The Economics of Healthcare

I have a couple of observations based on my newly acquired knowledge of the principles of economics. 

First off, HR3200, much like all of its preceding healthcare related legislation does not seem to lend itself to allow for free market efficiency.  It seems this is an attempt to make some people better off (those who aren’t insured or those that can’t get coverage) while making others worse off (those with insurance or those that pay any kind of taxes).  Before I just intuited this was a bad idea, now I *know why* it is a terrible idea.  It goes against a fundamental economic principle!

A lot of this debate has to do with CHOICE, which without, we have no free market economy.  I thought that was interesting, because for a lot of people, especially with healthcare, we’re dealing with limited choice which I suspect is responsible for much of the problems with the market today.  But more on that later.  Other glaring observations have to do with the way markets work and that for instance, when markets fail, government intervention can help an economy... But can is not will or does.  There is an old saying that “Government begets government”, and deregulation is the only real way to reverse that trend.  More regulations and government for a government induced problem is not necessarily an elegant and certainly not an efficient solution.  What happens when the government intervention fails?  What happens when people’s faith in a currency or a set of policies begins to wane?  How can society's welfare improve in spite of a governments best attempts?

Other areas of potentially beneficial intervention that can not otherwise correct themselves in a free market would have to do more with tort reform, risk mitigation (currently the providers, not the payors, take on the lions’ share of risk) and the lopsided market dynamics imposed by Medicare, Medicaid and social security in the first place.  After all, according to Krugman, my understanding of healthcare now is that it is already a command economy because there IS a central governing body setting lowest common denominator qualities of care and pricing.  That is our federal government through the agencies of Social Security, Medicare and Medicaid.

Ever notice the discrepancies in your “EOB” or “Explanation of Benefits” that looks like a bill, smells like a bill, and eventually gets paid or written off like a bill?  They’re all those things that you get in the mail after visiting the doctor or a clinic or having any sort of procedure done.  Ever notice the difference between the “cost”, what your insurance will pay, what you supposedly owe and what gets written off?  That’s a regulated market trying to provide price transparency (albeit after the fact -- WAY after the fact!)  Too bad that couldn’t be done/known in real-time, up front, with the swipe of your healthcare payments device and settled against your plan, coverage, HSA and FSAs before you decide to get that root canal (or not!).

Another problem with this legislation is that there are PLENTY of missed opportunities.  It is not going to reduce administrative costs.

Ever wondered why in a $2.4 Trillion domestic healthcare market when every thing around us has gotten better, faster and cheaper, why healthcare and the Hippocratic oath seems somehow immune?  Since as long as they been keeping statistics for the last 40 years the administrative overhead costs of healthcare have maintained a steady 17% and has just recently began to INCREASE into the 18-24% range? Haven’t drugs, procedures, knowledge and technology all increased during this timeframe?  What has gone wrong?  Government intervention is this writers hypothesis.  But I’m just a beginning student so I’ll have to defer to the wisdom of the crowd on this one, for the moment.  :-)

If you are covered by private insurance, there is a negotiated rate set by the insurer and provider members of the plan.  This is what you see eventually get applied by your insurer as the EOB numbers change.  What you see get written off is tax-based accounting tactics (some say tomfoolery) to account for the providers and insurers inability to actually let the market reach equilibrium on its own.  Unfortunately, this isn’t a free market negotiated rate as the lower end of the price-elasticity is determined by our lovely federal system of care mandated by the above mentioned agencies.

Tort reform, in the form of limitations of risk for providers and insurers – risk being a disincentive, and ACTUAL choice for consumers/patients, providers and insurers/payors would go a long way toward helping make the system a little more open.  Price, schedule and reputation transparency, as well as outcomes transparency would allow more consumer confidence and trust in finding out about their providers and procedures.

More efficient use of resources (like the way manufacturing runs expensive capital equipment for three shifts instead of just 9–5) and more collaborative care options to maximize access to experts and specialists could ease the burden on general practitioners and constrained resources.

The faint of mind can stop here.  The following is of an academic theoretical nature posed as a provocative discourse for the sake of argument:

And lastly, (here comes a sick-twisted conservative rant for shock factor) if we want to use the heavy not-so-invisible hand of government policy to incent more socially (and fiscal!) responsible behavior, how about a bit of Darwinian taxation of genetically misleading, unnecessary or frivolous procedures?  Like taxing elective surgeries (especially “plastic”), implants, lipo, botox, reductions, non-cancerous removals, sports- or “adventure” related injuries, procedures related to accidents or “enhancements”?  Or adding tariffs (or penal-ties) on socially unacceptable treatments for acts of commission, omission, cruelty or stupidity related to sexual (mis)conduct, illegal activities, substance abuse, addictions, obesity or other such strains on our healthcare system?  I’ll bet THAT would change the demand curve (and eventually the supply curve) for THOSE things!  :-)

What do you think?