Analysis of HR 3200, the national health care bill

A few of the statements in this analysis could be construed as unneeded alarmism, but if even half of their assessment is true, this is very scary material indeed:

http://www.liberty.edu/media/9980/attachments/healthcare_overview_obama_072909.pdf

If you take a look at my last post, you'd realize that a government-sponsored health care system is fundamentally immoral due to the theft factor, and the chilling effect it has on individual liberty. However, the extent of this bill catapults it deep into the territory of medical tyranny. There is nothing positive in this bill, and a cursory reading should be enough to convince any rational human being that the total cost of medical care will not be better under this scheme. In addition, the loss of individual liberty to determine medical care decisions unfettered given the rightful resources the individual has access to will be destroyed to a very large degree.

The solution to our high cost of medical care is not more government. It is less. People think that our current medical insurance system and HMO setup is a free-market construct; it is not. Legislation in the 70's helped create HMOs, and legislation earlier than that created Medicare/Medicaid, which have had a detrimental effect on medical care costs, and have been abject failures by any cost measure.

Our insurance system is broken, because it is not insurance: does your auto insurance policy pay for oil changes, or replacing your brakes? Why not? Because then it wouldn't be insurance! There is a way to reduce the cost of medical care. Bear with me, and I'll put forward a tax-less, efficient, fair, and ultimately low-cost system that has much less bureaucracy to boot.

This goes back to simple economics. How do you get the best price for a service in the marketplace? Honest price discovery. Do we currently know how much medical services should cost (ergo do we have real price discovery)? No, we obviously don't under our current system. Normal economic transactions take place between two individual entities, with no intermediary that has the authority to tell them what they can buy or sell for. Naturally the two parties will try to maximize their end of the deal, and there is nothing immoral about that. Their backdrop is the published prices that others are paying for the same exchange, and that informs the parameters of what is acceptable. In addition, as there is more demand for the service or good, it affects the price as there is more or less competition for the same resources (services, goods). All of this helps to rapidly facilitate the discovery of what the real price for the service or good is, if left unfettered by others (third parties), such as the government (via regulation and/or price fixing) or insurance companies (attempting to do the same thing), or fraud by one of the parties. Hunting down and punishing fraud is one of the only legitimate functions of the government, and it directly helps with proper price discovery.

What we have in our health care today are two external parties inhibiting price discovery: the government, and insurance companies. For the government's part, via Medicare and Medicaid they are engaging in price fixing; and, via regulation of HMOs and insurance plans (always "for our own good, and for the consumer!") the parties' hands are tied to some extent on one side or other of medical service transactions. For the insurance companies part, aside from dealing with government regulation, they form a third party in nearly all medical transactions that inhibit price discovery by patient and doctor.

Think about it: does the average Joe really know how much he pays for medical services? He knows what his co-pays are if he has insurance. If he has no insurance, he either gets no services or goes to the ER, and may not end up paying anyway, so he doesn't know what the costs truly are there either. Because the insurance company is the intermediary, and they have the power to set the price, neither the patient nor the doctor know how much they can get for the transaction. The insurance company has a (possibly regulated) maximum they will pay for any service, and they don't necessarily publish it. The doctor has no idea what that is, but he/she knows that if they charge less than the maximum, the insurance plan will happily pay out the lesser amount. So, they charge really high rates, and the insurance company says "nope!" and gives them their internal maximum payout instead. The patient, meanwhile, has no idea what was paid, and really has no say even if they did know. They only see what their co-pays are, and what the insurance company charges in premiums that come out of their paycheck, which ultimately has nearly nothing to do with what their medical care actually costs.

