Medical Tuesday Blog

The High Cost Of Free Health Care

Jul 22

Written by: Del Meyer
07/22/2016 2:41 AM 

From the Frasier Institute

Since the passage of the Affordable Care Act (Obamacare) the quality of health insurance plans in the United States has gone down, while premiums have gone way up. This month it was revealed that UnitedHealthcare is leaving the Obamacare exchanges, the online marketplaces for health insurance, after losing $1 billion over the last two years. At the same time, Health Care Service Corp lost some $2 billion—this despite private insurers having received billions in government subsidies. When these subsidies end this year, premiums are expected to rise 26 per cent. Many would suggest these developments highlight a cold reality: health care is just inherently costly and will often cause tremendous economic hardship without government help.

A closer look at what’s going on suggests otherwise, however.

Today, the U.S. consumer pays about 11 cents on the dollar for health-care expenses—the other 89 cents are paid by somebody else, typically the government, and to a lesser extent, private insurance companies. While this government “help” is well-intentioned, these subsidies for health-care consumers have dramatically reduced the incentives to shop around on prices, with many paying a zero price at the point of purchase. This perennial “89 per cent off sale” encourages Americans to over-consume, which in turn reduces the incentives of health-care providers to publish prices and for firms to compete and contain costs. The end result: high (hidden) health-care prices that no one has to pay… so long as they have good health insurance.

The market for health care in the U.S. is, effectively, dysfunctional.

The government “help” under Obamacare has added to this dysfunctional environment: firms are prevented from pricing insurance according to risk, and low-income/high-risk health-care insurance consumers are heavily subsidized—a practice known as community rating. While one can argue community rating may help spread access to certain visible groups, what it doesn’t do is lower health-care prices—somebody has to pay for these regulations. This means higher taxes and higher prices for everybody else. . .

Government “help” has produced a perfect storm necessary to get the public behind universal coverage. In fact, Colorado policymakers recently began pushing for universal health-care coverage. Why? The market for health care doesn’t work, they say.

They should check again.

Before government decided to “help” people, the market for health care was functional and low cost: health-care services were relatively cheap and insurance was not even necessary for many people. According to Social Security documents, if you were over 65 in 1962, a typical married couple paid $442 for medical care for an entire year; singles paid about $270. To put that in perspective, imagine today the average married senior paying about $10 a day in inflation-adjusted dollars for all their medical expenses. Keep in mind, this low sum is for the highest risk, highest cost demographic. Younger and healthy Americans ended up paying even less.

But don’t consumers get so much more in terms of health-care quality today compared to 1962?

Most goods we consume nowadays have improved tremendously in quality—that’s true. But in most cases, prices have actually gone down not up. For instance, a typical 21-inch colour television in 1956 cost about $4,300 in inflation-adjusted dollars. Today, for a few hundred dollars consumers get double the size, lower weight, and greater durability and picture quality. . . In terms of other health-care services, conventional LASIK in 1999 cost about $3,000 in inflation-adjusted dollars. Today, it’s about $1,700. In dental care, an industry likely closest to modern medicine in advances and ability, orthodontic braces in 1970 cost about $12,000 in inflation-adjusted dollars, which is more than double the price paid today. For plastic surgery, the price reductions are even more significant.

The difference in all of these goods?

They’re not subsidized or heavily regulated by the government.

In effect, government “help” such as Medicare, Medicaid in 1965, and now the Affordable Care Act has made health care unaffordable for many Americans. Canadians know that adding more government to the mix and imposing price controls—”free” health-care coverage through a single payer—comes with a high cost, including longer wait times, fewer doctors, and inferior health-care technology. If the U.S. wants truly world-class health care, the government needs to get out of the way: allow entrepreneurs seeking profits to find new and low-cost ways of delivering services, open up new medical schools, and reduce regulatory barriers to entry and restrictions on price-cutting.

Until then, Americans will be hostage to the high cost of free health care.

See more at:

Read the entire article Todd Gabel at The Fraser Institute . . .

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Government is not the solution to our problems, government is the problem.

– Ronald Reagan

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