Health Care for Dummies

Only two questions that matter.

Back during the Presidential campaign, we claimed that there was only one real issue in the upcoming health care debate.  We now stand corrected - the oceans of ink that have flowed to drown the proposed health care legislation in misinformation from all sides has shown us that we were off by 50%.  Instead of only one key issue in health care, there are in fact two.

1. There has to be some mechanism to prevent people from using more health care than a) they need or b) is societally worthwhile.  There are only two ways to accomplish this: a) external controls such as a "death panel" that decides whether you're worth spending money on or b) the free market, where you can have all the health care you can afford.  Those are the only choices known to man: which do we prefer?

This was the question that we previously identified as key to the debate.  It's still the most important and visible one, but there is another question that is almost as important - that is, if you'd like the science of medicine to keep getting better every year as it has now for a century.  To wit:

2. Everybody knows that people are living longer because of advances in medical science.  Let's ignore issues with how to cover pension costs and assume that people living longer is a Good Thing.

The only known way to improve the quality of medical treatment - be it new technology, new drugs, doctors that actually listen to you or any other improvement - is via competition.  If we had one private monopoly health insurance company, that would be every bit as bad as a government-run monopoly.

The core problem is that if there is only one provider, that one provider doesn't really need to care about what anyone thinks.  You can either take whatever services the monopoly deigns to grant you, or you can die shivering in a corner - your choice.

Mr. Obama's Democrats argue that a "public option" government plan would simply be one more competitor to "keep the health insurers honest."  This is, to be brutally frank, a transparent lie.

It is simply not possible for private profit-making enterprises to compete with any government entity for one simple reason: A government plan does not have to pay its own way because it can freely steal from tax revenues.

If Mr. Obama's public option comes into existence, private insurers would soon die out, leaving a government monopoly that could do whatever it wanted.  That's exactly what happened with Fannie Mae, Freddie Mac, and the home mortgage brokerage market, and we all saw how well that turned out.  Any form of public plan open to all, or even many, is a very bad idea.

Limiting Demand

Limiting demand for health care is extremely difficult.  In "Austin Emergency Rooms got 2,678 visits from 9 people over 6 years," the Statesman reported:

Task force seeking ways to divert non-emergencies away from emergency rooms.

In the past six years, eight people from Austin and one from Luling racked up 2,678 emergency room visits in Central Texas, costing hospitals, taxpayers and others $3 million, according to a report from a nonprofit made up of hospitals and other providers that care for the uninsured and low-income Central Texans.

One of the nine spent more than a third of last year in the ER: 145 days. That same patient totaled 554 ER visits from 2003 through 2008.

Each visit to the ER cost about $1,000, which is about average across the United States.  One patient cost more than a half-million dollars in ER visits.

Mr. Obama talks about cutting costs by eliminating Medicare waste, a laudable goal indeed.  Two months after taking office, he said, "The days of giving government contractors a blank check are over" and said his changes in government procurement could save up to $40 billion a year.  I remember hearing every President since John F. Kennedy speak of cutting waste, but it's far easier to speak eloquently about cutting government waste than to actually make budget cuts.

When Congress cut the National Park Service budget in 1968, for example, the agency immediately shut down the Washington Monument elevator.  When my family and I visited, a polite Park Service ranger explained that this was a cost-cutting measure and offered us a map so we could visit our representative's office and petition for "a redress of grievances."

Having lived in Japan whose bureaucracy makes ours seem simple, we knew this ploy.  We refused the leaflet and walked up the monument, but enough angry tourists griped that funds were restored.  This game became known as the "Washington Monument Strategy."

Stopping the elevator probably didn't even cover the cost of printing the leaflets; making minor "cuts" to protect the budget by annoying voters is bureaucracy 1.01.  This tactic is known and loved by every authority that cuts the library's hours and turns off streetlights while leaving salaries, pensions, and benefits untouched.

Mr. Obama understands how the "Washington Monument Strategy" applies to health care from personal experience.  The New York Times reported:

In the weeks before he was elected president, Barack Obama confronted a life crisis all too common in families across America.  His grandmother, who already had a diagnosis of terminal cancer, fell and broke her hip, possibly because of a mild stroke.  The question became whether to replace her hip even though she was dying.

Much of the spending on medical care in the United States goes to people in their final months of life.  If society is to rein in health costs, at what point are expensive operations like Ms. Dunham's hip replacement surgery no longer affordable?

Who's going to pull the plug on grandma?  Mr. Obama said, "If somebody told me that my grandmother couldn't have a hip replacement and she had to lie there in misery in the waning days of her life, that would be pretty upsetting."  Ya think?

