Common Belief vs. Reality
Part 1: Health Care
“Health care is indeed such a wonderful relief to your wallet. I do not know what I would do without this insurance; it is such an auxiliary resource. This insurance allows me to be calm when my children are at play. If any member of my family is injured I am confident that we will always receive the correct medical treatment and at almost no expense. I just know health care will always be accessible, physically and economically.” Are you sure you sure about this? Here are some reasons why you should stop believing that.
The origin of health care insurance and nontaxed employer-provided medical care goes way back to the 1940s. In World War II millions of men were drafted into the army, there was a shortage of labor, and wages were frozen because the government had said they could not be raised. Businesses had to do something different to attract labor. During this time, firms came up with the idea and created employer-supplied medical insurance. Employees would now be partially covered medically by the firms they worked for. The government saw this and it did not consider it a wage increase, thus, there was no extra tax charged for it.
When the war ended, labor unions made this type of medical insurance part of their contract demands. This, of course, placed pressure upon employers who did not want to be unionized to supply the same type of benefits. Labor unions basically narrow down the freedom in options employers have to wage, improve working conditions, hire workers, etc. This ultimately leads to slower economic growth. Today, unions can also control the decisions workers make in a company to join or not join a union and/or pay dues, because of the majority of votes. Therefore, companies that didn’t and don’t want to be unionized, for obvious reasons, felt and feel forced to also provide medical insurance.
Now, the matter of fact is that if I am paying, say, 80% of a car’s price, any car you want, and you are only paying 17% of what it costs, will you be more or less conscious of the price of the car? Also, if you own the car company and you know that your customers will care the same if a 30,000 dollar car costs 15,000 dollars more than its original price, would you prefer to win 30,000 dollars or 45,000 dollars out of the car’s sale?
The same thing happened when people started to become accustomed to get their health care paid by a third party, in this case, the company’s benefit. Gradually, medical prices began to increase as employers paid for the employees’ expenses. Why? As I said, when there is someone else paying for us, we are very likely to be less mindful of the cost, and choose the first thing they place in front of our face without comparing prices and researching which things are more convenient to our wallets and to our beings.
Now, you may ask, “Why doesn’t the company stop the employee?” Well, it is not that simple, because privacy concerns do not allow companies to keep a watch on which specific medical treatment the employee obtains and at what price. It is not like in a business trip, where if the employee chooses all the most expensive amenities, he can get reprimanded by his employers for doing such things. In the matter of health care, it is practically impossible for companies to advise the employee into taking or not taking certain treatments. In this way, they enable employees to keep deciding where and which medical treatment to take and at a price they will not pay much attention to. This, in turn, will keep medical prices growing and growing, along with insurances.
Another fact to take into account is that when you pay the full amount for something, the person or people providing you with such product or service will give you exactly what you need and it will be more difficult for them to deceive you on a price. I have heard doctors’ testimonies, specifically of those who work in neighboring countries with the United States. They said that when Americans came to attend themselves with these foreign doctors and showed them the medical treatments they were offered and told to need in the United States, the doctors were astonished in witnessing that almost half of the treatments were not needed by the patient. In addition, let’s say that the treatments were going to cost 20,000 dollars total in the United States, and in these neighboring nations the same treatments would only cost 5,000 dollars and at the most expensive price they could offer.
When special tax funds for medical services and other third party payments exist, we notice that the people receiving the treatments are less careful of prices, and the people offering the services will charge at higher rates and practically not care about the patients’ absolute wellbeing. These are highlights from the 2009 Drug Abuse Warning Network (DAWN) related to drug emergency department visits. The last one proves that doctors are probable to being careless on telling the patient what they need when the patient itself is not completely paying.
- In 2009, there were nearly 4.6 million drug-related emergency department (ED) visits of which about one half (49.8 percent, or 2.3 million) were attributed to adverse reactions to pharmaceuticals and almost one half (45.1 percent, or 2.1 million) were attributed to drug misuse or abuse
- In 2009, ED visits resulting from the misuse or abuse of pharmaceuticals occurred at a rate of 405.4 visits per 100,000 population compared with a rate of 317.1 per 100,000 population for illicit drugs
- ED visits involving misuse or abuse of pharmaceuticals increased 98.4 percent between 2004 and 2009, from 627,291 visits in 2004 to 1,244,679 visits in 2009
- ED visits involving adverse reactions to pharmaceuticals taken as prescribed increased 82.9 percent between 2005 and 2009, from 1,250,377 visits in 2005 to 2,287,273 visits in 2009
Medicare and Medicaid programs of governmental medical supply are perfect examples of third party payments. As we already know, the money the government spends to provide health services comes from taxpayers who unwillingly gave their money away. Who knows what the taxpayer could have done with the money if he wouldn’t have been taxed? Let me tell you something, he or she could have either saved it to benefit the economy in the near future or spent it in something that would have nourished the economy in the present, whatever the case, we will never know because it has been taken away from them.
