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Saturday, May 14, 2011

On restraining health care costs

          We all know that we as a nation have to somehow cut back on our spending. We know that a large proportion of our spending is for health care. Unless we can slow down the expansion of health care spending, we will not be able to control our budget.

          Here are some reasons why health care costs are rising so fast:
               1. Medical providers have to multiply procedures and pay more for insurance because the threat of malpractice suits hangs over every medical decision.

               2. Doctors, hospitals, clinics, and insurance companies consume time and money administering our complex system of paying for health care. Every medical procedure involves decisions about who pays and how much. Everything has to be documented, either for insurance companies, the government, or both. The transfer of documentation from paper to computers is presented as reducing human effort, but computers make it too easy to introduce improvements and exceptions, and these increase complexity.

               3. The expense of inventing, testing, and marketing new drugs is huge. Pharmaceutical companies can rightfully claim that they charge thousands of dollars for a single injection because of what they have had to spend developing the drug.

               4. A similar problem exists with regard to the technology of medical care. New and often very costly machines to scan or treat the body more effectively are constantly being invented and marketed.  

               5. People are getting sick more than they used to. This is partly due to personal behaviors, such as eating too much, and partly to environmental conditions, such as allergies that may be caused by new substances in the environment.

               6. There are more people in the “likely to get sick” category. This means especially the older population, because as we get older, we require more health services of all kinds. The baby boom generation will swell the numbers of older people tremendously.

          The first five of the above reasons are heavily influenced by the profit motive.

               1. Insurance companies make money when doctors buy malpractice insurance. Lawyers make money from malpractice lawsuits.

               2. The sellers of computer technology and the work force that gets paid to process medical information profit from the complicated payment system we have.

               3 and 4. Pharmaceutical companies and medical equipment manufacturers exist to make profit for their shareholders.

               5. Food processors and marketers, including restaurant operators, make profit from people who eat more, even when they eat more than they should. Industry is constantly inventing new products for the home and yard. Some of the new products will cause health problems, but, as in the case of asbestos or “black lung disease,” those problems may not appear for years.

          The bottom line is that the profit motive is behind much of our health inflation problem.

Market Distortions

          Governments have deep pockets. When a government pays for something, market forces are sidelined. The providers have an incentive to charge more for their products, and to invent products that they would otherwise not have invented. There is a disconnect between the taxpayer and the consumer of a particular health product. Patients will happily use a product that costs them little, and the cost is passed on to the insurance provider or the government. The insurance provider shifts as much of the cost as possible to the government. The government’s subsidies are becoming too great for the taxpayer to bear.

          Somehow it must become possible for government to say, “We cannot pay for this research or this service. We simply do not have the resources to do it.” But when a politician suggests this as a solution, his or her opponents cry “death panel.”

          The market forces arrayed against reducing subsidies that benefit wealthy patients are powerful: insurance companies, lawyers, information system manufacturers, pharmaceutical companies, medical equipment manufacturers, and the food and chemical industries.

          Simply allowing market forces to operate will not solve our problem of the cost of medical care. Ayn Rand does not have the answers.