The market for healthcare services today is greatly distorted by the intervention of the Federal Government, which is the largest payor for those services.
In 2007, Americans spent about $2.2T on healthcare. Of that, about 20% was spent on Medicare, 18% was spent on Medicaid, and 7% was spent in other public programs. This means that about 45% of all healthcare spending was controlled by government. The Federal Government sets its prices through the Centers for Medicare and Medicaid Services (CMMS). It establishes the reimbursement for doctors, physicians, drug companies, etc.
Reimbursement rates set by CMMS do not cover the cost of healthcare. As a result, private payors effectively subsidize healthcare for Medicare and Medicaid users. Last year, according to Millican, a healthcare consulting firm, hospitals lost $30B on Medicare. Hospitals get about 32% of total Medicare dollars, so this equates to about $141B in revenues, meaning a margin of about -21%. If everyone in the country moved onto a Medicare system, this would mean that Medicare healthcare reimbursement to hospitals would be about $704B, and hospital losses would grow to $148B - an annual increased loss of more than $100B. These losses would bankrupt the entire hospital sector. And the economics of Medicaid are much, much worse.
At the end of the day, there are only two ways to match supply and demand: a market and a queue. The question of universal access is a crock. Today, everyone in the US has access to healthcare; the problem is that not everyone can afford to pay for the access they would like to have. But this is true of all goods and services - I have access to a private jet, if I can pay for it. But I can’t, so I have to fly on commercial airlines (or ride the bus, or drive my car, or walk).
Right now, the system uses market mechanisms, but the price-setting role of CMMS is straining the system in the extreme. How much longer can private payors subsidize government healthcare expenditures? We are essentially faced with a choice between
a) moving away from government price-setting toward letting buyers and sellers set the price (i.e. a market), and
b) moving toward a government-controlled system, which will result in healthcare rationing (i.e. a queue).
It seems to me that the best way to reform the system is to implement the following:
1. A catastrophic healthcare insurance program funded through taxes. Essentially, this is a high-deductible insurance policy that will keep people from being wiped out by a catastrophic illness. This is what insurance is for - a low-probability, high-damage event - not what it is currently being used for - reimbursement of regularly-consumed goods and services.
2. Removal of the tax-deductibility of health insurance and reduce tax rates to compensate. Why should healthcare be paid with pre-tax dollars? After all, food is paid with after-tax dollars, and it is more critical to our survival. Forcing people to rely on their employers to purchase their health insurance is a huge distortion of the market. Removing this would allow individuals to purchase policies on the same basis as corporations, and put the consumer in control of the type of healthcare they wish to buy. If they don’t want to buy any, that’s fine; after all, they will have a catastrophic policy that will cover costs if they have a really bad illness. Otherwise, they should decide whether they want to buy healthcare or some other good. This would significantly shrink the private insurance market, but who cares? If people want to purchase insurance, fine. But a lot of folks would be better off paying as they go, and avoiding the cost of insurance. Insurance is a lousy vehicle for most folks to finance the consumption of goods and services.
3. Transparent pricing. Require healthcare providers to provide prices for their various healthcare services. Let consumers decide where and from whom to purchase their services, and let prices be used to match supply and demand. Currently, if you ask a hospital how much, say, a bunion removal costs, you might get a quote of $15,000. But, when you look at what a private insurer actually pays, the number might be $5,000. You have no idea how much a particular procedure costs, so no one can shop based upon price.
Of course, with the current leadership in Washington, this sort of approach has approximately zero chance of being adopted. Rather, if the Obama Administration gets its way, we will eventually end up with a government-controlled system, i.e. Washington sets all prices. This means a queue for matching supply and demand. This means healthcare rationing. Sorry, it’s just the way it works.
Think bread lines in the Soviet Union. Not good for bread eaters, not good for bakers, not good for society. A true lose-lose-lose system.
L3
Its a thread worth reading.
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