Alice in Health Care

Uncle Sam bears most of the culpability for our skyrocketing health care costs, thanks to endless unfunded mandates placed on the health care industry. Why is this fact so often ignored in the media?

Most discussions of health care are like something out of Alice in Wonderland.
What is the biggest complaint about the current medical care situation? "It costs too much." Yet one looks in vain for anything in the pending legislation that will lower those costs.
One of the biggest reasons for higher medical costs is that somebody else is paying those costs, whether an insurance company or the government. What is the politicians' answer? To have more costs paid by insurance companies and the government.
Back when the "single payer" was the patient, people were more selective in what they spent their own money on. You went to a doctor when you had a broken leg but not necessarily every time you had the sniffles or a skin rash. But, when someone else is paying, that is when medical care gets over-used — and bureaucratic rationing is then imposed, to replace self-rationing.
Money is just one of the costs of people seeking more medical care than they would if they were paying for it with their own money. Both waiting lines and waiting lists grow longer when people with sniffles and minor skin rashes take up the time of doctors, while people with cancer are waiting.
In country after country, the original estimates of government medical care costs almost always turn out to be gross under-estimates of what it ultimately turns out to cost.
Even when the estimates are done honestly, they are based on how much medical care people use when they are paying for it themselves. But having someone else pay for medical care virtually guarantees that a lot more of it will be used.
Nothing would lower costs more than having each patient pay those costs. And nothing is less likely to happen.
One of the big costs that have actually forced some hospitals to close is the federal mandate that hospitals treat everyone who comes to an emergency room, whether they pay or not. But those who talk about "bringing down the cost of medical care" are not about to repeal that mandate. Often they want to add more mandates.
The most fundamental issue is not whether treating everyone who comes to an emergency room is a good policy or a bad policy in itself. If it is a good policy, then the federal government should pay for what it wants done, not force other institutions to pay for it. Then let the voters decide at the next election whether that is what they want their tax money spent for.
Confusion between costs and prices add to the Alice in Wonderland sense of unreality.
What is called lowering the costs is simply refusing to pay all the costs, by having the government set lower prices, whether for doctors' fees, hospital reimbursements or other charges. Surely no one believes that there will be no repercussions from refusing to pay for what we want.  Some doctors are already refusing to accept Medicare or Medicaid patients because the government's reimbursement levels are so low.
Similarly, if it costs a billion dollars to create one new pharmaceutical drug, then either we are going to pay the billion dollars or we are not going to keep on getting new pharmaceutical drugs produced. There is no free lunch.
Virtually everything that is proposed by those who are talking about bringing down the costs of medical care will in fact raise those costs. Mandates on insurance companies? Why are insurance companies not already doing those things that new mandates would require? Because those things raise costs by an amount that people are unwilling to pay to get those benefits.
If not, it would be a slam dunk for the insurance companies to add those benefits to the policies and raise the premiums to cover them. What politicians want to do is look good by imposing mandates, and then let the insurance companies look bad by raising the premiums to cover the additional costs.
It is a great political game, but it does nothing to lower medical costs.
Politicians who want a government monopoly on health insurance can easily get it, just by making it impossible for private insurance companies to charge enough to cover the costs mandated by politicians. The "public option" will then be the only option — which is to say, we will no longer have any real option.

Thomas Sowell is a Senior Fellow at The Hoover Institution at Stanford University in California. He has published dozens of books on economics, education, race, and other topics. His most recent book is The Housing Boom and Bust, from April 2009.

11 comments from readers  

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To do nothing will be a crime. I stand very strongly for getting the insurance industry complex out of our health care. They are taking 33% out of every insurance health dollar for overhead and lobbying..

If we cannot have the health insurance policy given to Senators, then it has been suggested to expand Medicare for All.

I would include all of our elected officials, and government entities in the pool. I want a government sponsored program that includes EVERYBODY, and if some people want to supplement that with a private insurance, they may do so out of their own pockets.

In all of this I do not see a call for each person being accountable for their own health; for example by improving our diets and exercise regimes.

