ACA/Obamacare,Health Insurance, and Health-Care Price Explained in One Lesson

H/T Carpe Diem

Rising Health-Care Costs: A Government Bridge to Nowhere

Innovation/technology and machines, many times through the aid of the phenomena of creative destruction, have advanced the quality and reduced the real cost of many, many items in our lives. Items once only attainable by the most affluent, are now merely everyday items used and enjoyed by James and Jane Goodfellow. Communications, computers, transportation, etc., etc. are lower in real cost and higher in quality. (1)


There is a glaring exception. What exception?

One needs to look no further than the opening paragraphs of Milton Friedman’s essay How to Cure Health Care, 2001. While automation and innovation/technology have affected health-care in a very, very large way, prices have actually increased hence not allowing us to satisfying other wants.


How can machines and innovation/technology drive up cost? Simple: Government!


　
Since the end of World War II, the provision of medical care in the United States and other advanced countries has displayed three major features: first, rapid advances in the science of medicine; second, large increases in spending, both in terms of inflation-adjusted dollars per person and the fraction of national income spent on medical care; and third, rising dissatisfaction with the delivery of medical care, on the part of both consumers of medical care and physicians and other suppliers of medical care.

Rapid technological advances have occurred repeatedly since the Industrial Revolution—in agriculture, steam engines, railroads, telephones, electricity, automobiles, radio, television, and, most recently, computers and telecommunication. The other two features seem unique to medicine. It is true that spending initially increased after nonmedical technical advances, but the fraction of national income spent did not increase dramatically after the initial phase of widespread acceptance. On the contrary, technological development lowered cost, so that the fraction of national income spent on food, transportation, communication, and much more has gone down, releasing resources to produce new products or services. Similarly, there seems no counterpart in these other areas to the rising dissatisfaction with the delivery of medical care.

International Comparison

These developments in medicine have been worldwide. By their very nature, scientific advances know no geographic boundaries. Data on spending are readily available for 29 Organization for Economic Cooperation and Development (OECD) countries. In every one, medical spending has gone up significantly both in inflation-adjusted dollars per person and as a fraction of national income. In 1997, the United States spent 14 percent of gross domestic product on medical care, the highest of any OECD country. Germany was a distant second at 11 percent; Turkey was the lowest at 4 percent.

A key difference between medical care and the other technological revolutions is the role of government. In other technological revolutions, the initiative, financing, production, and distribution were primarily private, though government sometimes played a supporting or regulatory role. In medical care, government has come to play a leading role in financing, producing, and delivering medical service. Direct government spending on health care exceeds 75 percent of total health spending for 15 OECD countries. The United States is next to the lowest of the 29 countries, at 46 percent. In addition, some governments indirectly subsidize medical care through favorable tax treatment. For the United States, such subsidization raises the fraction of health spending financed directly or indirectly by government to more than 50 percent.

What are countries getting for the money they are spending on medical care? What is the relation between input and output? Spending on medical care provides a reasonably good measure of input, but, unfortunately, there is no remotely satisfactory objective measure of output.

Ultimately, the purpose of this article is to examine the situation in the United States. I have mentioned the data on the OECD countries primarily to document the two (related?) respects in which the United States is exceptional: we spend a higher percentage of national income on medical care (and more per capita) than any other OECD country, and our government finances a smaller fraction of that spending than all countries except Korea.” (2)

Notes:

(1) http://www.investopedia.com/terms/c/creativedestruction.asp#axzz1dSO2KzTl

(2) How to Cure Health Care, 2001, Milton Friedman

http://www.hoover.org/publications/hoover-digest/article/7298

ObamaCare: price fixing scheme as the norm.

What has become more than apparent, through the health-care debate and now "law of the land", is that ObamaCare hinges on a price fixing scheme.

We know for a fact that no price fixing scheme, in all of recorded economic history, has ever been successful. Rather bad track record?!? Price fixing merely affects supply quantitatively and qualitatively. Or, alternatively, supply merely deteriorates in quality and the the new lower quality supply is rationed over time.

Looking beyond the basic price fixing scheme, Thomas Sowell, in his book Applied Economics, makes an excellent observation/argument that all government run health-care is always based on price controls. Moreover, Sowell explains "why" government run health-care is always based on price controls.

Sowell's observation may surprise you!

Paraphrasing Sowell, the legislator-politician has discovered that government run health-care is a very, very expensive proposition. That government run health-care, over time, eats up larger and larger and larger chunks of tax revenue that could be used for other existing spending programs or newly proposed/future spending programs. Hence it boils down to the competition among government spending programs that has lead the legislator-politician to employ price controls regarding government run health-care. Government run health-care price controls exist in order to leave behind more tax revenue for the legislator-politician's current and future spending programs.


If Sowell is correct, then Obama-Care is merely following a predetermined formula, set long ago, for any and all government run health-care program: price controls. That the price control scheme is employed by politicos as the politicos would rather impose qualitative and quantitative supply problems regarding government run health-care, to be experienced and dealt with by the participants of the government run health-care program, in favor of continued or proposed spending in areas far, far removed from the health-care arena.

The question that begs asking: is the participant in a government run health-care plan directly paying for exogenous politico spending areas, through qualitative and quantitative reductions in supply, by way of price fixing? For example, Jane needs a hip replacement. Jane must wait months and months for the surgery and is assigned to a less than up-to-date facility which lacks adequate staffing and adequate supplies. Does Jane's long wait and reduced quality of health-care translate directly to funding other politico spending programs? Jane's very long wait and quality reduction is funding an agriculture subsidy? Funding a pension payment for a retired government employee? Funding re-paving a roadway? Funding the department of education? Better yet, is Jane funding a newly proposed politico spending program?