What is the Real Problem with Healthcare in the US

As I've noted in other hubs, economics is the only rational way to look at how goods and services are provided to people. In short, people demand certain goods and services and businesses are in existence to supply those people with what they demand. You can chart this using a coordinate system, one line showing supply and the other line showing demand. Where these two lines intersect, you get price. It's interesting to note that markets function without any sort of oversight, they really do self regulate.

Okay, now let's talk a little bit about people. Really, when you get right down to it, economics is about people making decisions. Everyone has a certain value system by which they make decisions. And each of those value systems are different depending on the person. That is significant because everybody values things differently. This is why any sort of top-down, socialist, centralized system fails. Socialized systems attempt to control costs by standardizing output, which means that some people's needs will not be met. A free market entrepreneur, on the other hand, attempts to meet the needs of as many people as possible because in that way they maximize their earning potential. So inherently, a free market has to specialize, they cannot adopt restrictive standardization like public entities have to,

One thing to keep in mind is that free markets drive prices down. That's the effect of competition. Because you have so many players trying to get as many customers as they can, the easiest way to do that is by cutting your prices. Price is King.

So we talked about free markets, what happens when you start instituting regulatory control? Well, in that case depending on whether you're messing with supply or demand, certain consequences will follow. If you look at the restriction of supply for example, you find that price it invariably goes up. Also important when discussing the effects of interference is a concept called elasticity.

Elasticity describes the "stickiness" of supply or demand based on prices going up or down. Generally speaking, an industry that is mature and has many players will have an elastic property, which means that the price will cause demand to go up or down rather quickly. This is in opposition to inelastic markets, oil being a good example of this. Many people can remember when gas prices in the US went to almost 5 dollars a gallon. Up until that point, there were a lot of pundits who were confused as to why people were still buying gas and increasing the number of miles they drove. Within inelastic market, it takes a while for price increases to affect demand, that is why it took so long for people to change their driving habits.

Why is this important? Well healthcare is also an inelastic market. This is what people really mean when they say, healthcare is a right. What they're commenting on is the inelasticity of the market.

You pretty much can't open up a newspaper today without seeing an editorial, commentary, letter to the editor that is saying something about the high cost of healthcare. And they have a point. But remember, price is a function of supply and demand. If costs continue to escalate, there must be some mechanism at work. What could that mechanism be?

For well over a century now, the American Medical Association in conjunction with state medical boards and medical schools have been limiting the number of students they will accept to medical school. Now at first, this sort of thing won't have much of an effect. After all, it takes about 10 years to mint a doctor. Later, however, this becomes significant. Since the supply of doctors is effectively restricted, you start to see the price of going to the doctor increase. Now when times are good, it doesn't really matter because people are willing to pay. When times get hard, however, that's when we start to have problems.

Remember, in a free market prices fall. But in healthcare, we have prices that are rising. We've discussed what happens when you restrict the supply of something, price goes up. Now we have a mechanism for why price is going up. Simply put, remove the restrictions on the number of medical students who can apply. Have standards, by all means, you want the best and brightest.

So why are we having a debate on this? Well simply put, the medical field doesn't want you to know what they've been doing for over a century. They've been artificially jacking up their paychecks, at the expense of their patients.

One of the main ways, this is been hidden from people, is through insurance. During World War II, the government allowed insurance companies to begin writing policies to cover healthcare. The recent insurance fails, in these cases, it's because insurance should only be for catastrophic events. Having homeowners insurance in case your house burns down, for example. But that's not how health insurance works. We use insurance to pay for things like doctors visits.

That last is particularly important. It has to do with subsidization of cost. If you have something paid for, you don't personally pay attention to the cost. One of the things this is allowed doctors to do is increase their rates even further. This doesn't directly affect an individual, but it does affect the insurance company. Over time, an individual is affected by either increases in premiums or decreases in services covered.  In effect, universal healthcare is no different than other types of insurance especially those that concern themselves with healthcare. In the beginning, it might work, but sooner or later either premiums are going to have to increase or services will have to be cut.

The big problem with government run healthcare is that the only way government can raise money is in one of three ways. The first is direct taxation, that people don't like being taxed. The second way is through selling bonds. The problem with that is that we have issued so many bonds that it is more and more likely that we will have to default on those bonds, so people are buying less of them. The final way governments can make money is by creating new money by either printing it or issuing credit. That has the unfortunate effect of causing all prices to rise and make it harder for people to live.

It isn't all doom and loom, though. You can choose to ignore the economic laws of the universe, but the economic laws of the universe don't ignore you. One of the ways in which the demand for health care is being that is indeed increase of Physician Assistants and Nurse Practitioners. In fact, I would expect this field to increased so much that they will challenge the political monopoly of providing health care that doctors have enjoyed for the last century.

One of the main ways you see government interference in the marketplace is in the development of drugs. Pharmaceutical companies, at this time, are given a monopoly for up to twenty years.  Now a counter argument to getting rid of pharmaceutical monopolies is that it costs so much to create a drug that pharmaceutical companies will go out of business. That's stupid. What will wind up happening, is that the smart pharmaceutical companies would have to screen their possible drugs much better than they do today. In addition, companies and provides lab testing services, human trials, etc. would have to decrease their prices, otherwise they would go out of business. The entire field would seem drastic cuts in cost and this, in turn, would decrease the cost of drugs.  The only people hurt by that are the ones who right now are profiting from keeping their prices artificially high.

It's funny how the supporters of government action castigate the capitalist system for supposedly gouging people, yet the entire basis for government intervention in the economy gouges people. A free market will not allow a monopolist to arbitrarily jack up their prices. Because, sooner or later some competitor sensing the demand for a cheaper product, will move in and undercut the monopolist. Such is not true, with a government granted monopoly, all the government has to do is make it illegal to move into that market or make it so expensive that a startup will never raise enough capital to compete in said market.

So what we go from here? Honestly, any reform that comes from the government whether or not  there is a government funded portion or not, will not fix the problem. Heck, most of my family in Mexico are physicians or nurses, I'm very much considering helping them set up a medical tourism practice. This is the dirty little secret of socialist medicine that most people don't mention. If you don't want to wait or if the procedure is not available or is too expensive for you to pay for yourself, in many cases it's cheaper to go on vacation to Mexico, Cost Rica, Nicaragua, India, get a procedure done, recover there and go home.

Since Congress isn't ignoring the true cause of out-of-control health care costs, it may not be long before people go elsewhere for affordable health care. Which is great news for my family, but horrible news for people in the US. I really doubt that people living paycheck to paycheck are going to be able to afford to go on vacation in order to get medical procedures done. And people the current legislation in Congress is going to hurt are the people who can afford it the least.  Educate yourselves people, we've been lied to this whole time.  Unless we get smart about this, we're giong to suffer for it.