One more point, if the average physician did not graduate medical school with over $175,000 in student debt, they might be more motivated to lower costs for their patients. If our government subsidized qualified individuals for medical school and they then had to work for five years to repay the debt, we would be much better off.

Debora Dearie
My local hospital in its annual report said that Medicare pays about 2/3 of the actual costs of taking care of Medicare patients. For Medicaid, it's 1/3. To offset this they have to charge those with real insurance about $2 for each $1 their care costs. I wonder why private insurance is so expensive?
Take a time-trip back to the 1950s ... where, politicians were trying to 'solve' the problem of Education. The objective was to declare Education a basic human right, and then come up with a system that was:

* fair - after all, why should a kid from a poor family get a lower-quality education than a kid from a rich family?
* free - since many other countries followed this model, surely it made sense for the most affluent nation on earth?
* good - nothing but the best .. after all, it's "for the children"

Politicians devised systems that were expected to provide access to all (universal), and provide high-quality education at an affordable cost.

To be fair, they did achieve the goals of free education and universal access. But 'free' does not translate into 'inexpensive'. All right, one might say, but what about quality? Unfortunately, the well-intentioned plans failed miserably in producing high-quality education.

Luckily for the politicians who 'achieved' Universal Public Education, it took several decades for the damage to become obvious. And now, the concept of Public Education is so ingrained in our national psyche, that one hears arguments such as "without Public Schools, our children would be uneducated."

Along the way, irreparable damage has been done to the market for Education, since most captive tax-payers couldn't afford the double-cost of sending their kids to Private Schools. With more than 90% of the market beyond reach, Private Schools cannot 'compete' against the coercive monopoly of Public Education. Except for the few Private Schools that are church-supported, the only Private Schools that survive are those that can tap into a relatively small pool of affluent families in their regions.

The 'public option' that is being proposed in today's Healthcare debate represents the same kind of slippery slope. One can expect the following chain of events:

* with great fanfare, the Public Option [given a nice, catchy name such as AmeriCare] is unveiled in 2010. It is expensive (to the taxpayers), but cheap for 'subscribers'.

* By 2012, AmeriCare enrolls about 100 million subscribers - many of whom leave their previous insurers 'voluntarily'. At this point, it is already 'too big to fail', but since it is mostly successful, no one actually thinks along those lines.

* Due to Govt clout AND the large enrollment AmeriCare is able to squeeze providers [hospitals, doctors, nurses, pharmaceutical mfrs,..] and provide decent healthcare to its subscribers. At this point, AmeriCare is deemed a huge success .. ensuring the short-term electoral success of its proponents, who remind voters how "dastardly conservatives warned that the Public Option would result in low-quality, rationing .. but, look .. we did it, and you still have the same high quality and great access".

* Providers [hospitals, doctors, nurses, pharmaceutical mfrs,..] are forced to raise prices for the remaining Private plans, who now have to raise prices, restrict access etc. More people leave their Private plans 'voluntarily', since they are hearing wonderful stories from their fellow-citizens who previously enrolled in AmeriCare.

* By 2016, nearly 90% of the country is on some form of Govt sponsored health insurance [Medicare, Medicare, SCHIP, AmeriCare..]. There are still a few Private plans, but they are for the affluent .. sort of like the Private Schools. AmeriCare is still considered a great success, just as Public School systems actually worked quite well for several decades.

Hop into time-travel mode and fast forward to, oh, about 2025:
* shortage of doctors: in the early years of AmeriCare, there wasn't a significant shortage of doctors. After all, where would the vast number of trained doctors go .. Canada? But there are fewer doctors to replace retirees .. since it isn't a lucrative field any more.

* shortage of hospitals and equipment: squeezing the providers would naturally curtail their profit margins, reducing investment in this sector. Initially, the effect of this would be mitigated by 'cost shifting', but, as noted earlier, there wouldn't be many Private plans in existence.

* shortage of pharmaceuticals: initially, pharmaceutical companies would 'make it up in volume', since AmeriCare would guarantee a growing market for existing drugs. But, lower margins would eventually require cost cutting by pharmaceutical mfrs.

