Free Market Health Care

Anesthesiologist Kevin Smith was a guest on Econtalk.  He established the Surgery Center of Oklahoma in the late 90s.  The goal of the center was to offer posted prices for various surgical procedures.  Amazingly, by removing insurance and providing cash-only procedures, the surgery center costs a fraction of what it does under the predominant system. The repeated example during the discussion was a back surgery that was listed at $100,000 on the hospital bill. The insurance company 'negotiated' a payment of $13,000. Wow, that sounds like they did a great job. The surgery center provides the same procedure for $10,000. That is a tenth of the 'supposed' price and even 30% below the 'negotiated' price. How does any of this make sense?

According to Kevin, insurance companies take the 'savings' to their customers and then ask for a percentage. Thus, in the case of the back surgery, they 'saved' the client $87,000 and request 10% of the savings, $8,700. The client is still only paying $22,700 for a $100,000 procedure. It's still a deal, right? On the other side, the hospital can report $87,000 of uncompensated care to get money from government funding. An inflated list price benefits both the hospital and the insurance company.

Also noteworthy was the number of Canadians who travel to Oklahoma and pay for a surgery despite the fact that they have full coverage under the Canadian system. What's up with that? It turns out that a single payer system leads to long wait times. You can wait 3 months in Canada or come to Oklahoma.

Our health care cost structure is intentionally indecipherable because the complexity benefits insurance companies and some in the health care industry. Smith has no trouble luring surgeons to his center on a piecework basis; cash work pays better than the headache of Medicare, Medicaid, insurance submissions, etc. Smith holds that a movement toward free market health care is underway and will transform the health care industry.

Faster, please!

Death Panel Appeal Rejected

Charlie Gard, a 10 month old in London, has been sentenced to 'die with dignity' by the doctors who have been attending him.  His parents have appealed the decision and even raised 1.4 million pounds to take him to the United States for treatment.  Appeal rejected.  The plug shall be pulled.  There shall be no escape from the single-payer nationalized health system.  The Death Panel has ruled.

You Want It, YOU Pay for It

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Wanting everyone to have healthcare, education and food does not make you a communist, socialist or unpatriotic.  It just makes you a good person.

Interestingly, I agree.  I want everyone to have all those things.  Heck, I want everyone to have a nice house, a loving family, and a meaningful life.  These are great things to want for other people.  Left unsaid is how to achieve these desires.  That communism and socialism are even mentioned implies that the government should be involved.  And that would require a different formulation:

Wanting the government to use its coercive power to take the earnings of one person and give it to another person makes you a thief, and a socialist.  Being generous with other people's money does not make you a good person.

 

If you want these things for others, take steps on your own to achieve them.  Start a charity, convince friends to help pay for a student to go to college, or pay the medical bills of the injured.  Using the force of government to compel others to provide your wants is immoral.

Pre-existing Stupidity

The House passed something that isn't really a repeal but rather a scaling back of Obamacare.  In order to get enough votes, more money had to be injected for those with pre-existing conditions to be covered by 'insurance.'  Obviously, Congress still does not understand how insurance works.

Let's consider a house.  The house is worth $200,000.  Flo is willing to insure the house against fire, burglary, hail damage, etc. for $2,000 a year.  Both the home owner and Flo hope that the insurance policy never pays off.  Flo doesn't want to give back that $2,000 she has been getting year after year and the home owner would rather that the house didn't burn to the ground.  However, if the worst happens, the home owner dodges financial ruin thanks to Flo's accepting that risk.  Now, consider if the home owner had not purchased insurance and instead decided everything would be fine.  And then the house burned down.  Well, the smoldering ruins of a $200,000 house are a pre-existing condition and Flo can't deny coverage.  Therefore, by law, Flo sells a policy to the home owner and then rebuilds the $200,000 house after requiring a $1,000 deductible.  That's not insurance, that's a path to bankruptcy.

 

How about a wife buying a $500,000 life insurance policy with the pre-existing condition that her husband died last week?  What if a driver wants to increase his coverage after having driven his car through the supermarket?  The huge costs are a pre-existing condition.

 

Flo stays in business by selling insurance to many home owners while knowing that comparatively few of them will suffer catastrophic harm.  The same is true for health insurance.  It would be foolish to sell a $6,000 a year policy to a person who already requires $5,000 a month in treatment.  That's not insurance, that's charity.  If mandated by law, that's welfare.  By requiring companies to 'insure' the wrecked car and smoking remains of a house, the premiums will necessarily skyrocket.  Duh.

