The health care debacle we are presently witnessing is a great example of why we should get politics and government out of our medical care. What is government other than a collection of politicians and bureaucrats whose primary interest is in maintaining their positions by satisfying their particular constituents. So they fight interminably about who gets what. Their plans and policies help some and hurt others. What is the point of that? You and I are interested in our own specific situation and the decision-making should be left to us.
Although good medical care can be found throughout the world, technologically speaking America clearly remains the leader. Government had nothing to do with that except at the NIH. But for the last 50 years or so the politicians and bureaucrats have told us that they know how to manage the delivery of our health care and we've gone along with them. What we've gotten is a hyper inflated, highly bureaucratized, complex system that is distorting medical practice, stifling service innovation and generally pushing us toward impersonal, paternalistic medical care.
The best thing the politicians can do for us is get out of our way. Give some assistance to those who need it and for the most part leave the rest of us alone. I think to some extent that this was the intention of the Republican plan but they crafted and explained it so ineptly as to leave the public in confusion. They committed the Obamacare sin, asking us to pass it to find out what was in it. There are in fact some basic principles about health care economics that could be followed to lead us back to sanity and some specific readily available ways the principles can be applied.
Lets first clarify that what we're talking about is purchasing goods and services provided by others. Medical services are not free and they never will be. They must be paid for or they will not be provided and even in a socialist or communist arrangement this would be the case. There are many necessary things in life, food, clothing, shelter, and so forth. In our economy most of us pay for all these things directly and for those who are disadvantaged our society arranges help. For reasons mostly having to do with government policies over the previous decades we have come to treat medical care differently in that most of us pay for it indirectly through third parties, mostly insurance purchased by others in our name or government entitlement programs.
Indirect payment has proved to be a dysfunctional arrangement. The reasons why gets into some economic theory but it's not hard to understand. We give our money to a third party which then pays our bills but adds an administrative expense. But this is a minor cost compared to the much larger one of loss of market forces and regulation. With indirect third party payment there is no limitation by prices on consumer demand. Moreover patients have no interest in price shopping or seeking substitutions. They accept any service offered which does not entail danger, discomfort or great inconvenience. Medical providers, for their part, are not required to compete on price and are guaranteed payment as long as they comply with documentation requirements. In our free market economic system prices regulate the market but appropriate pricing by a central bureaucracy for millions of transactions is simply not possible since they cannot have knowledge of individual circumstances. Producers are incentivized toward providing overpriced and away from underpriced items. Items not included in the pricing and payment schedule will not be provided. The system produces price inflation, waste of some items and services, scarcity of others, uneven distribution of services and stymying of service innovation. Moreover the need to control overutilization requires the payers to introduce ever increasing costly regulation and ultimately rationing. Considering all of this, what instead should be the makeup of an American health care system?
For the majority of us, for ordinary medical expenses like the other necessities mentioned above, the ideal system should involve getting back to direct out of pocket payment which would work to drive prices down, would provide us what we really wanted and needed and not otherwise, and would largely eliminate the complicated and extremely costly administrative and regulatory system.
Medical care is a little different from some of our other needs in that the requirement for it generally increases with age. The obvious way to address that issue is by saving. This is not a unique situation. We save for many future needs. For example most of us as we age want to slow down from work and eventually retire. So those who are sensible make arrangements for this time by saving when they are younger and this should include eventual medical needs. The great deal of funds being wasted on extremely high cost insurance premiums and taxes for government entitlement programs, much of which are not even used directly for medical care, would be better put to use for this purpose. The government has a legitimate interest in promoting such savings in order to minimize the number of those who eventually might call on it for help. There is a good way to do it which will be discussed in a further post.
Some small number of us suffer major costly medical crises before our time or before savings can be accumulated. But costly untoward events are not limited to illness. Houses burn down, weather catastrophes occur, accidents cause major injuries. Risk management for such events is the highly beneficial reason for insurance, but using insurance for payment of ordinary expenses is an absurdity that none of us would do ordinarily. Like other types of insurance we would hope never to have to use it thereby leaving funds for generous coverage for those who have misfortune. Such insurance for very expensive untoward events would cost much less than the prices we pay presently. Ideally its premium prices would reward and incentivize good health behavior. In addition government policy changes can affect the insurance market to make it more efficient and competitive and reduce the price even further. Ideally medical insurance should be owned by individuals, kept long term and not be dependent on changes in life events such as employment or family or marital status.
And then there is the case of need. There are always those at the lower end of the income scale or whose costs outstrip their ability to pay and who need the help of society. Charity can help but here is an appropriate role for government. However, the malfunctioning Medicaid system must be replaced with something more rational. The cost of this system is rapidly outpacing the inflation rate. It is filled with waste and subject to fraud but at the same time it grossly underpays providers, often less than their expenses, so that many will not accept the patients. It does not discriminate between those who make no effort to help themselves and those who are truly disabled and needy and treats both the same. It has a sharp income cutoff line, giving full benefits to those below and nothing to those just above. The Obamacare strategy of pushing people into this program is a truly bad idea.
It is important that everyone in our country have access to basic good quality medical services but, regarding the Obamacare solution, it is extremely important to point out that a direct payment system in which the costs of medical services are dramatically deflated is far better for the uninsured than providing them with insurance with a very high deductible expense or allowing them into a program which many providers will not accept.
These are the basic principles of what is needed. The next post will describe some good ways to fulfill these criteria.
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