* lack of innovation: what incentive would a pharmaceutical company have to spend $1-2B on the next innovative drug, if they are not allowed to recoup a Return on Investment that is commensurate with the risks? Proponents of Govt sponsored research would say that the Govt would sponsor University-based 'not-for-profit' research, which would mitigate some of the damage - for some time. But, absent the profit motive, innovation would stall. That is because, Govt cannot sponsor R&D in all areas that enable such innovation. For example, companies that make R&D equipment would also face similar pressures, and would not have the incentive to innovate.

* AmeriCare is now a $5T (and growing) annual drain on the US Govt. Costs continue to go up, while quality drops and rationing becomes a fact of life. Having engulfed and devoured most of the alternatives, it is inconceivable to consider eliminating AmeriCare. America will continue to throw money at AmeriCare, with each passing generation thinking that it is basically a good idea, and will work perfectly if 'tweaked' properly.

* The American people have a vague recollection that things used to be better, but an increasing majority holds the opinion "it isn't perfect, but if we didn't have AmeriCare, people would have no health care at all."

* President Obama, now a revered 60-something liberal icon, is given the status that was previously reserved for the likes of FDR & LBJ. Liberal historians refer to him as "the President who healed America".

And, here is what the politicians will be saying in 2025:
* Healthcare has always been a fundamental right in America
* AmeriCare is too big to fail, and needs to be subsidized to an increasing extent every year.
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As usual, you nailed it on the head (yes, that's a bum metaphor!)

All the incentives are in the wrong places for the old US of A to continue leading the world in superior health care and cost containment.

If my son came to me and said, "I want to be a doctor," I would have to point out to him that his life would never again be his own, and he would rue this day forever.

He would spend years of grueling studies and sleepless nights. He would be held to superhuman standards of foresight. He would be inspected, vetted, drilled and maybe licensed (if he was lucky.)

He would have to put out immense sums of money to insurance companies (and the IRS) if he chose to cure cancer, heal broken bodies and deliver babies. He would spend most of his days doing paperwork, not healing, and always be under suspicion of pandering to drug addicts and killing patients.

However, should he choose instead as a career to deal in illegal drug sales... the world would be his oyster. He would not need a student loan, any taxable real estate in his name (sleep at your girlfriend's) or any overhead, other than a Glock. If your customers complain, screw 'em. No taxes to report, no insurance forms, no regular hours.

You can always pal-up with law enforcement as a "confidential informant" and enjoy an exclusive, police-protected franchise where you can get your competition your non-paying drug customers arrested. What a deal!

Thanks to our current laws, only an idiot would forsake a career in drug dealing, and instead go into the practice of medicine!

And people say chickens are stupid?
Saint Vincent's Hospital here in NYC is my birthplace. It's now going bankrupt to the tune of $700 million because of being forced to provide free medical care. Also, Stossel's show this week regarding the FDA and it's control of medical research was deeply disturbing. Considering just these two examples of government intervention into the free market of health care makes me worried sick. And I know I'm not alone as just one of the millions of uninsured, disenfranchised Americans. I keep fighting for free markets on every front, not just health care.
Amen! Not only are people using medical for instances they would never use it for if they had to pay for it themselves, but many people use medical for socialization! Yes! Old people get lonesome, have no one to talk to, so they go to see the doctor! He'll talk to them, yes indeed, at a really high price too.

I saw what's coming, I cancelled my Medicare Part B because it's cheaper to just pay that medical expense out of pocket than pay the premium of $98 a month. So now I have an extra $98 in my Social Security payment! Should have thought of that years ago.

Part B is only for Doctor's visits, lab work, X-Rays and who knows what else, you know, the stuff where they tell you if you might get sick in the future. I'm from the old school, I only go to the doctor's when I'm sick today! And I don't get sick, because I take care of myself.

Part A which is free, takes care of the hospital part. It's a no brainer.
Mr. Sowell: I am a Canadian so I know exactly what you are talking about. The cost of Medicare is what will give the Government control of produced wealth. The last year I know of that I got the cost for the year was 2008, and it was in the vicinity of 167 Billion dollars, and we are only 30 million people up here. You have some 300 million, ten times as many. Medicare by itself will end the America of Franklin and Jefferson as the most Free and productive nation that ever existed. You want to know why he's doing it? Because Franklin was right and Marx was wrong, and he despises us for it. Truth and Reality are always the first victims in the movement towards Slavery.
The goal and agenda of the current administration is summed up in Thomas Sowells last sentence of this essay:
"The "public option" will then be the only option â?? which is to say, we will no longer have any real option."

