Not Too Much to Ask For

Okay. This essay may be a bit repetitive to some of my faithful readers but perhaps if you think it is of value you can share this with your friends or (better) your elected representatives.

So voting on the Senate version of the GOP healthcare has been postponed until after the Fourth of July recess. The senators apparently cannot figure out how to manipulate the delivery of healthcare entitlements to our entitlement-addicted populace without it costing an arm and a leg (or more importantly the next election).

Trumpcare will not be “great” or “beautiful” any more than Obamacare. All the swapping around of benefits and costs is just so much moving of deck chairs on the Titanic. They do not address the rising costs or the underlying problems of the American healthcare system. One has to wonder why healthcare is so expensive while every other product or service provided via our free market economic system (from our daily bread to flat panel TVs) is so cheap.

Motivated by good intentions, the American healthcare system has been going off track for almost a century. Innocently enough, it began as a benefit that companies offered to attract qualified employees during World War II when many men were in the military and qualified applicants were in short supply. Employees liked this benefit and companies kept them after the war was over. Insurance companies liked the benefit because employed people were a good demographic for their insurance plans (generally healthy with healthy families and money to pay for uncovered procedures). Most insurance was for catastrophic illness and did not pay for office visits or well-baby visits (it was – after all – insurance). Even some of the covered procedures required the insured person to pay for a portion of the cost so the healthcare consumer was not totally immune to healthcare costs.

Congress thought that this was a great thing so they tried to make it even easier for companies to provide this benefit by making the cost of the benefit tax deductible for the company but not taxable to the beneficiary. This was great except that over time more and more procedures became covered by insurance in order to take advantage of the tax break. So slowly the healthcare consumer became more and more immunized against healthcare costs while, at the same time, healthcare coverage was transformed from a benefit to a taxpayer-subsidized right.

Also, because consumers are immune to the cost, the cost of healthcare has increased much faster the any other service in the economy. Healthcare now consumes 17% of the US economy - far more than any other country but providing only mediocre results. The excess we spend (nearly a trillion dollars annually) is simply wasted.

Healthcare is not production. It is maintenance. If a factory operator spent almost a fifth of his expenses on maintenance he would be fired. You need to spend enough on maintenance to keep the factory running but spending more is wasted and eats into profits or some other necessary expense. Right now America (in essence) must skimp on maintaining our infrastructure (and other necessary expenses) to maintain our human capital. The cost structure is all bolloxed up.

So what is a country going to do? Senator Elizabeth Warren wants to create a single payer healthcare system along the lines of Europe and some other developed countries (we already have a single payer system operating in the US. It’s called the Veterans Administration). A single payer system sounds like a simple fix. Just have the government do it. If it’s so easy why not have the government run everything? Senator Warren and Senator Bernie Sanders would be happy with that. While you’re at it, let’s include a universal basic income (UBI) for everybody in the country. Then we would have a population that was medicated, protected and coddled to the satisfaction of the progressives.

But such people would be Americans in name only. They bear no resemblance to our ancestors that made America great. Our ancestors were risk takers independent of government not dependent on government and afraid to take any responsibility for their own lives.

It was the free market economic system that made America the most powerful economy in the world. There is nothing essentially different about healthcare than any other sector of the economy except the left has beaten it into us that healthcare is a right and that we should brook no opposition to free universal healthcare.

What we currently have is a cost plus contract. According to Wikipedia “A cost-plus contract, also termed a cost reimbursement contract, is a contract where a contractor is paid for all of its allowed expenses, plus additional payment to allow for a profit.” Many government contracts are cost plus such as the Big Dig tunnel in Boston. Originally budgeted for $2.8 billion is now expected to end up costing $22 billion because the contractor low-balled the bid and then said ”oh. We have these extra expenses. You need to cover them in the contract or we will have to stop work.” So what do you do? You have three choices, 1) stop the work and have a big unusable hole in the ground and billions already spent, 2) hire a new contractor who will have to start from scratch and will encounter the same “extra” expenses as the first contractor or 3) add the “extra” expenses to the contract.

Healthcare is a lot like that. If you get a bill from a surgery you will see that you are charged for every cotton swab and sponge used in the operation, plus every physician’s assistant that poked his or her head into the operating room. Ask your doctor how much a procedure will cost and he will likely tell you that he has no idea. The price is meaningless because it has no impact. It is handled by the back-office and sent to the insurance company or Medicare to take care of.

The only way to get a great American healthcare system is to let the free market system work its magic. But free market does not mean laissez faire. The government still has an important role to play, that of regulator – something it cannot do as operator. There are some problems that need to be solved such as portability, pre-existing conditions and so forth. And there will still be some government assistance; some people will be too poor to pay for even affordable healthcare (solving poverty being one of the other areas where massive government involvement has not been effective).

Australia has been able to construct a relatively efficient healthcare system where consumers pay a portion of the cost so they are aware of prices and shop for healthcare as assiduously as a fashionista at TJMaxx. They still complain about the cost which at 9% of GDP is about half that of the US. If the free market economic system helped America’s rise to prominence why are we so willing to abandon it in such an important part of our lives?

Any healthcare bill passed by Congress that actually addresses these fundamental problems will not be great or beautiful immediately. True reform will take many years to implement. Too many people are locked into the current system and cannot extricate themselves from being dependent on it. It will take a generation to undo the distortions created by government’s good intentions but it is not too much to ask for both affordable healthcare and our freedom and independence.