 

If this reform manages to get through the Senate and find its way to Trump's desk, it will manage to transfer blame for bad healthcare to the Republicans.  Well done.  A better option would be to get the government out of the 'insurance' business and just create a bail out program for people with pre-existing health issues.  It would be vastly cheaper than the latest government overreach.

Obamacare Still Stands

After seven horrible years of ObamaCare (skyrocketing premiums & deductibles, bad healthcare), this is finally your chance for a great plan!

Donald J. Trump, Twitter

I disagree.  This was only the first chance.  It is inevitable, if Obamacare collapses as predicted, that another chance will come.  This was not a great plan.  A great plan would be no plan at all.  Government would withdraw itself completely and let health insurance work like car insurance or life insurance.  There is no 'great plan' from the federal government for those but they work a lot better than the Unaffordable Care Act.

 

Trump states that this is just phase one.  Dangerous.  Passing a bad bill - which this is - and hoping to improve it later is fraught with peril.  Obamacare had similar plans and that didn't work out well.

 

I remain baffled as to why the House and Senate didn't just dust off the last repeal bill that Obama vetoed and send it to Trump.  Simple.  That they did not is why I am very distrustful of Republicans.  They knew Obama would veto but they could show the voters that they tried.  Now that it will get signed, they do this Obamacare Lite foolishness.

 

Though this is currently a setback and embarrassment, it may be beneficial in the long run.  The ACA is in a death spiral and all Republican efforts to save it have failed.  Thus, the collapse should fall on the builders (Obama, Reid, and Pelosi) though I doubt the media will report it that way.

Obamacare 2.0

Back in 2009 and 2010, the Republicans managed to hold together and vote 100% in opposition to a government takeover of the healthcare sector.  When they took over the House in January 2011, the repeal bills began.  Once the Republicans captured the Senate, a repeal bill actually made it to Obama's desk where he - unsurprisingly - vetoed it.  Now, rather than just erase this disaster and have US law return to what it was in February 2010 (the month before the ACA was signed into law), they are having second thoughts.  The Democrats took the hit - having lost over one thousand elective offices across the country during Obama's Presidency - so the Republicans figure why give up the power that Democrats committed political suicide to acquire.  Really, let's not be hasty.  Is it any wonder I left the Republican Party?

Apparently, the free market is a foreign concept to the party that used to champion free markets.  Have they not noticed that goods and services provided by the free market see tremendous improvement over time and also drop in price?  Here is a great graph that shows how prices have changed over the last 20 years.  All those things government has sought to make more affordable (e.g. college, health care, housing, food) have seen massive cost increases.  Those items left to the private market (e.g. clothing, cars, furniture, cellphone plans, TVs) has seen prices flat or dramatically fall.  Maybe there is a correlation?

 

Among the crazy things the Republicans have decided to retain is the guarantee of coverage for those with a pre-existing condition.  That would be like allowing a homeowner to buy insurance while the house was on fire.  The fire is a pre-existing condition; how can the insurance company deny?  That isn't how insurance works.  Insurance is a hedge against disaster, not a payment plan for routine costs.  No one buys gas or gets their tires rotated through a copay.  Why doesn't health insurance work that way?

 

The best thing that Congress could do would be to repeal the whole enchilada.  And then just keep repealing until there are no national laws or regulations regarding health care.  Prices would plummet, insurance would transform to only paying for catastrophic care, and the states could setup modest programs to cover the poor.  The Constitution does not authorize the government to do anything with regard to health care.  Set the market free and it will do wonders.  The drawback is that government would have less power over the peasants and fewer dollars to spend.

Earnings vs. Compensation

Mark Warshawsky was the guest on EconTalk recently and discussed what he claimed was a mistaken impression of increasing income inequality, the idea that the rich are getting richer and the poor are static.  If one looks at earnings, the conclusion that high paid workers are seeing greater increases than lower paid workers is absolutely correct.  However, that doesn't take into account employer-provided benefits.  Thus, income + benefits = compensation.  For example, Nancy the Office Manager at Mega Corp might take home $40,000 in salary but healthcare, 401K matching, etc. might add an additional $5,000.  Thus, her earnings are $40K but her compensation is $45K.  Rachel the Chief Financial Officer might be paid $100,000 in salary and her benefits are not much more costly than Nancy's, adding $6,000.  Her compensation is $106K.  Mega Corp finds that healthcare costs are skyrocketing.  Warshawsky reports that they tripled from 1992 to 2010, having doubled from 1999 to 2006.  So, going back to the Mega Corp example, healthcare costs double.  Nancy finds that her income is stagnant, not budging from the $40K.  However, her benefits package is now worth $10,000.  Her earnings are flat but her compensation has risen 11%.  Meanwhile, Rachel's benefits also doubled, now worth $12,000 and her earnings have increased to $105K.  Therefore, she has seen a 5% increase in earnings but only a 10% increase in compensation.  Based on earnings, income inequality is getting worse but based on total compensation, it is getting better.  I love economics!