The cost cutting ploys of the Republicans (and Mr. Sowell) aside I would like to mention some other things that I suspect would be of great benefit as well.

The idea of "mandates" imposed on anybody is a method of theft that escapes my understanding. Why this has never faced challenge in the courts by either of the political parties is yet another grevious reason to deplore our political parties and congress. Is there not a way the people can raise it to the status of a "responsibility" amendment? Without such mandates I am sure a number of insurance company niche markets would appear to create competition for the gaps in medical coverage.

I remember when President Regan sent a military expedition to a little island of Grenada . A lot it's purpose was to liberate a bunch of American students. These students were medical school students who were not able for reasons other than academic to attend medical school in the U. S. It seems that there was a big demand for Dr.s that were not being fulfilled by our institutions. The AMA (and others) functioned(s) like a labor union and greatly restricts just who and how many would become Dr.s in America. They still do. I will believe there are enough Dr.s when they start making house calls again. Ditto for alternative services like Midwives and skilled nurses. Why are not more Mexican and other foreign Dr.s admitted for citizen ship and military duty? When the amount of Dr.s and other medical professionals becomes a freemarket supply and demand situation, cost cannot help but be subject to competition like anything else.

The record of the FDA on drug approval and testing compared to the rest of the world is rightly referred to as "delay and cost euthanasia"
This subject in not discussed to my knowledge. I submit this is a huge omission.

We need to significantly broaden the health care cost debate

Martin P
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I know reality of country, where public healthcare system is working. And altought there are many inefficiencies, still the output of the SYSTEM is better than OUTPUT of same amount self-deciding individuals... Performance of the human organism is much much higher than performance of same bulk of unconnected single cells. i spend few days comparing US health system performance indicators and local health indicators and I see large GAP. Our local system of public insurance, where individuals (but not clients, the doctors) decide in partly flexible limits by insurance companies. But they decide in reason of help to patient, not driven mostly by money. The interest of help to people is stronger than cost point of view. Althought they need to accept (financial) limits. But in their heads is HUMAN and not dolar... Off-personalized decisions of insurance companies driven only by costs (money) are more often goning to be BAD than personalized decisions of doctors... I see reality in comparism of both system. Theory is nice, results rulez...
Everything Mr. Sowell says about costs is, of course, spot on.

But, once again, let's stop talking about everything the government does from a utilitarian point of view and begin discussing it from a *moral* point of view.

It is morally wrong to force one person to pay for another person's ANYTHING, including health repairs. Humans have a right to run their own lives. Period. Next subject.

Mr. Sowell is one of the most eloquent free-marketers in print today, but I hope he will take his arguments one day down the path of fundamentals, and begin talking about what is morally right and wrong.

Otherwise, we'll never lift the cloak from the Lefties (and Righties) and their Marxist charades.
The White House just doesn't get it. The American People do not want this health care bill.

Before the medical establishment discovered they could talk people into getting check ups every year, people only went to the doctor when they were sick. Medical costs were very low then. Now, the entire country seems to think they have to go to the doctor at least once a year whether they are sick or not. Clever, eh?

And it is not beyond some doctor's morality to assign sicknesses to people who have none.
I worked in a hospital and with doctors for many years, and I know that when the mortgage needs to be paid, and the kids need to go to college, the doctor's family never does without. Suddenly there is a upsurge in appendectomies, or women's gynecological problems.

I haven't been to a doctor in years, why? Because I'm not sick! The government's Medicare Program has caused a financial burden on this country that is without precedent. It's a gigantic ripoff, and the government just goes along with it, paying bills like fifteen dollars for a Q-tip. Wake up America.

The overhaul needs to be to get the government OUT of the medical business, and out of every other kind of business too, where it has no place. Free the people!
Vote government out of our lives!
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