Some say that supply/demand and price discovery don't apply to medical care. They argue that there will always be infinite demand for medical services. This is complete hogwash, and anyone who says it either has ulterior motives or doesn't understand economics or psychology. If the patient does not have access to the prices for their medical treatment beforehand, how can they decide whether to seek the treatment or not? The patient will always default to the maximum care, because their insurance plan costs will stay largely fixed if they do. If the doctor has no access to prices beforehand, and the patient appears to just say yes to everything, they're going to perform the maximum number of services they can justify, and charge the maximum amount for each. There is nothing immoral about this; it is just the natural result of the signals everyone is sending each other, but obviously it is horribly inefficient. The infinite demand that people argue exists only appears to exist as a distortion in the market due to a lack of price discovery. The result of inhibited price discovery is that costs automatically and naturally go to the highest amount that is affordable. That means literally that the costs would go to infinity if there was an infinite supply of money. Since there is not, it caps out when people are tapped out financially and reach their economic pain threshold.

In understanding the problem properly, the solution immediately jumps out of the page at you. The problem is not greedy doctors, or even greedy businessmen, or even illegal immigrants going into ERs and getting expensive (for us down the line) free (for them) medical care. The problem is threefold:

• Patients do not pay directly for their medical care, so they never see what they paid.
• Prices for medical care are not published beforehand; you can't know what it will cost you until after you get the service. (By the way, isn't this fraudulent?)
• There is an intermediary with nearly sole authority to set prices; the patient literally has almost no say in the matter.

The solution is simple, and we'll hit the obvious benefits afterward:

• Patients must pay directly for their medical care. They may contract with an insurance company to cover unanticipated and rare care (such as emergencies or unexpected problems like cancer), but that must be all that such a policy can cover. If they cannot afford the care, the provider has no obligation to provide the care to them, even if they will die as a result. That sounds harsh, but that is the price of freedom.
  
• Every service must have a pre-published price by the care provider (so that even emergency work is still performed in a market-controlled environment that can be contested in court), or the patient must be notified fully of costs individually before a service is rendered. As much as doctors might hate dealing with the business aspect of their practice, they must.
• Regulation must be removed that is inhibiting the use of more generics, or drugs produced in other countries, or holistic healing strategies (I'm not much for them, but people should be free to use them if they want). E.g. real competition in the drug space needs to be opened up.
  

That's it. A true free market in medical care, and catastrophic insurance only for the rare occurrences. The benefits are, again, many:

• People will begin to take care of themselves better and act like hypochondriacs less when they have to foot the bill. The demand for services will naturally be reduced to a sustainable level (and that pesky infinite demand goes out the window).
• Doctors will be forced to compete with each other, and will be forced to establish reasonable prices for their services. Doctors who are worth the money, or cost less, will be favored, bring up quality and bringing down cost overall.
• People will have the freedom to get their medication from other countries or sources, if they so choose. More competition, less fat cats on pharma street.
• If a person goes to the ER unnecessarily, and suddenly they get told what it's going to cost or are forced to foot the bill or go bankrupt, they won't come back for trivial things. Voila, fewer economic externalities.
• Doctors and patients will generate better relationships, and will tend to observe medical care from a more objective, cost-effective viewpoint. They will make better decisions, and there will be no need for government-mandated end-of-life decision management, which is incredibly scary. Instead, we will have informed decisions and people taking responsibility for their own choices. Less blame, fewer lawsuits, more efficiency, more personal health care.
• Vastly reduced bureaucracy: fewer in-network/out-of-network problems, more choices, less paperwork (other than price agreements), and less government, which means fewer taxes as well.
• More charity. When somebody really needs help, and they can't pay for it, and there is no government backstop, it is amazing how much the american people step up to the plate and help take care of it. When there is government intervention, people tend to say, "I pay my taxes, so I've already done my part." Or doctors say, "I deal with medicare and medicaid, I don't need to do anything pro-bono, the government is covering it." If they knew those things weren't there, they would, where it is at all economically viable, perform services pro-bono, or charity groups would spring up to raise money where doctors cannot afford it.

It's so simple, yet I am continually amazed at how many people do not realize that a true non-government, free-market solution will solve all of the same problems as nationalized health care, but with vastly less cost and overhead, and it retains individual liberty perfectly at the same time.

HR 3200 is and will be a complete disaster. It is not the way to fix our medical care; simple, proper economics is the way.