Friday, April 23, 2010

Horses and Barn Doors

Well, the “health care reform” is certainly working out well. Congress is worried that with all of the reforms requiring more payments by insurers insurance premiums are going to rise (now is a really good time to think about that, isn’t it), so they are considering legislation to regulate premiums. Where have we heard this before?

Well, one place we heard it was during the Nixon Administration. He didn’t like rising prices so he tried imposing price controls. That, of course, led to massive shortages and rationing. Who could have predicted that if producers could not sell their goods at a profit they would stop producing their goods?

More recently we have seen it in Massachusetts and, amazingly, specifically with respect to health insurance. That state implemented a “health care” plan that is remarkably similar to the one just passed by the U.S. Congress and their legislature has been horrified to find that, as insurance companies have paid out more and more to cover medical bills, they have raised premiums for health insurance. That, of course, was not predicted so their legislature did what the U.S. Congress is now doing, imposed legislation to reject premium increases. The result was entirely predictable to everyone except the Massachusetts legislature; insurance companies stopped issuing new policies.

Just as no one in the Nixon era predicted that producers would not sell their goods at a loss, no one in this era has been able to predict that insurance companies will not sell policies at a loss. We have some real geniuses in our legislative bodies.

Of course, some of our columnists are not all that bright either, as the old business about health care costs and consumer payments keeps cropping up. From Becker and Posner we get the old argument that the reason this country spends so much on health care is that the consumer pays too small a portion of the cost; that if the consumer had to pay more out-of-pocket he would be more aware of the cost and would not demand as much in the way of medical care services.

Yeah, right; rectal exams are free, so I want two of them.

The most important needed reform is an increase the fraction of total medical costs that come from out-of pocket expenses in the form of large deductibles and significant co-payments. Out-of-pocket spending accounts for only about 12% of total American spending on healthcare, whereas the share of out-of–pocket spending is over 30% in Switzerland, a country considered to have one of the better health delivery systems.

I’m not sure how they argue that if a family cannot afford the $1800 annual cost of health insurance they will be better off paying 40% of the $30,000 hospital bill to repair a broken femur.

If their theory were true, then health care spending in France would be far higher than ours, since the consumer portion of the cost is precisely zero, but it is actually about one-third of what we spend. Canadian out-of-pocket is zero, and they spend far less than we do. British contribute zero, and spend less. Japanese out-of-pocket is zero and they spend about one-third. And all of them get better results than our system does.

We keep trying to drive down cost by arguing about who will pay.

Think, for a moment, about how truely absurd that actually is. If a bunch of us go to lunch at the Waldorf, are we going to make the total cost of that lunch cheaper by splitting the bill? Will it be cheaper if Bill pays the tab rather than if Tom does? Will it cost more if I write a check than if I pay by cash? Might it have been cheaper if Jack had worn a blue shirt rather than that awful red thing?

That the Waldorf charges outrageous prices never enters the conversation.

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