Saturday, March 5, 2011

Health Care -- First Principles

Americans are now facing the staggering first glimpses of sticker shock associated with Obamacare. Insurance companies are ratcheting up fees to meet the new burdens of Obamacare and hospitals are doing the same. There is really no limit to where these costs are headed. Even absent Obamacare, health insurance costs would be rising, but, with Obamacare, they are escalating out of sight. Meanwhile more and more doctors and hospitals are backing away from servicing medicare and medicaid patients, which replaces expensive health care with no health care. These are the fruits of Obama's ambitious health care vision and we are just at the beginning of this nightmare.

What is wrong with this picture?

First and foremost, health care should be expensive if it is important. Consumers of the service should pay a lot to get it. That principle underlies any reasonable allocation of a scarce resource. You can't promise inexpensive luxuries on a grand scale. The numbers will never add up. So, even if you are unlucky and your genes lead to an expensive-to-treat disease, you should not have a free ride financially.

Second, it is important to recognize the role of incentives in the provision of health care. Any system of provision of health services that does not require patients to pay for the bulk of their own health care means that patients will be less likely to take steps necessary to prevent future health problems. Why are older Americans among the most obese humans on the planet? The reason is that Americans see no connection between their own financial situation and how obese they are. They assume that other people (the government) will finance their future health care woes, so why worry? Why do low income Americans smoke in such large numbers? Because they assume that they will not be paying for the resultant health care problems (and they are right)! By taking away the financial burden of future health care costs (or convincing the public that you are taking away the financial burden of future health care costs), you are eliminating the incentives for individuals to take actions that improve their future health care. Some folks may do the right thing anyway, absent any financial incentives, but it very obvious that most do not.

Third, by setting up a system that will eventually require cost controls on hospitals, doctors and other health care providers, you guarantee a reduction in the supply in the quantity and quality of these services. If you want good health care, those who work in the industry must have financial incentives. These incentives are broadly under attack with current belt tightening in medicare and medicaid and the clear direction of Obamacare.

Only the free market supplemented with charity and a public safety net of modest proportions for the indigent can supply a truly efficient and quality health care system. The systems in Europe and other developed countries are notorious for inefficiencies and rationed care. The best health care in the world is to be found in the USA for those that can afford it. Medicare, medicaid and Obamacare will guarantee that fewer and fewer Americans will be able to afford good health care. Only a free market in health care and a free market in health care insurance can produce top quality, affordable health care for all Americans.