Health Care Fiasco – Basic F#!n Economics

First, some facts.

Insurance was created to allow individuals to opt-in and share the risk should something catastrophic happen. Health insurance was originally created as such and over time, employers began offering free or reduced health insurance as employment incentive.

Medicaid and Medicare were created in 1965 through the Social Security Act. Medicare guarantees access to health insurance for Americans ages 65 and older and younger people with and Medicaid targets low income individuals and families.

At the time, average yearly health care costs were under $400.00. Today, average health care costs are $5,000 per person, and $20,000 per family. The average cost for private insurance is $4,5000 for an individual and $15,000 for family.

The Medicare Prescription Drug program was initiated by the Bush administration in 2003 to address rising costs of prescription drugs.

The Economics of Health Care
Why does health care (and health insurance) costs so much more now? Anytime there is market interference, the market will become inefficient (which always translates to higher costs and/or fewer products). Whenever there is a broker in between buyer and seller, especially when the buyer is not directly impacted by price, there is little incentive on either side to keep the price at the market value. Consider, for example, that you had vacation insurance; and that if you wanted to go on vacation, you book it and go. Where would you go and what would you do. Not only does this market inefficiency in and of itself push prices up, but demand and incentive to provide more services also increase, both driving prices even further up. Has your doctor ever said “I don’t think you have anything wrong, but lets run a few tests anyway.” Most people don’t hear their cost for health insurance rising, especially if their employer is paying for it. But it does indeed rise and the people pay for it eventually.
The FDA is another external influence that affects the price of health care. Drug companies and medical device manufacturers are in the business to make money. If they weren’t, we wouldn’t have the amazing advancements we have. Unfortunately, because of the patent laws, the patent process at the FDA, drug companies would not survive without charging very high prices. Once a drug or device is ready for testing, a patent is filed and testing based upon FDA guidelines begins.

The FDA guidelines are established to protect people from harm. Although the FDA recently lifted restrictions which reduce testing time, it only reduced the time from 17 years to (??) years. This means that medical device and drug companies have only 3 years to recoup costs of 17 years of research, development and testing. In order to survive, and continue to provide products, they must charge very high prices. These prices are hidden from the buyer most of the time. If you believe that the FDA is effective at protecting consumers, just turn on your TV or radio. The time it takes between a drug being released, and a class action lawsuit being filed is shrinking. You can see the over 100 pages of settled lawsuits still paying out :

In the world market, America leads the health care industry and it is one of the three industries that we as a country lose big time. We have the best research and technology and we export it everyday at low or no cost. Another external influence is government and international demand. Demand is typically a good thing, but because the demand is coming from countries that purchase drugs at lower costs, or the government with the same model, the industry will sell at a much lower price. This does not mean that if our government ran the industry, then costs would be lower. What this means is that the price difference is a burden placed on those who simply pay more.  Classic market economics.

One Side Note: I used to work for Cetus, a drug manufacturer. Every month, the VA hospital would call. We sold drugs to them at a lower costs, but only because they were willing to take inventory that was about to expire as they used it quickly. This was a good, market driven discount that benefited our veterans. It was a win/win.

Class action and malpractice lawsuits, more external market influences, significantly contribute to the cost of health care in several ways. First, the cost of lawyers moves dollars away from healthcare causing prices to swell. Lawsuits can be frivolous and juries have been known to award a wide range of damages. These together make costs unpredictable and require doctors then to obtain malpractice insurance (more insurance means more inefficiencies). Did you know that ObGyn’s that deliver babies have to acquire malpractice insurance to cover their patients until they are 18? Finally, to avoid risk, doctors will often run many extra tests just to avoid a lawsuit.

All of this explains the costs of health care per person rising from $400 to $4,5000 per individual.

The Affordable Health Care Act Ruse
The Affordable Health Care Act, otherwise known as Obama Care is by far the biggest ruse I have seen in my lifetime (since Social Security). It demonstrates two characteristics of liberal thinking that pollute markets and constrain prosperity : “compassion” and “fairness”. It definitely seems compassionate to “make health care accessible and affordable to everyone.” The unintentional consequences are that the market runs at its most inefficient form reducing availability and increasing costs overall.

The ruse is that it is a “Health Care”. It is not. Supporters used the semantic “care” instead of “insurance” to make it more palpable. Since 1986, no one has been refused life threatening care. No one. You would have heard it in the news because it was only 3 cases that came to light that motivated congress to pass the Emergency Medical Treatment and Active Labor Act. It is important to note that though it was not required before 1986, denying care to a dying patient was rare. Catholic Hospital alone, that operate because of the kindness of donations, treat 1 in 6 of Americans. Apart from these charitable hospitals, the cost of EMTALA it is already absorbed into the cost of insurance.
During Obama’s term, between 2009 to 2012, premiums have climbed $2,370 for the average family with an employer-provided plan – a rate faster than the during the previous four years under President George W. Bush, according to Kaiser.

Because of the new taxes that Obama care imposes, as well as new requirements on businesses to provide health care, employees will necessarily have their hours reduced to avoid the employer mandate. It is expected that 2/3 3rds of employees will have their wages decrease. This is just business. Healthcare becomes a part of the employees’ wages. Premiums, deductions and co-pays for existing polices will skyrocket.   This is all happening right now! What a mess.

One component that surprised me the most was the requirement for insurance companies to provide coverage for “children” under the age of 26. I have some information for you : 26 year olds are not children. If my 26 year old is working for a company part time and does not receive health care, why should my employer have to provide coverage for him?
Lastly, my religious beliefs, and my own common sense, inform me that abortion is immoral and I believe that it is indeed terminating a soul. I’ll go into detail about my views on Planned Parenthood in another chapter. My specific point here is that now I must pay for something that is against my religion.
Proposed Common Ground
1. Prevent health insurance companies from providing anything but catastrophic care. This will remove the market interference and begin to return prices to true market prices.

2. Repeal Obamacare immediately. The short term and long term damage will be difficult to reverse.

3. Eliminate free coverage for senior citizens.  Why should a young American starting out in life have to pay for a potentially wealthy citizen’s costs just because their are older.  When does Trump get the free medical care?

4. Continue to encourage American’s to donate to charities that help families in trouble.  We are the most giving Country in the world.  Leave more money in our pockets, and it will sure go to a greater good.

5. Institute tort reform. Ensure that malpractice is restricted to negligence; mistakes are made all of the time; we, and yes even doctors, are human, and thus flawed by definition.  This applies to drugs as well.  Take a drug, run a risk. Or, don’t.  It is your personal decision.

6. Provide patent protection by starting the timeline (the 20 years) only after it is approved by the FDA. Ensure that subsequent patents are not small adjustments to the original.

7. Return international health care contributions to the charitable, and stop the government from giving away our hard earned research.

This is what will restore our health care system to a more palpable market.


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