ALLOW THE MARKET TO REDUCE HEALTH CARE COSTS

A primary cause of high health care cost is government interference with the market. Accordingly, the solution for this problem is to reduce, not increase, government interference.

1. A lower price for a good or service results in consumers demanding and buying more of it. 2. Increased demand for a good or service results in a higher price for it.

The cost to the consumer of buying health care is subsidized in various ways. This reduces the price paid by the consumer, and therefore artificially increases the quantity demanded. An inevitable result of this artificially increased demand is higher health care prices and costs.

1. Tax deductibility of insurance premiums by employers. For example, if an employer pays a 35% tax rate, then taxpayers are subsidizing through the tax code 35% of the cost of such insurance premiums.

2. Medicaid and Medicare. Through these programs, taxpayers directly subsidize the purchase of health care by the beneficiaries of these programs.

3. The nature of health insurance. It's like an all-you-can-eat buffet. The consumer pays a lump sum to gain entrance to the cafeteria, and then little or nothing for each item that he puts on his plate. Many or most buffet consumers eat too much and leave uneaten food on their plate.

Accordingly, since a primary goal of health care reform is to reduce cost, it is counter-productive artificially to increase demand further by providing even more subsidized health insurance, along with lower deductibles, lower annual and lifetime caps, and more mandates.

In order to maximize competition and the benefits of free markets, the following principles should apply to health care reform.

1. Tort reform. 2. Allow insurers to compete across state lines. 3. No mandates for coverage of pre-existing conditions. Consumers concerned with this risk could buy guaranteed insurability at whatever rate the market might competitively determine. 4. No other mandates, whether for coverage of specific items or regarding deductibles or caps. To the extent that consumers desire to buy such features, the competitive market can be relied upon to price and provide them efficiently. 5. No government involvement in premiums charged. The market can be relied upon to sort this out. If a given insurer proposes premiums that are excessive, the market as usual will encourage other insurers to propose lower premiums and thereby attract this business. 6. Maximum amount and transparency of information so that consumers can make informed choices. 7. Elimination of any impediments to the formation of insurance buying groups, as initiated by consumers, insurers, and/or middlemen in a free market environment, with no need for any government involvement. 8. No tax deductibility of any insurance or direct or indirect health care cost by any person, employer, or other entity.

The elimination of tax deductibility of health care premiums and related costs would, by itself, very substantially increase tax revenues. Accordingly, broad offsetting income tax rate reductions could and should be enacted simultaneously.

There would remain many who are unable to afford the premiums, co-pays, and/or deductibles. If health care is to be provided by taxpayers to those who can't afford it, then the best way to accomplish this may be to establish health care escrows for those below a certain income level, as follows.

On a sliding scale, an amount, up to the sum of the annual deductible amount (e.g., $5000) and the premium on the "high deductible" policy, would be placed annually into a health care escrow account by the federal government on behalf of those qualified by low income and low assets. During the calendar year, this account would pay the premiums and deductibles for such consumers. At the end of the year, any money not spent would be paid in full to each such consumer. This approach would effectively encourage each consumer to shop for and buy only those health care services that the consumer determines are worth the full, unsubsidized cost.

I understand your point. But that’s a higher cost that you don’t mind paying because you’re getting better treatment.

Usually, the libs argue that government needs to step in and tell hospitals they can’t buy the equipment because it’s driving up costs. I’m saying that’s a fool’s errand. You’re not going to reduce costs by requiring hospitals to obtain bureaucratic approval of investment in equipment. It’s been tried, and it doesn’t work. All it does it further reduce the supply of healthcare services, and drive up costs further. To the uninitiated, it may seem that the equipment is wasteful, but in reality, there is usually a good reason why they buy it. To the extent that it really is wasteful, you generally don’t reduce healthcare costs by eliminating it anyway because the savings are not passed onto the consumer. Rather, the savings enures to the bottom line of the hospital. The hospital industry is not very competitive in most areas, and so there is no pressure to pass the cost savings onto the consumer. You’re lucky if there is one hospital in your town, much less two, and if there are two, then one is probably on the other side of town and specializes in a different kind of service, so that it only competes remotely. Even in larger cities, this is often the case.

