Knight Of The Mind

I'll do my best to present a philosophical and generally conservative look at current events and life, the universe and everything. Readers are invited to take all that's posted herein with a grain of salt. or if they prefer, a grain of salt, a slice of lime and a shot of tequila.

Location: Alexandria, Virginia, United States

Greetings and welcome. My name is Steve, I'm 35 years old and I work for the US Army as an Operations Research Analyst. Hence my blog title Knight Of The Mind.

Wednesday, March 30, 2005

Mythology And Health Care Costs. Prices Don't Just Go Up.

No one really likes it when a product increases at a price that's twice the rate of inflation. This quickly puts that product out of the reach of the average consumer. Predictably, the mourners will sing about how it is all unfair. This has been especially true in the case of health care costs.

Health care costs in this nation are going up at double the rate of inflation and now cost $600 billion a year or a debilitating 11.5% of our gross national product. By comparison, Canada spends 8.5% of its gross national product on health care; Japan 6.7% and Britain 6.2%.

By the year 2,000 it is estimated that if health care costs continue to rise at today's rates that we will be spend-ing 15% of our gross national product on health care and at that point even our big auto companies will break under the cost burden. If America's premier manufacturing companies will not be able to afford employee health care - who will? - Mike Westfall (1990)

Who can afford employee health care? The government. And that, Ladies and Germs, is the graveman of the problem. Health care is no longer retailed in this country, it's auctioned. Even worse than that, it's not just auctioned, it's auctioned via a rigged scheme. As long as that remains the case, you'd better look twice before crossing the busy thoroughfare.

Here's how health care came to be auctioned, rather than retailed. The people who paid for health care started out being, by and large, individual consumers. This put a ceiling on how much the drug companies, hospitals and physicians could bill. My vastly empty wallet was a sure fire cost control mechanism.

People then began to recognize that they could manage risk and pool funds. Several people with a small likelihood of requiring a procedure could gang up and easily pay for the cost of the one poor unlucky soul who needed it. The insurance policy and health plan were born.

Doctors and drug inventors, by their professional nature, are not stupid people. They quickly realized that if people had more money to buy a product, they could afford it even if it cost a whole bunch more. This happened in short order, and people once more became highly concerned that they could not afford the services of medical professionals, even with a health plan.

This situation became exacerbated further, because insurers and health plan coordinators could also manage risk by controlling who was allowed to kick into the pool. People who exhibited health characteristics that led to frequent or expensive demands on the money pool had to pay in more to join or were banned outright. They were still charged for health care as if they were part of a unified money pool. At this point, the health care market was now an auction market.

When a consumer could no longer afford to bid high enough for a scarce MRI or HIV drug, they lost. This is how auction markets work at Southerby's or anywhere else in the world in which they occur. This is not a problem at Southerby's, because no one is going to die if they don't have an original Renoir to hang in the drawing room. They may very well die soon if they don't have a check for colon cancer. Hence, a lot of people felt intense pain at having to participate in an auction to get health care.

Members of the government looked at this situation and saw that the people who would need certain health care services the most would not have them made available unless they were wealthy dillitantes. They then proceeded to pave the road to Stygian health care costs with the finest and most noble of intentions.

When the government entered the health care market, they became a unique consumer for two important reasons.

  1. They could outbid anyone who moved. Their pot of money was The Federal Budget. The Federal Budget is profoundly resourced and has a level of credit that far outstrips the actual cash account that the IRS brings in each year. No matter how badly we bloat our deficit, it's still going to be a long, long time before The Federal Reserve actually issues a junk Treasury Bond.
  2. The people setting the prices had the ability to collude via there lobbyists and convince this bidder to actually inflate it's bid. The AMA lobbied assiduously for the US Government to spend more on health care because of the high costs. The government bid higher, the medical professionals then jacked up the prices.
  3. The recursion here doesn't take Einstein to figure out. You can see a very similar regression line with college tuitions and Pell Grants. What's the only humane solution? More Pell Grants. What happens when the government pumps in more liquidity? Higher tuition.

So what do many advocates of fixing this problem reccommend? National Health Care plans. Letting the government be the only payer for health care. This would constitute an unmitigated disaster on several levels.

The government would price health care where ever a lobbyist told them to. This would bear no legitimate relation to what the services cost. If they made health care too cheap, everyone would demand it at a larger level than necessary. This would flood hospitals with claims that at least quasi-hypochondriatic. Drugs, vaccinations and the time of highly skilled doctors would become too scarce.

The average patient would son have little or no chance of getting these services. This is why Canadian patients wait for months to get an MRI. Sure, it's a cheap MRI compared to the US, but that's why a few million other people are in line and that MRI scanner won't be available for another year or two.

If they price the health care too expensively, you'd have The Prescription Drug Panderation Act. It would wreck our budget and drive our Medicare Program several years closer to bankruptcy. It would hyper-inflate the cost of every prescription drug on the market even more than the current regime. It would sure suck out loud if The President and Congress wanted to saddle us with a really stupid bill like that one.

So that's how we get a leviathan-like government and no health care. We keep recruiting a richer designated payer for health care costs and then wonder why the product costs go up far faster than the level of value provided via the services. It's a prima-face example of how you wind up with something for nothing when greed and fear replace intellectual thought in the market place.

Doctors and drug makers will provide a certain level of value, no matter who pays for the service. The more cash gets pumped into that particular market, the more these people will vaccuum it off the table without increasing the value they provide.

Giving the whole thing over to the government or a big HMO won't fix it either. That will cause your prostate surgery to be priced by a cost accountant or a GS-13 Operations Research Analyst. I'd rather have my medical bill tallied up by someone who's done an operation or two.

The key to killing off greedy insurers, unethical Doctors and power-lusting government bureaucrats before they become parasites who live off our medical field is to end the hyperinflation. Cut off the money and you cut off the bad guys from their oxygen. When the average American goes to the pharmacist, there should be a single payer. The patient.


As you may or may not already be aware, members of the Watcher's Council hold a vote every week on what they consider to be the most link-worthy pieces of writing around... per the Watcher's instructions, I am submitting one of my own posts for consideration in the upcoming nominations process.
Here is the most recent winning council post, here is the most recent winning non-council post, here is the list of results for the latest vote, and here is the initial posting of all the nominees that were voted on.

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