 

Here is the podcast and here is the working paper.

Repeal and DON'T Replace

I keep seeing these articles about how the Congress should repeal and replace the Affordable Care Act.  Though I favor the repeal, I don't see any need to replace.  Let free people figure out a solution to their problems, don't let government impose a solution.  When we look at areas that have seen the most involvement by government (e.g. healthcare or education), we see prices rising faster than inflation for decades.  However, in areas where government is less involved or practically absent (e.g. internet, computers, digital cameras), prices have plummeted.  This is not a coincidence.

 

Health insurance is not insurance.  Insurance is meant to offset risk.  Home insurance is not meant to provide a new paint job every few years or pay for new bulbs in light fixtures, or reimburse for the plumber unclogging the sink.  It is there to cover large but also unlikely expenses, such as the roof being torn off by a tornado or a fire.  Likewise, car insurance doesn't cover oil changes, gasoline, or new windshield wipers.  Car insurance is for rare events like a crash that causes thousands of dollars in damage.  However, with health 'insurance,' it is expected to cover annual physicals, flu shots, and virtually every visit to a medical professional.  It isn't paying for unexpected costs but rather it is covering all costs.  Health insurance needs to turn back into insurance.  Insurance would cover something like cancer or being hit by a bus but not expected and routine expenses.  That change would dramatically reduce 1) the cost of health insurance and 2) the price of health care.

 

Prices will adjust to the ability of people to afford.   Part of the price reduction will come from the efficiency of first party payer.  If the doctor doesn't need a billing department to contact insurance companies to secure payment, that cost can be eliminated and the price of all procedures drops.  The insurance companies will likewise shrink on account of vastly fewer claims.  With the current system, the patient is only concerned with the co-pay and any expenses that might accrue directly to them.  There is no point in haggling to get a better deal.  First party payer will end the $30 aspirin and other over-inflated charges.  This free market approach will be bumpy but no worse than Obamacare has been and far more beneficial.

 

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

10th Amendment

 

Health care is a power that was not delegated to the United States by the Constitution.  As such, it needs to return to the States or to the people.  Of course, government doesn't like surrendering tax dollars or regulatory power, so I doubt the free market will get the contract.  The replacement may be less odious, but will still be beyond the legal authority of the federal government.

Government Run Healthcare

Here is a preview of things to come if the current path for healthcare is not repealed.  A government system will destroy cost-containment (competition is the best method to keep prices down), so it will be rationing.  The first method of rationing is waiting.  We see this being used by the Veterans' Administration throughout the country.  Vets wait weeks or months for an appointment, some of them dying during the wait.  Yes, this was a scandal a few years ago but the problem persists.  However, now it is just old news.  Move on.  If waiting is not containing costs enough, then denial of service kicks in.  Oh, but it will work in the United States.  Sure, the Obamacare Exchanges are going bankrupt but that just proves that business is too greedy to run things.  Yes, it is time for single-payer, just like the UK's National Health Service.

 

It is very unfortunate that we cannot learn from the experience of others.  Nationalized healthcare, Muslim immigration, high taxation, excessive regulation, and multiculturalism have all resulted in decline in Europe.  But we will do it so that it works!  Ah, optimism.

Mandatory Participation on Pain of Law

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Why do I support Universal Healthcare paid for with our taxes?

Because I don't want to live in a country where people have to set up a GoFundMe page just so they don't die.

Clever?  Yes.  Pithy?  Certainly.  A good idea?  Absolutely not!  The big issue I have with this is freedom.  With a GoFundMe page, that person needs to convince people to voluntarily part with their money.  People are free to participate or not.  With Universal Healthcare, freedom is gone.  You don't get to pick and choose GoFundMe pages, you fund them all.  If you don't, armed men from the government will take all your assets.  If you continue in your non-participating ways, you may find yourself in prison.  Of course, the vast majority will just submit; that is how we have come so far from what the Constitution actually says.

What happened with the Affordable Care Act?  I thought that was supposed to solve everything?  I was going to get to keep my doctor.  My family of four was going to save $2500 a year.  No, premiums have skyrocketed and GoFundMe pages are multiplying.  Every time the government steps in to solve the problem, it gets worse!  And it isn't government's fault!  How does that work?  How about we expel the government from the healthcare system and see how it shakes out?