Add removing Medicare’s pricing limits, even on those who don’t participate. Government insurance may justify limiting what government will pay, but it can’t justify limiting what doctors may charge non-poor, i.e. non-Medicaid co-eligible, patients just because they are age 65+. Doctors may avoid the price limits on Medicaid by refusing to see any Medicaid patients, many do so. I don’t. But for many specialties not seeing any Medicare patients is economic suicide. Allowing “balance billing” again won’t cost the government or Medicare a cent. It will cost the non-poor elderly (I’d limit the change now to non-medicaid eligible Medicare patients for political, not economic, reasons) exactly what the free market would let doctors, etc. charge them. Just the same as any other of their normal purchases. By letting the elderly pay market rates the price of health care for younger, usually less wealthy, folks will drop. Congress will no longer be under pressure to pass “doctor fixes.” Government reimbursement can gradually be lowered to levels that won’t bankrupt Medicare and eventually the whole thing could be written off as a bad idea.

With regard to Medicare and Medicaid, it should first be determined whether and to what extent taxpayers should subsidize health care costs of the poor and elderly. This is a separate matter that is beyond the scope of determining economic efficiency.

Once that is determined, then it seems that any subsidy should be in the form of cash escrow accounts, to be administered as set forth in the original post. In the interests of economic efficiency in delivering health care, the government should have no role in the pricing or purchasing of any health care services, including these. The market is the best path to economic efficiency.

There has been discussion of the government role on the supply side of health care costs.

As is the case on the demand side, the government should play substantially no role on the supply side.

If left alone, the market will establish doctor compensation that is adequate to attract the necessary number and quality of doctors. To the extent that doctors need financing for their education and training, the market can and will supply this.

Similarly, the government should not get involved in determining the number, size, and equipment needs of hospitals. The private sector is fully capable of doing that, in a market economy.

There has been discussion of the government role on the supply side of health care costs.

As is the case on the demand side, the government should play substantially no role on the supply side.

Similarly, the government should not get involved in determining the number, size, and equipment needs of hospitals. The private sector is fully capable of doing that, in a market economy.

A tax deduction is a subsidy. It reduces the taxes that the taxpayer otherwise would pay and transfers that burden to other taxpayers.

The deductibility of health care costs should be eliminated. As indicated in the original post, “The elimination of tax deductibility of health care premiums and related costs would, by itself, very substantially increase tax revenues. Accordingly, broad offsetting income tax rate reductions could and should be enacted simultaneously.”

We have Tenncare in Tennessee, a form of Romney care and obamadeathcare
Do some reading, these are articles since Jan of 2010, older articles tell of waste, fraud, illegals, and earlier cuts to curtail rising cost.
TennCare cuts threaten Nashville General hospital | tennessean.com
http://www.tennessean.com/article/20100204/NEWS0204/2040350/TennCare-cuts-threaten-Nashville-General-hospital
TennCare Cuts Under Way Now
http://www.memphisdailynews.com/editorial/Article.aspx?id=47622
Call it coincidence or bad timing, but many physicians in Tennessee began taking a 14 percent cut for seeing TennCare patients on the same day Gov. Phil Bredesen announced deep cuts in health care spending.
TennCare Cuts May Close Some Hospitals
http://www.myfoxmemphis.com/dpp/news/local/020710-tenncare-cuts-may-close-some-hospitals
TennCare Cuts May Close Some Hospitals
Proposed TennCare funding cuts would close The Med, hospital officials say
By Toby Sells
Published Friday, January 29, 2010
http://m.commercialappeal.com/news/2010/jan/29/med-cuts-would-kill-us/

No, it will not increase tax revenues. It has been proven over and over and over again that raising taxes does not increase revenue. What will happen here is that less people will end up with health insurance, not the same number with the government getting the taxes for the same amount.

Things don’t happen in a vacuum.

It is not a subsidy, unless you believe that all money belongs to the government. Do you believe that all money belongs to the government?

