Health Care Reform and Status Quo

Several weeks back, CNBC aired, “The Meeting of the Minds: The Future of Health Care.” As advertised, this seven member panel contained “leaders, thinkers, and visionaries.”

In a short and scripted film clip, our President Obama addressed the panel, as well his fellow Americans, with a clarion call, “When we talk about the future of health care, we are talking about the future of America.”

The president continued, “There are those who argue that we cannot afford to confront the challenges of health insurance reform. But the bottom line is this: deferring the reform is nothing more than defending the status quo and the status quo is unsustainable.”

Two distinguishing remarks deserve mentioning.

Firstly, deferring one is not equivalent to defending the other;--if one so weighs the proffered reform the lesser against the current set of circumstances and affairs, no defense exists for the so-called “status quo,” only simple rationality.

For example, why would one individual acting rationally purchase a new calling plan for her cell phone wherein she will be paying substantially more for a coverage area that appears unchanged, however, now she will experience a guaranteed rise in dropped calls and additionally have more of her incoming calls sent directly to voicemail?

She simply would not, as a rational consumer. The current calling plan, no matter its shortcomings, persists as the better buy.

The task is gravely more subtle and difficult: to provide her with greater coverage with fewer dropped calls for lower the cost.

Yet, the health care reform pushed by Progressives and modern Liberals does not meet this task. These advocates forget economic data.

For example, health economist Linda Gorman notes, since “health coverage stabilized in the 1980’s,” only thirteen to sixteen percent of people have at any given time been not covered, “despite numerous expansions of government coverage programs and a massive increase in illegal immigration.”

Moreover, the only increase with government’s expansion into the health care sector has been costs. There surfaces an inverse relationship between the number of those covered and the cost of said coverage, as predicted by elementary economic theory.

Secondly, if the status quo is unsustainable, then even a “cost neutral” plan is unsustainable;--that is, if costs and the rise therewithal remain the same, then per capita costs and GDP percentage remains the same.

As Washington Post columnist, and once medical physician, Charles Krauthammer points out, “[T]he president argues that health care is killing the economy--that the costs are--and he is right in that, absolutely right.”

Krauthammer though adds, “If health care today is destroying our economy because of its costs, revenue neutrality leaves us on the same net trajectory to insolvency and ruin [the president] himself has said is going on right now.”

Only two major schemes prove to reduce costs: free markets and government rationing. The former, unlike the latter, also supports and delivers technological and procedural innovations, in so doing drives costs even further downwards.

For example, health economist John Goodman identifies lasik eye surgery--a section of health care not covered by government or even private insurers--and its rapid innovation as examples of freer markets at work.

Yet, more importantly, he mentions, compared to health care funded by government programs or paid for by insurance, the “prices on average have gone down by 30 percent.”

In sum, when President Obama says he will “not accept the status quo,” or opponents only think it is “better politics to kill this plan than improve it,” he conveniently misses that his current plan with its dubious measures is equal to, if not worse than, the status quo.

And he, therefore, overlooks the “rational consumer” in each of his fellow Americans.


This is another installment into my series on health care reform. I find the topic interesting and I hope all reading this piece does. Also, this mounts a hopeful return to writing columns for the Parthenon this term, but as a regulator, more as a fill-in on days that a weekly columnist cannot fulfill his or her deadline.

Health Care Reform and Existing Regulations

Earlier this week, our President Obama, not knowing the truth to which he spoke, stepped forwards to assert, “Time and again, the American people have suffered because people in Washington played the politics of the moment, instead of putting the interests of the American people first.”

He continued, “That is how we ended up with premiums rising three times faster than wages; that is how we ended up with businesses choosing between shedding benefits or shutting their doors; that is how we have been burdened with runaway costs and huge gaps in coverage.”

The president undoubtedly believes more government involvement in the health care sector can “pressure” America to better-controlled costs, whilst covering an even larger segment of the American citizenry.

When he says, “[T]here are going to be some areas where we want to regulate the insurers a little more,” what is one to gather other than such?

Yet, few in Washington acknowledge--let alone accept any responsibility for--the political catastrophe wrought by decades of shortsighted regulations, instead they seek perpetually to portray this health care situation as a free market failure.

However, government-run health care, if when one views the economic literature, cannot with all its poorly channeled incentives, insulated inefficiencies, and scores of hidden costs provide patients with the quality of care and reasonable prices as well as a well-designed private sector.

With such said though, health economist Patricia Danzon wrote, “The performance of the current U.S. health care system does not provide a guide to the potential functioning of a well-designed private market system.”

She further noted, “Cost and waste in the current U.S. system are unnecessarily high because of tax and regulatory policies that impede efficient cost control by private insurers…”

The health care industry stands as one of the most heavily regulated, and thusly strangled, sectors in the American economy.

Although the multitude of these ill-starred regulations commenced rapidly in the New Deal era and developed ever-increasingly thereafter, America’s economic history has never been as laissez-faire as some, for better or worse, want to perceive.

For example, Congress insipidly mimicked the British in 1789 by funding the Marine Hospital Service by monthly taxation of American seamen.

Health economist Linda Gorman observed, “As U.S. government grew, [politicians] continued passing laws to regulate the kind of health coverage people could purchase.”

