The Virginia Institute for Public Policy has published a must-read analysis of the impact of proposed health care reform on Virginia. Far from bringing the cost of health care under control, as its advocates assert it will, “reform” based on President Barack Obama’s principles will drive medical price inflation 5.2% above what it otherwise would be by 2019. Higher medical costs will run up both federal and state spending, costing every man, woman and child in Virginia $4,176 in net present value.
Now, people can argue numbers all day long, so I recognize that those predisposed to support Obama’s plans will dispute the study’s numbers while those predisposed to criticize Obama will defend them. I won’t waste your time describing the methodology. What I thought interesting, though, was the explanation of why Obama’s version of health care is doomed to fail: It fundamentally misdiagnoses the problem.
The study contends that the grievous flaw in the American health care system is the “wedge” between consumers (patients) and suppliers of health care services. Medicare, Medicaid and private insurance are structured so that patients have been paying a steadily declining percentage of their health costs out of pocket over the past 40 years. When consumers don’t pay for their treatment, they don’t care what it costs. (Indeed, we have reached a point where most consumers don’t even know what their treatments cost.) When patients fail to apply consumer pressure on medical providers, all manner of inefficiencies enter the health care system.
On the consumer side of the market, the wedge diminishes consumers’ incentives to monitor costs; after all, consumers bear only a fraction of the costs from any additional health care service. On the supplier side, doctors and other medical providers receive no incentive to provide higher quality services for less cost. No positive benefit accrues to those who do so. … The [system] removes competition and patient feedback that drives innovation.
The Obama administration reverses the cause-and-effect relationship between the number of uninsured and the cost of health care. Obama suggests that the growing number of uninsured is pushing up the cost of health care, and that the way to curtail out-of-control spending is to make sure everyone has insurance. The causality, writes Arduin, actually runs the other way. Out-of-control health care costs (along with counter-productive government regulation) make medical insurance increasingly unaffordable for a growing number of Americans.
If you’re tired of hearing proponents of a bigger government role in health care blaming the failure of “free markets” for U.S. health care woes today, this study is well worth a read. There is no such thing as a “free market” in U.S. health care. In our bastardized system, a nominally private sector operates within a regulatory framework dictated by government. Increasing the wedge — transferring power and responsibility from patients and doctors to politicians and bureaucrats — will make the problem even worse.
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