Yes, and no. The government has given authority to the medical profession to determine accreditation of medical schools. And the government requires you to be licensed in order to be a doctor, which in turn requires you to have a medical degree from an accredited medical school.

If you accept your argument, then you are essentially saying that anyone can be a doctor or open a medical school. I guess I don’t have a problem with that, because I think your average Joe is smart enough to make sure his doctor knows what the heck he’s doing. But a lot of folks will tell you that it’s not good enough—that there must be some government control over those things.

If we are going to have government control over those things, then we need to increase the number of medical schools and/or the capacity of the existing schools so that more young people can become doctors. And the government will need to take responsibility for doing that since it has taken control of the process. We’re in a crisis situation which is only going to get worse, so they need to get down to it right away.

I agree that this will result in fewer people having health insurance, and that’s a good thing. It means that only those consumers who perceive the benefits of health insurance to be worth the full, unsubsidized costs will buy it. Those currently buying health insurance only because of the tax deduction subsidy will drop it, as they should. It is inefficient for anyone to buy anything having a perceived value that is less than the full market cost of it.

The reality is that, rightly or wrongly, we do currently have an income tax. Perhaps it should be abolished. I favor very substantial shrinkage of government activity and the corresponding tax burden. But unless and until the income tax is abolished, tax deductibility of health care related costs does subsidize health care insurance purchases, and correspondingly shifts the burden to other taxpayers. This is economically inefficient, and unfair to the other taxpayers.

Incidentally, most discussion about the effect of raising taxes has to do with tax rates, not tax deductibility. To the extent that any current purchasers of health care insurance would choose to continue buying health insurance despite the loss of deductibility, most of these purchasers would pay more tax, under the current tax code. The increased taxes that these purchasers would pay could and should be used, on a dollar for dollar basis, to reduce tax rates for all taxpayers.

“The government has given authority to the medical profession to determine accreditation of medical schools. And the government requires you to be licensed in order to be a doctor, which in turn requires you to have a medical degree from an accredited medical school.” This is all probably good, since consumers generally are probably not in good positions to determine whether or not a given doctor is competent in the critical area of health care.

I do think that there are more than enough people capable of opening the needed number of medical schools, and that there are more than enough people capable of becoming excellent doctors.

I don’t see how government authority over accreditation and licensing means that the government needs to interfere with market mechanisms in providing sufficient doctors. The market is very capable of establishing suitable pricing of medical schools, training, health care services, and doctor compensation. Government interference with these matters results in market inefficiency.

Government is interfering in those areas, though. The medical profession, with the government’s blessing, has spent the last 100 years slowly tightening the noose so that we have far fewer doctors than is optimal. The government has allowed the AMA, the teaching hospitals, and the medical schools themselves to set up an organization called the “Liason Committee on Medical Education.” That organization decides whether you can open a medical school, and if so, how many students you can accept. Not surprisingly, the result is too few doctors.

It was not too long ago that the medical profession was arguing that we had a severe surplus of doctors, and that the public planners should reduce the number of doctors. There was even a group of health care economists who were paid to conduct studies that concluded that the reason health care costs were rising was that we had too many doctors. Naturally, the profession used its power to fix that problem.

We are to a point where we are importing them from Pakistan, India, or my favorite, Cuba (my wife’s neurologist got her degree from the University of Havana), and we still do not have enough.

You might ask why they let doctors in from overseas if their aim is to reduce the number of doctors. According to Milton Friedman (in “Capitalism and Freedom”), it’s political. There are so many foreign doctors that they are able to exert influence over the AMA, and they use that influence to allow other foreign doctors to be licensed. Apparently, they cannot bring themselves to believe that foreign trained doctors are unqualified because they themselves are foreign trained.

Whatever the reason, though, it is clear that we don’t have enough doctors, and the problem is getting worse. I doubt that it’s because the free market has failed. It’s because of the barriers to entry that the government has allowed, and even encouraged.

I find it interesting that countries like France which are held up as examples of socialist health care perfection also have a lot more doctors than we do per capita. France has nearly twice as many doctors per capita. It’s not because of socialism that France compares favorably to the US on bang for the buck. It’s because they have more doctors.

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