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Why Focusing on Insurance Options Won’t Fix Healthcare

December 7, 2009

It’s trying to fix the Automobile industry by focusing on the salesmen.  Sure you can get prices to drop a little with more competition, you can even modify who gets cars, but you aren’t addressing the fundamental problems of supply and demand.  You still have competition from overseas, you still have waste and inefficiency within the companies and you still have companies going bankrupt.  You now just have more salesmen going bankrupt with the Companies or drawing taxpayer money for not selling cars (depending on whether the Democrats or Republicans hired the sales people).

Healthcare is NOT primarily an insurance problem.  Healthcare is a problem of runaway expenses and limited resources.  Providers can charge basically as much as they want because consumers are, by and large, insulated from the costs.  Doctors are driven out of their fields by skyrocketing legal costs (which is one area where action is being taken – we’ll see how that pans out) and there is too much in terms of licensing and school costs preventing them from being adequately replaced by others.

Although focusing on insurance won’t fix the problem, it certainly can make it worse.  A government subsidized insurance option can easily become a government enforced monopoly, and while adding more insurance companies can only marginally improve insurance costs (but not overall costs – insurance shields consumers from the immediate effects of rising costs, in effect short circuiting the normal ways supply and demand balance out), Government enforced monopolies can be HUGELY destructive to the markets they are imposed upon – see, for example, Amtrak, the post office, the old Ma Bell telephone company, the Dutch East India Company, the public school system, the Soviet Union and our current patent and trademark laws, just to name a few.  The Democrats’ desire to include a government run and sponsored insurer in the health care bill is threatening to turn our health care system into a medical and financial disaster.

This does not, however, mean that the Republican solutions are any good either though.  The best part of their “solution” is to remove interstate restrictions for insurance companies, which, as I have already pointed out, is completely missing the main problem.  The rest of their plans (pdf) either restrict employers to their detriment or attempt to micromanage the insurers, which, while not quite taking over healthcare, is the kissing cousin of nationalization (the one exception is their plan to enhance HSA’s, but it’s hard to determine how much of an advantage their plan entails – currently employer paid premiums are pre tax payments.  Paying them through HSA’s taxes the money while taking it out of an account where the interest is tax free – essentially offering a double tax hit for your money).

better solutions – ones that actually increase supply rather than sales people – include the following:

  1. Easing FDA restrictions banning or restricting potentially useful medicines from those who need them.
  2. Easing restrictions on licensing of medical personnel allowing more health practicioners into the market.
  3. Reducing or ending patent protection for drugs and medical devices.

Note, there are plenty of other options out there to improve healthcare – I am focusing here specifically on those that increase supply.  Other measures like reducing medicare would also improve healthcare overall, but do so by overtly decreasing demand, which is currently unpalatable by anyone in politics at this time.

The single most exciting thing you encounter in government is competence, because it’s so rare.

Daniel Patrick Moynihan


From → politics

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