Rebirth of Reason


Clinton-Obama Debate and Health Care Costs
by Merlin Jetton

I watched some of the Clinton-Obama debate on CNN January 31. A part was about health insurance. Both candidates blame the lack of access and affordability on health insurance companies and drug companies. Both want to clamp down on said companies.

Clinton was more explicit about this in the debate, but it is their position. Both want price controls and other controls on said companies. Said companies, especially health insurers, are their convenient scape-goat.

Health insurers are middlemen between insureds and health care providers, managing enrollments, the paperwork and money flows. A very high percentage of the premiums they take in are passed on to physicians, hospitals, other health care providers. The bulk of health insurance, other than Medicare and Medicaid, nowadays is provided by HMOs and PPOs. Blue Cross and Blue Shield are the biggies. They have been organized by -- guess who -- doctors and hospitals. Most don't make a "profit", since they are "nonprofit charitable corporations." Yeah, right! The Blues also act as administrators of Medicare in much of the country and provide group health coverage to many state and federal government employees. A PPO is an organization of doctors, hospitals, and other health care providers who contract with an insurer or a third-party administrator to provide health care.

As the government extends its control over health insurance premiums, then it won't be long before there will be no "for-profit" health insurers not in collusion with government, doctors, hospitals, and other health care providers. They won't survive the government controlling premiums, policy provisions and underwriting, and at the same time claim costs continue to grow rapidly. There will just be a government-health care providers cartel. This is what many want. It's called a "single payor plan." With the ties between governments and the Blues, it's nearly that way already. Doctors, hospitals, and other health care providers will continue to ratchet their costs and charges. Their suppliers won't mind it either. The government will raise taxes or debt to pay the bills. The HMOs and PPOs will charge more. The doctors, hospitals, and other health care providers can continue to operate largely exempt from competition. You can be sure they will have plenty of input and influence in government policy.

Absent allowing a freer market, the most effective way government could get insurance premiums down is to put price controls on physicians, hospitals, and other health care  providers. Yet neither candidate dares advocate that! The candidates campaign saying they can get costs down while raising demand (by expanding coverage). They advertise fancy phrases like "gains in information technology." Administrative costs might be trimmed some, but you can bet the demand side will keep costs rising. The campaign rhetoric is mostly economic nonsense.

Here is why, using a simple example. Suppose a health insurer in a base year has the following numbers in millions: $85 outgo to health care providers and $15 administrative costs. Suppose a government magic bullet could cut the administrative cost to $3. Also assume health care costs continue to increase at 7%, about the average in recent years.  In 5 years total costs will be $88*1.07^5 = $123. In 10 years they will be $88*1.07^10 = $173. Administrative costs are slashed $12. Yet total costs are still 23% higher in 5 years and 71% higher in 10 years.

In reality the numbers will be even higher, due to increasing demand from an aging population and the government mandating more coverage. More coverage will offset much or all of any administrative savings. Cost increases for many individuals will be even higher, since many employers are transferring a greater share of the cost to employees. My health care premium jumped 13.6% on January 1. My numbers above look beyond the next election, so a politician wouldn't give a hoot. But when politicians say they will make health insurance cheaper by cutting administrative costs, it's egregious false advertising.

Politicians portray insurers as exploiters separate from health care providers. It's a false facade. If only voters knew that! Most voters buy the candidates' convenient scape-goat. The candidates have only one significant, but draconian and disastrous method of cutting costs. It is the modus operandum of government -- the use of force. But it can't strangle the chickens that lay the eggs. Pluck a couple feathers is about the limit.

At one point in the debate Hillary said her plan would allow doctors, nurses, hospitals to get back into the business of taking care of people instead of working for insurance companies. What a load of demagoguery! The truth is much nearer the exact opposite -- insurance companies, especially HMOs and PPOs, are simply collection agents for doctors, nurses, and hospitals! Non-HMO, non-PPO private health insurers have about as much control over health care costs as auto insurers have preventing auto accidents! "Allowing doctors, nurses, hospitals to get back into the business of taking care of people" as a practical manner translates into them charging what they please and passing the bill onto governments and health insurers. It's the people not in the cartel that ultimately pay the cost. That cost will continue to grow, helped by the aging baby boomers and the new prescription drug overage.

One of the main reasons private health insurance premiums have risen so much is the federal government capping payments to health care providers for treating Medicare patients. Similar for Medicaid. Health care providers try making it up by charging more to treat patients covered by private insurance, i.e. insurance companies. Neither candidate puts any blame for affordability on government.

You may wonder: Aren't price controls for doctors, hospitals, and other health care providers a very radical idea? No, not for a power-hungry, coercion-loving politician like Hillary Rodham Clinton. The price caps the government puts on treating Medicare patients are price controls. It would only be as radical as extending the price caps to the treatment of patients with private health insurance. It's no more radical than treating doctors, hospitals, and other health care providers like regulated public utilities.

Both candidates complain about the influence of "special interests", like lobbyists for health insurance companies and drug companies. They are silent about the influence of lobbyists and "special interests" on behalf of doctors, hospitals, and other health care providers. They are silent about the influence "special interests" or lobbyists for employers and unions who would love to dump their health care costs onto the government. They are all "partners in crime" at the voting booth and with campaign contributions.

The jackass symbol for Democrats is fitting (not that elephants smell much better).

For a far more extensive article, with different arguments, about health care and health insurance by two Objectivists, one a physician, see here.

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