Healthcare Miracle

July 15, 2009

by Chidem Kurdas

“You’ll save money,” says President Obama a propos health reform.  You’ll consume more medical services, the demand for those services will go up and you’ll save money. Truly a miracle, like ancient Kings curing scrofula by touch.

The bill passed by a Senate committee requires employers to provide medical coverage for employees or pay a penalty. Individuals who choose not to have insurance face a penalty of up to $750 a year. People below a certain level of income are to receive subsidies to purchase insurance.

In effect, medical insurance would become compulsory. That would have a significant impact regardless of how exactly the insurance is provided or subsidized.

Compulsory medical insurance and the resulting growth in payments will be a fine thing for hospitals—just what they need to salve their economic woes. Uninsured patients are a drain on hospitals. Surely it is no coincidence that Hillary Clinton and Mr. Obama were the two Presidential candidates that received the most donations from the healthcare industry.

For those donors, the bill is what the doctor ordered. But what does it mean for the rest of us?

On average the US consumes more medical services per person than any other society, measured as a percentage of national income. Complaints about private insurance notwithstanding, government entitlement programs are the big players in this market, putting immense and growing pressure on budgets and taxpayers.

Medicare will almost certainly devour what’s left of the Federal budget and Medicaid is already destroying state and local budgets. California is insolvent in part because of its huge healthcare program.  Massachusetts had to stop automatic enrollments in its own subsidized program.

Despite the endless expansion of government healthcare spending at all levels, federal  compulsory insurance is being legislated on the ground that some people do not get enough medical services. The other argument is that serious illness imposes a heavy financial burden on those without insurance.

If it becomes law, the so-called reform will force employers to pay more of their employees’ compensation in the form of medical insurance and millions of people will be compelled to spend more of their income on medical insurance or get a subsidy for this purpose. They’ll use more services, which will therefore become more expensive, judging from the past.

Hence total spending on medicine will grow even faster than it already is growing. To get around this awkward implication, compulsory insurance advocates concocted a myth. The government can lower medical costs by using its market power to keep payments under control, they claim.

Consider the Pentagon, a huge monopoly that in theory must have more market power than just about any buyer in any market. You think the Pentagon keeps down the costs of its procurements? Procurement officers pass through the revolving doors of the military-industrial complex and join defense contractors. Politicians, government bureaucrats and the industry are one loving family.

The medical-industrial complex works in a similar way. Behind the rhetoric of helping consumers one can discern a scheme to re-distribute resources from the rest of the economy to healthcare, with its powerful interests. Put that way, it does not sound so nice. You could see the expansion of medical entitlements as a payback to campaign donors.

But politics is the art of shaping the story so as to make it attractive. No question, the President is very good at rhetoric and has strong support from the media. So the tale is that “reform” will save money.

6 Responses to “Healthcare Miracle”

  1. Preston Says:

    I think you mean to say the Pentagon is a monopsony, not a monopoly.

  2. Joe Calhoun Says:

    I’ve made this same point repeatedly on my blog. All of the current healthcare reform plans focus exclusively on the demand side and the result if any of these plans is passed will be an even faster rate of healthcare cost inflation. Why is that no one explores the supply side? Why aren’t we making it easier for nurse practitioners to provide basic healthcare? Why do we continue to restrict the use of midwives? Why isn’t anyone addressing the lack of oncologists and primary care physicians? Any other ideas on expanding the supply of healthcare services?

  3. chidemkurdas Says:

    You’re technically right, but I prefer to use the word monopoly. It’s familiar –who hasn’t heard of the game? — and the arguments about how this program will reduce costs refer to monopolistic buying power.

  4. Mario Rizzo Says:

    Another aspect of all this is that a “solution” to the cost control problem that is being discussed — namely, the taxing of healthcare benefits provided by employers, is being used as a way for the Federal government to get more money. It is true that not taxing healthcare benefits, while taxing directly paid-out salary, does create incentives to “over” insure. Thus individuals will incur less of the costs of their medical services. However, if ending the special tax treatment of medical insurance is to be done, it should be in a revenue-neutral way. The proposed increase in taxes should be offset by a reduction in taxes elsewhere. There is no need to make people poorer to get better incentives in place.


  5. I think you ignore some basic facts:

    1) The status quo cannot go on–the system is collapsing.

    2) The most cost effective care is being provided by a government program–Medicare. If costs is your concern than the best solution is a single payer plan modeled on Medicare. It makes little sense to dwell on the financial problems of Medicare when the problems with Medicare can far more easily be fixed as to the far more serious problems faced by those with private insurance.

    It is also notable that Medicare’s problems were increased by Bush’s attempt to privatize the system. It turned out that it costs 13% to 19% more for private companies to provide care than when the care was paid for by the government plan.

    3) The rest of the industrialized world manages to not only provide health care for its citizens but also provides higher quality care. If everyone else can do it, there is no reason the United States cannot.

  6. Christopher Skyi Says:

    Something you may want to look at/address:

    The Commonwealth Fund has posted a study (http://www.commonwealthfund.org/Content/Publications/Issue-Briefs/2009/July/Failure-to-Protect.aspx) showing why the individual insurance market does not provide viable options for most consumers.

    I’m assuming this will be interpreted as a “market” failure and lead support for whatever it is team Obama is trying to accomplish with health reform.


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