Why, then, does he want a government bureaucracy to do exactly that?  Medicare has already cut its payments to the point that many doctors don't like treating Medicare patients and some refuse; the only way to cut Medicare spending any further is to deny treatment entirely.

Every dollar "wasted" on medical care or on anything else is paid to someone.  All those people who collect income from providing medical "waste" are going to resist having their incomes cut.  Does anyone really think that the government can reduce health care costs without forcing people to pay for their own health care?

The fact that the discussion has gotten so angry suggests that people are beginning to understand this issue.

Promoting Research

Medical research sometimes saves money.  Back before antibiotic-resistant strains of TB developed, we could cure tuberculosis for a few dollars worth of pills instead of having people live in sanatoriums for months on end.  The new (in those days) pills were clearly cheaper than the previous sanatorium cure.

This, however, is rare.  More commonly, new medical technology increases costs, because letting someone die is fairly cheap but most medical procedures cost money.  Modern research raises costs in two ways - 1) having expensive toys like MRI scanners lying around tempts doctors to order tests to keep them busy and 2) having people live longer lets them keep collecting pensions.

My extremely liberal father who rails against medical "profiteers," has two hearing aids that cost $1,200 per ear.  They worked so much better than his earlier devices that he can now use the telephone again.

The reason these hearing aids are available is that a profit-minded company did the research and spent the money to get them approved by the FDA.  My dad can hear because someone wanted very badly to make a buck. Under Obamacare, nobody would have had to pay for those hearing aids because there would have been no incentive to invent them and they wouldn't exist.

We all know how fast devices like iPhones and iPods get cheaper and better every year.  That doesn't happen with medical devices.  Why not?

There's a simple reason: Because the FDA approval process costs so much money.  If someone wants to offer a better, cheaper hearing aid, they have to spend billions on getting it approved by the FDA.  The FDA bureaucracy protects the company that sells the current model by keeping competitors out of the market.  This government-granted monopoly is a license to charge a lot without having to improve the product.

What's worse, the FDA tends to withhold approval of new treatments unless they are a "lot better" than the exiting treatment.  We've seen drugs be shown to be safe and effective but the FDA won't approve them because they aren't enough better than the current drug.  This protects the current seller's monopoly and keeps prices high.

We've written about promising treatments that are being researched in other countries because the FDA approval process is so prohibitive.

Our government's anti-competitive practices hold back medical progress and make medicine a great more expensive than necessary.  Unfortunately, Mr. Obama's budget gave the FDA a lot more money to hire more inspectors and other bureaucrats.  Stand by for even higher development costs.

Thus, the key question in health care is how to limit demand, and the #2 question is how to incentivize medical research while keeping the prices halfway affordable.  Everything else is a detail.

To be fair, it took us a while to see that.  If you go to our first health care article, you'll find links to many, many other articles about various aspects of health care.

Now that we've seen the light, however, we can easily judge any aspect of whatever anyone proposes.  Anything that won't encourage private individuals to cut their own costs by their own free choices or won't make research easier is a step in the wrong direction, no matter how good it sounds.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Bureaucracy.
Reader Comments
I wish everyone would STOP calling this topic HEALTH care. We don't have a true "health care" system anywhere in the western world, socialized or otherwise. We have a "sickness care" system, an "injury and trauma care" system, second to none, so perhaps we should call this "medical care".

But "health care" is a different matter entirely. It's the "ounce of prevention" as opposed to the "pound of cure" we're all obsessed with on these pages and elsewhere. And that is a very personal thing and a personal responsibility.
August 19, 2009 1:00 PM
So, how much did they pay you???

Did you know that about 47 million Americans don't have proper access to healthcare?
The situation is beyond "bad", there are many images available of sports stadiums full of people with thousands queuing outside for basic medical care. In many eyes this is not a modern western country but a third world, at least in terms of medical care.

Now, lets talk about something called the NHS.
The NHS is the umbrella organisation for all state provided healthcare in the United Kingdom (England, Scotland, Wales and Northern Ireland).
The NHS provides free medical examinations for all citizens, typically people in the UK will wait from 15 minutes to 2 hours to see a doctor depending on the time of day and location.
The doctor will then determine the next course of action if necessary, through a referral system.
He will either write a prescription for the patient to take to a pharmacist or refer the patient to a hospital for more tests and specialised treatment.
The NHS will make this prescription free for people earning less than about £5000 (~$10000) a year, people under the age of 18 and also those with disabilities and in some areas students also benefit.

The reason the NHS has survived for 50 years is that it has a fixed budget as the NHS puts it:

"The central principles are clear: the health service will be available to all and financed entirely from taxation, which means that people pay into it according to their means."

