown incredibly and most people are paying more in real dollars in property taxes with so called property tax relief than they were paying before property tax relief was started.
The South Carolina Lottery was supposed to create scholarships to make college education more affordable. However, if you look again at what students end up paying out of pocket on average, students, even with the scholarships, are paying more to go to college now than ever.
Indeed, the federal government uses subsidies to keep farm prices high. So, the federal government should know how subsidies, via whatever form, eventually work. Subsidies to businesses and governments have never reduced the prices for the consumer in the long run. It is simply not logical to expect anything different from the health care industry. Such is what happens when lobbyists get big government to work for big business. The so called “reform” package will be a boondoggle for the health care industry in the long run and will make the real problem of health care pricing even worse.