Posts Tagged ‘Health Care’

This article that I read today by Michael Tanner clearly and eloquently states the case that I’ve been feebly trying to make for a long time – the reason health care is so expensive is because consumers do not, by and large, pay for it.

When Jana and I first got married I was self-employed (as a private math tutor) and, as such, did not have any employer-provided health insurance.  At the suggestion of my brother Mike (known to CAI as Michael) I purchased a high deductible health insurance policy and began saving money to insulate ourselves from sudden, unexpected medical costs (I think the deductible was a couple thousand dollars, so the policy was only intended to be used for catastrophe).  I remember during that time how, the few times we did need medical services, it was so strange to actually pay for service with cash.  We were surprised to learn that deals could be found with a little searching- for example we found a clinic in Seal Beach that had a completely different price structure for those paying with cash, and it actually wasn’t terribly expensive (I had never actually seen prices displayed in a doctor’s office before).  During that time we avoided the doctor as much as possible, and when we finally decided to go, we shopped around and found a deal.  All of this language is of course very foreign to the topic of health care, and that’s part of the problem.

When I eventually got hired full time as a teacher I got a very generous health care plan, and we ceased to look around for deals.  I remember, in fact, discussing my new benefits with a co-worker who encouraged me to “start taking advantage.”  The new plan didn’t include dental benefits for Jana though, so we continued our frugal ways in that department.

The point is pretty straightforward – the consumer is best suited to ration goods and services when normal price mechanisms are in place.  When we (and I’m speaking about myself here) don’t feel the cost of purchases, we have little incentive to restrain what we purchase.  More consumers purchasing more freely creates more demand, thus higher prices (as was the case with the housing boom and interest-only loans – guilty as charged again).

I’m not suggesting any particular policy here, but I do wish that this simple economic reality would at least make it into the discussion from time to time, rather than the continual demagogue of insurance companies and health care providers, who are only operating according the to same free-market principles that we expect from other sectors.  I have met doctors and people in the insurance industry, and they are no more evil or greedy on average than the rest of us in my experience.

One more anecdote: One time I got some metal debris in my eye and went to the emergency room.  The doctor put a drop of numb juice (I think that’s the medical term for it) in my eye, told me the debris was now out, and gave me some mild pain medication.  To make a long story short, the debris was not out of my eye and was only removed once I visited an eye doctor a few days later.  Nonetheless, the bill for this emergency room visit was over $700.  To make another long story short, I offered to pay the bill in cash if they would bring down the price.  The hospital initially declined my request, but I eventually spoke to a manager at the hospital who apologized and explained that I never should have seen that price.  As he explained it, that price is what they send to the insurance company, because they expect the insurance company to come back and low ball, so they have to start high.  Or some really convoluted scheme along those lines.  He cut the bill in half for me.

In this case I wish I would have rationed myself, and waited to get an appointment with an eye doctor (now I know) but this story clearly demonstrates just how convoluted the health insurance process is, and how costs go up because of it.  If more people were paying cash for medical service we would have a lot more (self) rationing and a lot less wasteful red tape.  Again, I don’t know what kind of legislation (if any) could create this scenario, but I wish it would get discussed more.

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I was recently finishing up a book called The Top Ten Myths of American Health Care by Sally C. Pipes, and was struck by two examples that were brought up in regards to mandates ordered for the good of public health and what the perceived results were.

One, was the Nutrition Labeling and Education Act of 1994 that mandated nutritional and caloric info be printed on all food products.  The argument was, if people knew what they were eating, they would eat healthier.  As the book points out, from 1995 to 2007 “the percent of obese Americans increased by two-thirds.”

Second, was the example of the educational efforts at informing Americans of the hazards of smoking.  Pipes includes this quote from Dr. Daniel Horn who said, “You could stand on the rooftop and shout ‘smoking is dangerous’ at the top of your lungs and you would not be telling anyone anything they did not already know.”  In fact Pipes references a study that show smokers overestimate the potential health risk, with the average smoker reckoning their risk of developing lung cancer at 43 percent, when it is actually between 5-10 percent.  So even when people are theoretically “over-informed” on a hazard, they may still well participate in it.

These are clearly not proven causal reactions, but are certainly indicative of the fact that government intervention is not a panacea for poor public choices.  These two examples (along with our cigar smoking post) caused me to try and think of other areas where mandates for the public good go unheeded.  A few quick ones off the top of my head are:

  • Auto Insurance – Around 14% of drivers are uninsured despite the law requiring it
  • School truancy – By law children of a certain age are required to be in school.  However a quick search of truancy rates in public education will show that behavior does not follow the law
  • The Tax Gap – Close to $300 billion a year is estimated to be owed, yet unpaid, to the government.  There is good proof that as taxes increase people’s tendency to evade or avoid paying taxes increases
  • California cellphone law – Anecdotally, from what I see on the freeway and roads, I can attest to a severe refusal to obey this law
  • Long Beach water prohibitions – Again, anecdotally, I can tell you that people do not follow the rules laid out by the Board of the Long Beach Water Commission, such as times to water lawn, use of hoses for car washing, etc… despite our extreme water situation

I certainly don’t mean to imply that we should rid ourselves of all laws because they aren’t all followed 100% of the time.  I mean this just to show the gut reaction to regulate something does not necessarily produce the desired results.

That said, I would love for us to start to peel back some of the laws that affect personal liberty (ie. helmet laws) and exist solely to “protect” the very individuals that they regulate.  Would love to see more thought/examples in the comments.

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Since 2003 the FCC has enforced measures for Wireless Local Number Portability… meaning that we have the option to keep our wireless numbers if we decide to change carriers.  Previously, many people would stay with a carrier despite poor service or a bad plan because they didn’t want to change their cell phone number and the hassle that came with it.  This competitive measure helped ensure choice for consumers and forced providers to deliver better service or their customers would leave.  This is very similar to a proposal by many in dealing with health care subsidies and rules given to employers.

Currently, employers are not taxed on the wages they provide in the form of health care, therefore many offer that in lieu of real wages of the same amount paid to their employees.  However as more people have come to enroll in their company plans it is becoming more and more like the cell phone portability issue.  Workers do not have the portability available with their plans, and may stay at their current job out of convenience.  In addition, workers who do not receive health care from their employer do not enjoy the same tax breaks as the companies, and are therefore subsidizing those who do.  On top of this, and as part of the tax deal with companies, employers are forced to include certain benefits in their packages that many individuals would not choose independently, which drives up the cost for the insurance – basically, instead of potentially receiving a higher wage, an employee may instead enjoy the insurance coverage for breast reduction surgery.

  • The Acton Institute has a brief article regarding this topic.
  • An even more in-depth and compelling case is made here, courtesy of The Heritage Foundation.
  • Also today, Thomas Sowell discusses a new book by Sally C. Pipes, The Top Ten Myth’s of American Health Care (free .pdf of the book available online here), specifically the political trend toward universal coverage.

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