The important point to note is that although some will use it more than others, others will use it sparingly, in other words some will take more, but some will give more, so that the balance it has is undisturbed, statistically it can be shown that with Americas larger population, this balance should be easier to maintain.

The NHS does in some ways provide actual "health care" encouraging the population to live healthily, this is infact due primarily to economic reasons, the cost of providing healthcare to obese people and smokers is greater than the tax revenue on fatty food and cigarettes, the balance is disturbed. The outcome of this is to place scary warning labels, often with real pictures of a smokers lungs or something on the pack, with food, it will soon be against the law to sell packaged goods without indication of the nutritional value and amount of salt and fat, all major supermarkets in the UK already do this.

The NHS provides a better kind of competition for healthcare, instead of competitors providing standard healthcare, the NHS forces them to do much better, for example the private health company BUPA is regarded in the UK as providing amazing health service and a very personal touch above that of the NHS standard. This means that when you pay for treatment, you get your monies worth, and your treated better, currently they do very well, obviously they do better during economic growth periods.

When it comes to pharmaceutical companies, everyone knows they make way to much money.
If you deny this then your obviously a stupid brainwashed clown.
Contracts in the UK for state supplied medicine are awarded based not only on cost but the speed that they can be delivered and whether there worth the expense above what is already available.
But, the average working person will have to buy his medicine unless he earns very little and so the pharmacy would have purchased directly from the manufacturer or distributer, in other words there is still competition between drugs.

In order to be considered for contracts with the government and pharmacies, suppliers will have to compete with each other in research to provide cheaper more effective drugs and machines.
Obviously in most cases the government will bid on the cheapest of all viable options. Although the company gsk (GlaxoSmithKline) is in general favoured due to their products high quality and reasonable cost.

Obama care is not as some put it evil or Orwellian. It is the logical answer to the growing disproportion in health product consumption in the population, a disproportion that logically puts some groups at an economic disadvantage and will lead to (has already lead to) a class of people unable to attain basic health and whose lives are limited first by poverty and then by health. With the NHS as an example of what to do right and what not to do, there's no reason why a state health system would not be beneficial for a large number of people. The people who deny it's necessity have never waited in a 2000 person queue for charity medical care.
August 20, 2009 9:25 PM
The economist feels that their NHES is being misrepresented.

BLAME it on the weather or the silly-season absence of more serious news, but arguments about America's health care have become a touch delirious over the past couple of weeks. People have accused each other of being evil-mongers, dealers in death or even un-American; a sad substitute for a thoughtful debate about a complicated subject that intimately affects every citizen and ties up some $2 trillion a year, a seventh of the world's largest economy.

Now the distemper has spread across the Atlantic. The enemies of Barack Obama's health-reform plans have no more potent weapon, it seems, than to accuse him of seeking to replicate Britain's dreaded National Health Service on American soil. Even David Cameron has been dragged into the affair. An unhelpful Conservative MEP has been caught joining in the NHS-bashing in America, leading to the predictable and unfair charge that Mr Cameron's henchmen are secretly bent on unravelling the system.

They also say that both companies already ration health care, which is largely true, and that cost containment seems to be getting lost in the weeds:

The second thing to lament about the current apology for a debate is that it is giving the idea of controlling health-care costs a bad name. Mr Obama promised that his reform package would bring down costs, as well as extend coverage. But so spooked has the administration become by accusations of "rationing" health care, as is done in "socialist" systems like the NHS, that very little cost control is now to be expected from whatever bill eventually emerges (see article).

The reality is that America, like Britain, already makes extensive use of rationing. Around half of all Americans are covered by one government programme or another, including those providing health-insurance for the elderly, the poor and government employees. These schemes lay down in great detail, in the form of national and local "coverage determinations", which treatments and procedures can be claimed for, and at what rates. And all but the most expensive private insurance policies impose limitations of their own. A more honest discussion would accept that cutting costs, as the administration has promised to do, must involve reining in a system that encourages patients to demand tests and procedures that they don't really need and doctors to recommend them.
August 21, 2009 12:21 PM
Weren't you off by 100% instead of 50%?
November 22, 2009 9:34 AM
You have made a good point. We were off by 50% of the actual number, but since the error was 100% of the size of our estimate, it could be said that we were off by 100%.

A marvelous example of how easy it is to spin numbers whichever way you want. That's not good enough for the White House, of course, they've been making up nonexistent congressional districts in their attempts to convince us that they're creating jobs.

In any case, we were wrong by as much as we were right if that makes sense.
November 22, 2009 11:40 AM
Add Your Comment...
4000 characters remaining
Loading question...