Saturday, July 25, 2009

ObamaCare: The Wrong Prescription

As the debate over the pending health care bill rages on with Obama and his minions trying to ram through a massive bill that would essentially transform our health care system from a semi-free market to a government managed oligopoly, I want to share some key thoughts from various commenters. But before we get into that here is a flow chart the Republicans have posted that shows the Byzantine mess this bill would create.

As Drs. Tom Stossel and David Gratzer (both of whom are senior fellows of the Manhattan Institute for Policy Research) say in their Boston Globe articleImproving our tangled healthcare mess”:

We need to reform American healthcare as we have the other five-sixths of the economy, by emphasizing choice and competition. Today, the system is a jumbled mess of government interventions: tax preferences for employee-based insurance that cost the treasury one-quarter of a trillion dollars a year; payment intermediaries and government-set reimbursements; regulations governing everything from physician ownership of hospitals to requirements in some states that second opinions about surgery be covered by the most basic insurance. The result is a lack of price transparency, limited choices, and a dearth of competition. Rather than attempting to cure this disease with more of the same, Congress should empower citizens to manage their own healthcare.

Gratzer, who worked as a physician in Canada and the U.S. and therefore has seen the difference between the two health care systems, makes a critical distinction in his Investors.com article, “Public Option Is A 'Trojan Horse' For Slow-Motion Socialized Care”.

But if there is a public plan, it will be a variation of Medicare, which single-payer advocates praise as an example of administrative efficiency. A dirty secret goes unmentioned in that tale: Medicare is a federal program, not an insurance plan. It's an apples-to-oranges comparison.

A public plan option can overwhelm even the best private insurers, partly thanks to the unfair advantage of federal status. How? Let me count the ways.

Private insurers must comply with state regulations, where Medicare coverage doesn't.

Medicare is a "pay as you go" entitlement, not an insurance plan.

Properly funded insurance plans must anticipate future costs; in contrast, a public plan option backed by the federal government can simply tax or borrow enough to cover costs from one year to the next to survive.

A Medicare-style plan will set prices with providers, not negotiate them, creating not simply a further competitive advantage, but burdening private plans with cost shifting (as Medicare presently does).

That's why entitlement programs around the world usually start with low fees and great benefits — and a public plan is almost certain to do exactly that — "to be competitive," of course.

Fast forward 10 years and the "affordable" public plan will have captured a huge market share. Obama will be in Illinois drafting his memoirs, but Congress will face stark choices as the plan's costs inevitably spike. The challenges will be eerily similar to the decisions made every day by legislators in countries with government-run health care systems.

When entitlement programs become too expensive, governments ration care, raise taxes, or both. Citizens seeking to leave the less attractive public system will face few alternatives, as private plans will have been blown out of the marketplace by Washington's taxpayer-financed, price-controlled head start.

At the Ludwig von Mises web site Why Obamacare Can't Work: The Calculation Argument, the author makes the following point.

Unfortunately, since Obama uses faulty logic to diagnose the problem, his solutions will only make matters worse faster. The correct framework within which to diagnose the problem is to admit that costs are out of control because they do not reflect prices created by the voluntary exchange between patients and providers, between customers and producers, like every well-functioning industry.

Instead, health costs reflect the distortions that government regulators have introduced through reimbursement mechanisms created by command-and-control bureaucracies at federal and state levels.

Simply put, Medicare, Medicaid, workers compensation, HMOs and even private health-insurance firms that follow Medicare rates, rely on cost reports submitted by providers. This cost data is then pushed through mathematical models and additional data generated by government, such as inflation and regional-labor-cost modifiers, to unilaterally (or in agreement with lobbyists and industry groups) determine what the prices for services should be.

But it is theoretically and practically impossible for a bureaucrat — no matter how accurate the cost data, how well intentioned and how sophisticated his computer program — to come up with the correct and just price. The just price of a health service can only be determined by the voluntary exchange of a patient with his hospital, physician, and pharmacist. The relationship between the patient and his private provider has been corrupted by the intrusion of government and its intermediaries (HMOs, for example) to such an extent that we can no longer speak of a relationship that can produce meaningful pricing information.