Charity must be Voluntary

I had a conversation with one of the members of the legislature the other day. I said, ‘I respect the fact that you believe in small government. I do, too. I also know that you’re a person of faith.

‘Now, when you die and get to the meeting with St. Peter, he’s probably not going to ask you much about what you did about keeping government small. But he is going to ask you what you did for the poor. You better have a good answer.’

John Kasich, Ohio Governor and Presidential Candidate

 

Let's ignore the separation of church and state for the moment and just ponder this future conversation with St. Peter.

 

St. Peter: What did you do for the poor, John?

Kasich: I arranged for tax dollars to pay for their healthcare.

St. Peter: You took monies coerced from the citizens of your state and directed them to the poor to benefit you in the afterlife?

Kasich: What?  Coerced?

St. Peter: I presume the citizens were required to pay the tax or suffer some penalty of law?

Kasich: Well, yeah.  But it was for charity.

St. Peter: You realize it isn't charity unless it's voluntary?

Kasich: Funding through voluntary contributions isn't the way government does things.

St. Peter: Taking money from the person who earned it and giving it to the poor is not a virtue.  Good intentions do not change the fact that it was government-sanctioned theft.  How much of your money did you give to the poor?

 

Imagine if, instead of having government fund this directly, Governor Kasich funneled the money to a church-run charity that did exactly the same thing.  By his own admission, he is funding healthcare for the poor because he wants to have a good answer for St. Peter.  This is about his religious convictions, not secular governance.  Though it would have the same end by different means, there would be a firestorm of protest.  If the Catholic Church is all in favor of the government coercing the taxpayer to fund the poor - a task that was once handled by churches, shouldn't it be automatically opposed as a mix of church and state?  Hasn't government funding allowed churches to direct their money to other issues?  By taking the expense of supporting the poor from churches, isn't that a contribution to churches?

 

Government cannot engage in charity.  Everything government does is founded on its monopoly on the use of force.  Only government can 'legally' initiate force to make people comply.  Non-governmental entities that initiate force are called criminals.

Guns vs. Healthcare

I recently saw a cartoon that contrasted the fact that Americans have a right to guns but not to healthcare.  Clever, right?  The problem is that even a cursory look at the comparison shows it to be nonsense.  No one is required to buy a gun for me whereas this right to healthcare would require someone to pay for my medical care if I was unable.

If there was an amendment for healthcare similar to the 2nd Amendment, it might say something to the effect that "the right of the people to purchase healthcare insurance shall not be infringed."  Would banning cross-state purchase of insurance be an infringement?  Would requiring that Americans buy government-approved health insurance plans be an infringement?  Or going the other way, does the 2nd Amendment require every American to own a gun or be forced to pay a fine to the IRS?  Do we need to demonstrate gun ownership on a yearly basis?  Does the gun have to have all sorts of extras that we don't need or want?

 

The Rights listed in the Constitution do not require that someone else provide them.  The Right to Free Speech doesn't require taxpayers to provide a forum in which to speak.  The Right to Practice Religion doesn't require that the government build the church.  By the same logic, a Right to Healthcare should not require the government/taxpayers to purchase it.

 

The confusion here is entitlement vs. right.  Americans have a right to bear arms but an entitlement to Social Security.  Social Security is not a right.  Nor is Medicare.  Nor is health insurance as determined by Obamacare.  These are all programs for transferring money from the person who earned it to someone who didn't.  I'm in favor of Rights - which our government was established to secure - but I'm opposed to entitlements.

Object Lesson

Greece has reached the limit of borrowing. The country allowed for very generous retirements, universal health care, all that any Greek could want. Everything was just great. Sure, the debt grew year in and year out, but that was fine. Debt can be financed. Well, the bill has come due. Now, austerity is the word of the day and the country is going to have to spend within its means. Who knew? It's so unfair.

Greece is our future. The US is currently more than $12 trillion in debt, roughly 90% of GDP. Social Security and Medicare are doomed as all Ponzi schemes are doomed. While debt-ridden Greece has been instructed to privatize its health care, the US has moved to socialize it. Oh, but we'll do it right so that it works. The economic infeasibility of our current course has been obvious for decades and yet none have dared to change path. The iceberg is clear as day and yet, with health insurance reform, we have accelerated to ramming speed.