Anyway, back with the health care subject, in the year of 1960 the government through Medicare and Medicaid only covered 21% of medical expenditures with consumers paying 55% of them. This evidently meant that the government was taxing less for health care services and that the people were a bit more cost-conscious of medical services. However, in the year 2000 the government now covered 43% of the services and consumers only 17%. Consequently, this meant that people became more careless of prices and this took prices to keep rising.
The federal government also tried to push these costs onto others and now doctors and hospitals were not being paid what they were owed by the government. Thus, the people offering the treatments began to charge private insurance companies a lot more than what was accustomed. If someone is charging you more for something, then you need more money to pay, so this caused insurance prices to increase dramatically.
The demand of medical services has also been expanding astonishingly, obviously, because when you pay less for something, then you are going to demand more of it. If I gave you a chocolate bar for 50 cents but someone else paid 40 cents for it and let you pay only 10 cents, you are going to want at least 4 more chocolate bars to equal the price of one chocolate bar. Nevertheless, as demand has increased, the supply of doctors and medical services has been kept artificially low.
The American Medical Association, for example, restricts the number of medical candidates by means of its accreditation process for medical schools, with its decisions being ratified by the state government. In other words, in order for a medical school to be recognized as legitimate, it has to be approved by the American Medical association, who also has to be approved by the state government. In the end, everything ends up being the intervention of the state. This intervention is excused by the claim that we need to make sure that we have the best doctors available for the people. Although, I bet most people don’t know that 19 states are limited to having just one medical school, this limits the outcome of doctors available and as logic can soon let us know, when there is less of something, like gold, the value of it is greater and the accessiblity is lesser.
But wait, there is more. There exists a “certificate-of-need” (CON) regulation that establishes an authority to existing hospitals to decide whether or not the town needs a new hospital and restrict new competitive opportunities. If I own an ice cream store in one of the hottest places in the nation and I am the only provider of such refreshments within miles and I had the opportunity to apply a CON regulation to other men and women that would want to open an ice cream store near me and compete, I think that the great majorities answer would be, “No we don’t need a new ice cream store, or hospital, or whatever. Thank you very much.” Without competition and in a very hot place, you can charge high amounts of money for your ice cream that no one will bother paying and become a very wealthy person just by selling ice cream.
That is not all. Also, Americans may not purchase medical insurances that originate outside of their state, this narrows down the possibility of competition, and competition is good because it lowers prices. The state government then applies upward pressure on insurance companies’ policy prices by giving them mandates that require the companies to cover particular disorders and/or treatments. This creates higher premiums and less consumer choice. People forcibly must “insure” against the need for hair implants or massage therapy, which are examples of state mandates.
Not all people are bald, or stressed out, every organism is different and every person is unique. Hence, everybody will need different policies to choose from and be able to insure against things he or she really needs and pay the amount required to supply those specifications. However, they can’t because the state has mandated the insurance to obligatorily provide these treatments. How many mandates has the state made? Well, between 1979 and 2009, the number of mandates rose from 252 to 2,133; this will obviously increase insurance prices.
Today we have Obamacare, such a wonderful proposal by the government to offer small businesses and less wealthy people the opportunity to buy insurances. Notwithstanding, none of the plans offered by Obamacare provides only catastrophic coverage. All plans cover even the routine health expenses, but it is the same thing as insuring against something you know is going to happen. This will out of doubt make everyone less cost conscious as ever.
Who insures just to be measured in height, weight, and blood pressure? More specifically, who buys a huge package of insurance to pay for things you will never need or to pay for things you can pay out of your wallet? Don’t you think you could save a lot more money by just buying a pack that covers catastrophic health events, like a heart attack, a car accident, and things like these? Don’t you believe that if there was a high-deductible and a plan that covered only for catastrophic health occurrences put downward pressure on insurance prices; people would become more cost-conscious; and still receive the necessary amount of care that people with more standard insurance policies receive?
The free market would lower costs of health care and make people more cost-conscious and make doctors care about the wellbeing of their patients. If we offered employees the opportunity to choose from continuing to receive the employer-provided medical insurance or get tax-free cash that equals to the average amount of insurance it would give them more freedom of what to do with the money. If they offer you an insurance of ten thousand dollars, they can give the option of keeping the insurance and not have the money in cash or have the ten thousand dollars extra in your salary without going through taxation (taxation would end up making the ten grand a total of about six thousand dollars). Instead, you get to keep the whole ten thousand in your pocket and decide what the best thing to do with them is.
This would help employees realize that insurance is not free, but taken out of their salaries. By now being able to choose from having the money in cash, they would become more mindful of costs than ever before and begin to search for the most economic services. This would ultimately lower health care prices in a substantial manner.
There are many solutions that enable a more proper way of handling health care and insurances like offering people at age 65 the choice of giving up all federal entitlement benefits in exchange for complete immunity from income taxes, estate taxes, and gift taxes for the rest of their lives and live out of their salary. All solutions are only capable of being performed in a society where there exists little to no government intervention, like the one the free market proposes.