These regulations run the gamut from blocking entry into the medical profession to limiting extensively selective options for managed care plans, from artificial cost controls on insurers, hospitals, and pharmaceutical providers to numerous moralistic laws that dictate the very lives of individual Americans.

All these added regulations do not come without their own set of unpleasant economic consequences;--that is, imposed regulatory costs push up health care prices which directly lead to increased numbers of uninsured.

The economic phenomenon, known as “The Regulatory Wedge,” pilots inflation upwards due exclusively to government prescribed regulations.

With the given amount of existing regulation, some health care analysts have reported that the regulatory wedge to be larger than eight percent of total cost spent annually in this sector.

Gorman, also, remarked, “The true cost of health care was hidden from covered individuals. Vast spending increases were the result. The introduction of Medicare and Medicaid in 1965 made the situation worse.”

For example, National Bureau of Economic Research’s Amy Finkelstein discovered that Medicare itself increased real hospital expenditure by some 23 percent within the first five years of the program.

The myriad regulations, broad and minute alike, enforced by government to lessen the weight of costs below the given market equilibrium only distorts the supply-and-demand factors, whilst shifting the true cost to less seen areas.

President Obama, alongside many congressional members, lacks the economic comprehension to understand it requires more than just regulating costs, for prices are signals, or more fitting symptoms, of markets actually working, healthy or otherwise.


Several issues arose with this column. One being that the last paragraph was published without “economic,” “actually working,” as well as “otherwise” was not changed from “not.” Second being that it lacked a certain "smartassness" that I felt the other two in the series had.

Health Care Reform and Gov’t Bureaucracy

Within the past week, House and Senate Democrats delivered Congress two Health Care Reform bills, each meeting the nonsensical guidelines set forth by our President Obama. As well, the president released a statement praising and endorsing the House bill, saying this “proposal will begin the process of fixing what’s broken….”

According to Fortune’s senior editor at large, Shawn Tully, “The two bills [will] require states to establish insurance ‘exchanges’ that [will] offer a variety of plans.” Interestingly, each state’s ‘exchange’ will exist as completely separate markets, not benefiting from national competition--thusly, not benefiting consumers and taxpayers.

For all of these plans, the federal government will impose across all states minimum standards;--that is, standards “often more stringent and expensive than the existing laws require.”

The Senate bill already has a preliminary menu, including mental health and substance abuse programs.

Tully continued, “A special panel of experts [will] add to that list, and [one] can bet that the additions [will] be substantial and costly.” Noteworthy, added regulations and more bureaucracy have only augmented and exacerbated costs and inefficiencies, never lessening.

The myopic idea that a “public option” will compete squarely against private plans--let alone spur innovation--lacks basic economic realism. Ultimately, this “public option” will spur private insurers thoroughly out of the marketplace altogether.

In the 2005 article, “The Thing Itself,” political economist Michael Munger wrote, “We [cannot] make government more efficient, or more like business, because it insulates officials from such pressures by design.”

Government bureaucracy, or as Calf. Rep. Henry Waxman wants it known as “accountable organizations,” shares not in the incentive mechanisms by which the private sector must abide.

Public options, merely by the inescapable nature of bureaucracy itself, cannot efficiently allocate its resources to meet its demand; from this occurrence, a deadweight loss materializes. With such a loss, we can only expect unparallel shortages and surpluses nationwide, as witnessed in energy markets through the 1970’s.

More so, bureaucracy with its prodigal incentives survives solely by undercutting its inefficiencies and incompetence through government appropriated subsidies at the taxpayers’ expense.

Private insurers, however, lacking such profligate capacity, compete by addressing their allocation of resources efficiently and doing so continually.

By maximizing profits, whilst minimizing costs, they are impelled perforce through competition to provide better benefits at better prices to their consumers, or they simply cease operations, in which freeing up resources for others to use more efficiently.

This--Capitalism--is what spurs innovation, not government monopolies, dancing on political heartstrings at bureaucratic impulses.

As health economist Patricia Danzon explained, “Both economic theory and a careful review of the evidence… suggest that a government monopoly of financing and provision achieves a less efficient allocation of resources to medical care than would a well-designed private market system.”

In addition to the forgone benefits experienced by the consumer, government health care structures and systems harbor numerous hidden costs, unlike free market systems.

However, when by good intentions government gets involved, consumers and taxpayers get taken obligatorily in lordotic fashion by roughshod bureaucrats.

The president, nonetheless, has proclaimed from the stump to the Oval Office: “[I]f you’re happy with your plan… you keep it.” Yet, with the federal government underwriting costs artificially by use of taxpayer subsidies, no private insurer will be able to compete.

Our President Lincoln once said, “You may fool all the people some of the time; you can even fool some of the people all of the time; but you cannot fool all of the people all the time.”

Undoubtedly, President Obama, as most, has heard this hackneyed passage before, yet one must question if he bides by such an overtly honest sentiment.


This my second column in the series on Health Care Reform for Marshall University's campus paper, The Parthenon. It is presently the Featured Article at the Marshall Libertarians website. Links to both site in the top left-hand links' box. The column itself turned out to be better that I thought it might at moments.