Precedent

It is a sad fact that once one person does it, it is that much easier for the next person to do it. Setting a precedent is the goal of those who seek change. George Washington served only 2 terms as president, setting a precedent. It wasn't until FDR, nearly 150 later, that the established - though not legally binding - norm was breached. The Congress understood that FDR had established a precedent and immediately sought to codify Washington's policy.

So it is with Health Care Reform. Requiring Americans to buy a product is a precedent. If it stands, it is only a matter of time before Congress requires all Americans to buy cotton balls or unicycles. As with FDR, this precedent must be overturned swiftly. A precedent that stands too long becomes 'settled law' which must not be questioned.

Corporate Costs for Healthcare

I have read many accounts of companies declaring skyrocketing costs for health care in the wake of the passage of Obamacare. Oddly, I have no sympathy for those companies. What has happened is that the government will no longer subsidize these companies through tax breaks. To me, that is a good thing. I don't like when government offers subsidies. It would have been better if the health care reform had removed all such tax breaks, notably the tax deductible status of health insurance supplied by an employer. If we got rid of that, there would be little incentive for employers to supply health insurance. People would buy policies for themselves, much like they buy car insurance, home owner's insurance, life insurance, etc. This would drive down prices. How? Everyone wants a $10,000 health insurance policy when the employer is footing the bill. Very few people want it when they write the check. Insurance would quickly transform to cover catastrophic health issues and not cover such things as the yearly physical or flu shot. Insurance is meant to cover the unexpected, not the routine.

Third party payer systems are the bane of cost containment. No one is ever as price conscious when spending someone else's money. Don't believe me? Look at the spending habits of the US Congress.

Where is the Line?

If the Feds can mandate that every American must buy health insurance, then I ask what can they not mandate citizens to buy? If every American went to the gym every week, we would surely be healthier. That would cut health care costs. We all know that obesity is a problem. So, what is to stop the Feds from mandating gym membership in the name of reducing health care costs? Many Americans would just pay for the membership and never go to the gym so there would have to be some enforcement measure. The gym might be required to report the number of hours a member has spent in the gym each week. Hey, it's for the best. I could certainly use the exercise. The Feds recently acquired a couple of car companies. Wouldn't it be nice if Americans purchased cars from those companies? It would make those companies solvent again and help pay back the money the taxpayer spent. Let's mandate that every family must have 1 GM or Chrysler. Where is the line? What prevents the government from mandating that we buy an apple a day to keep the doctor away? If requiring everyone to buy an apple a day is over the line, why isn't requiring us to buy a far more expensive product?

When the People control the government, that's democracy. When the government controls the People, that's tyranny.

Health Care Fiasco

I am amazed and distressed that the health care reform bill is now law. All the talk of it cutting the deficit is nonsense as anyone with any sense of history must know. Social Security and Medicare have both far exceeded their 'projected' costs but this time we should trust that the government has accurately estimated the future costs of this new entitlement. Fool me once, shame on you. Fool me twice, shame on me. This must be like the 45th fooling.

Let us ponder some of the 'great' things about this law. Insurance companies can't deny for pre-existing conditions. So, Bob shows up at Blue Shield and says he needs a heart transplant which will cost more than Bob will ever pay in premiums, even if he lives to 100, but Blue Shield can't deny him coverage. Well, that's not so bad. Surely, they have a cost limit? Nope, Blue Shield can't cut off coverage when a certain dollar figure it reached. Okay, well, that's only fair now that everyone is MANDATED to have coverage. The insurance companies will be rolling in cash thanks to that provision. Well, maybe not. Failure to buy insurance only incurs a $750 penalty, payable to the government, not the insurance company. So, unless the insurance companies are offering coverage for less than $750, many people - particularly the young and healthy - will opt to pay the fine. That means the sick will be draining the insurance coffers while the healthy are enriching the government through fines. Gee, where does that lead? Insurance is all about actuaries and the Feds have just made it illegal to make decisions based on the actuaries. This will not end well for insurance companies, which is the plan. When they start failing in a few years, government will have to save the day with a Public Option.

That aside, now was not the time to add another expensive entitlement to the federal budget. This year, Social Security is paying out more than it brings in. That is 6 to 8 years earlier than predicted. The debt stands at $12.7 trillion and is projected to add a trillion more a year for the next decade. Unfunded liabilities (Social Security, Medicare, and Prescription Drugs) stand at $108 trillion. Upon this already ruinous debt, Congress and the President have added a new entitlement. The numbers are dire:

http://www.usdebtclock.org/index.html

It doesn't take a genius to see economic catastrophe in these numbers. The spending will eventually stop. How it stops is the question: Bankruptcy or a return to fiscal responsibility?