But it is theoretically and practically impossible for a bureaucrat — no matter how accurate the cost data, how well intentioned and how sophisticated his computer program — to come up with the correct and just price. The just price of a health service can only be determined by the voluntary exchange of a patient with his hospital, physician, and pharmacist. The relationship between the patient and his private provider has been corrupted by the intrusion of government and its intermediaries (HMOs, for example) to such an extent that we can no longer speak of a relationship that can produce meaningful pricing information.

As Yaron Brook says,

But by the time Medicare and Medicaid were enacted in 1965, this view of health care as an economic product--for which each individual must assume responsibility--had given way to a view of health care as a "right," an unearned "entitlement," to be provided at others' expense.

This entitlement mentality fueled the rise of our current third-party-payer system, a blend of government programs, such as Medicare and Medicaid, together with government-controlled employer-based health insurance (itself spawned by perverse tax incentives during the wage and price controls of World War II).

Today, what we have is not a system grounded in American individualism, but a collectivist system that aims to relieve the individual of the "burden" of paying for his own health care by coercively imposing its costs on his neighbors. For every dollar's worth of hospital care a patient consumes, that patient pays only about 3 cents out-of-pocket; the rest is paid by third-party coverage. And for the health care system as a whole, patients pay only about 14%.

And here is the key point in response to the Democrat’s mantra about healthcare being a right.

The solution to this ongoing crisis is to recognize that the very idea of a "right" to health care is a perversion. There can be no such thing as a "right" to products or services created by the effort of others, and this most definitely includes medical products and services. Rights, as our founding fathers conceived them, are not claims to economic goods, but freedoms of action.

Finally, we get to the oft-repeated statistic about the millions of people without health insurance, the statistic that Democrats rely on to get us to buy into their plan. David Harsanyi addresses this in his Denver Post article.

It is true that the 46 million figure is based on unreliable Census Bureau data. But even the less unreliable Congressional Budget Office puts the number at around 31 million. And even that number, former CBO Director Douglas Holtz-Eakin claims, is an "incomplete and potentially misleading picture of the uninsured population."
For one reason, the uninsured figure counts every American (and illegal immigrant) who has been uninsured for any time frame during a year, even if they happen to be between jobs or changing insurance plans or on family visit to Guatemala.
According to the CBO, 45 percent of the uninsured are uninsured for four months or less, which seems like a pretty positive number to me.
Then, another portion of uninsured Americans already qualify for an existing government health insurance program — and government already controls 46 percent of spending on health care — for which they have not signed up.
The CBO estimates that as many as 15 percent of the chronically uninsured are already eligible for help. The Urban Institute (hardly advocates of free-market fundamentalism) found that 25 percent of the uninsured qualify for some program.
Surely, most citizens will concur that health care is too expensive (though most citizens would likely concur that everything is too expensive) and something should be done. So when Obama tells us that 46 million Americans are uninsured, he is implying that 46 million people can't afford health insurance. That, too, is absurd.
In a study for the National Bureau of Economic Research, "Is Health Insurance Affordable for the Uninsured?," Stanford economists say that "based on a plausible range of definitions and assumptions . . . health insurance is affordable for between one quarter and three quarters of adults who are not insured."
Turns out that 8.4 million uninsured Americans are making $50,000 to $74,999 and 9.1 million more are making more than $75,000. Health insurance is just incompatible with their lifestyles, I guess.
There are obviously inconveniences — children and mortgages, for instance — that can quickly make $50,000 seem like a pittance. Then again, 27 percent of all adults in their 20s (many, I presume, without offspring) choose not to have health insurance. Many of them surely have the means to purchase insurance, but after meticulously considering the tradeoffs (imbibing or insuring?) say no thanks.

So the bottom line is that, if passed, the bill would entirely revamp our health care system because 10% of the population doesn’t have health insurance. In other words the benefits enjoyed by the vast majority would be denied for the sake of a minority. You would think the geniuses behind all of this could come up with a less intrusive solution. Of course to me this relentless drive to socialize health care reveals a motivation that is driven more by a power grab to expand the government and encroach even more into what is left of our free market. I believe ultimately a visceral hatred of the self-interest inherent in the free market lurks behind the “noble” drive to shackle all of us to the same yoke of socialized medicine.

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