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The right prescription for healthcare is not government, but the market

by | 1:00 pm, October 5, 2009 | Comments Off

The following was originally published by Jimmy Sengenberger in the Regis University Highlander newspaper.

The country is now immersed in a deep debate.  President Barack Obama is advocating sweeping “reforms” to the American healthcare system that will inevitably lead down the dark path to socialized medicine.

First, President Obama’s plan would force private healthcare operations to crowd out.  Through taxes, those who are paying for their own coverage would also be paying for those who are under the new government program, eventually discouraging them from maintaining private coverage and encouraging them to switch to the cheaper government program.

Additionally, the government could initiate regulations and policies to benefit its program over competitors, and many employers will determine that it is more economical to drop their health insurance plans due to the increased financial strain the new program would force upon them.

Take Fannie Mae and Freddie Mac, the massive government-sponsored mortgage lenders that precipitated the current financial crisis.  Everyone knew that if something happened to either financial institution, the government would bail it out.  Government-sponsored programs and enterprises have a unique advantage over their private sector counterparts that, as inefficient as they may be, allows them to continue regardless of the results.  Risk is absent when the government is backing you up.

As the CATO Institute’s Michael Tanner wrote, “Government would compel Americans to purchase health insurance, controlling its content, how much we pay, and the relationships between insurers, doctors, and patients. Government bureaucrats would determine whether Americans received certain medical services.”

Obama argues that his plan would serve as a sort-of support system only for those who can’t afford it.  But when FDR began Social Security in the 1930s, it was intended as a supplement to personal retirement plans, not the primary source of retirement income that it is today.  In this case, a program meant as only a support system has grown to be the primary source for retirement funds.

It doesn’t have to be this way.  Our healthcare system contains the greatest innovations, the highest-quality care and some of the best doctors in the world.  The problem with our healthcare system is the disparity between those who can afford it and those who cannot.

Obama’s right.  We need reform.  The status quo is unacceptable.  But his government answer doesn’t address the fundamental reasons for such high costs.  The plan will do little more than inject more government spending and bureaucracy into the industry.  The way to fix this is not through greater government control or a new government program, but through more freedom in the marketplace.

The healthcare industry is one of the most heavily regulated industries in the country, with the net cost of regulation estimated by Duke University’s Chris Conover to be $169 billion a year.  As with any industry, in order to pay for the dictates of the government, institutions of health are forced to raise costs, which extends to consumers in the form of higher prices.

Government regulations and policies have essentially mandated a third party-based system that forces the consumer to work through health insurance companies, HMO's, employers and other middlemen that pay the supplier.  84% of all personal healthcare spending is made through private health insurance, the government or other private expenditures that are not directly from the patient.

Human nature tells us that when someone other than the consumer is doing the paying, demand will rise.  When an individual is separated from the spending and someone else is paying, consumers are encouraged to use the service more as the incentive for individuals to save for themselves diminishes.  After all, if someone else is paying for it, why should I care?

Likewise, basic economics tells us that as demand rises and supply remains stagnant, prices (premiums) will inevitably go up, which in turn disadvantages those who pay directly, such as the self-employed.

Encouraging the third-party system are tax exemptions for employer-provided health insurance that the millions of self-employed and small business owners and workers who pay on their own do not receive.  The government incentives, policies and regulations put in place, in large part by the federal tax code, serve to do nothing more than exacerbate the problem.

The layman's prescription for health reform is increased competition and market freedom.   Not a day goes by where we don't see commercials for Geico, AllState and other car insurance companies competing over who provides the best service at the lowest price—competition absent from healthcare because of the third-party system.  Insurance companies aren’t competing for individual consumers—they’re contending for large corporations.

To fix this, the government must equalize the healthcare tax exemption across the board so that everyone, not just middlemen and large corporations, will benefit from it.  That means small businesses as well as individuals.  Tax-free health savings accounts need to be expanded, thereby helping individuals to purchase their own health insurance or pull from a pool of money when they need to.

Adjusting the policies and regulations perpetuating the third-party system, like the tax exclusion, would increase competition by allowing consumers to shop around on their own, decreasing costs substantially while maintaining high quality.  Furthermore, due to the high cost of regulation, deregulation is critical to opening up the market.

Of course these are just a few starting points that only scratch the surface, but one thing is certain.  The question isn’t government or status quo.  It’s whether we will cross the point of no return with a new entitlement or look to America’s greatest strength: the market.
Category: Healthcare, Obama, PPC, Syndicated
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