Sunday, July 5, 2009

Healthcare in the Heartland

Government and Healthcare
By Bob Smathers

In the last 6 months, we have seen unprecedented government intrusion in the private sector in America. Government bailouts of banks and auto companies and talk of government mandated carbon taxes on companies that emit greenhouse gases is commonplace in the news. Congress is considering bills to expand the powers of EPA and the Food and Drug Administration by removing the word “navigable” from the Clean Water Act and by passing legislation called the Food Safety Enhancement Act of 2009 (H.R. 2749) to increase food inspections and expand oversight by the FDA over food producers. The Obama administration is also looking for government to be a major player in the health care industry by proposing a public insurance option to compete alongside private insurance options. Some economists feel that this will spell the end of healthcare as we know it in the U.S.

This unprecedented government intrusion in the marketplace will likely grow in the United States unless the citizens stand up say “enough is enough.” Millions are up in arms about recent developments as we have seen by the “Tea Parties” that are being held across the country, but millions of Americans do not have a problem with the latest developments or are unaware of what’s going on. It makes one wonder how economically literate people are? Many seem to think that government takeovers are the answer, but history tells a different story. Do people know their history? Do they understand economics? Maybe the entitlement mentality has become so ingrained that we as a nation of free people have taken for granted those principles that our founding fathers fought and died for.

President Obama is proposing sweeping changes in healthcare. Some of the proposed changes are positive such as improving information availability by computerizing patient records, providing incentives for doctors and patients to pursue preventive care and expansion of medical education. These proposals will help lower the costs of healthcare. Other proposals are not so good such as a government-sponsored insurance option that would compete with private insurance options. Implementing this would put us one step closer to a single payer system, or a government administered system. Currently, there are an estimated 46,000 individuals (16% of our population), (U.S. Department of Health and Human Services Survey, 2005) who are uninsured in the U.S. and this is being touted as the reason for nationalizing healthcare in the U.S. We already have a government sponsored health option for our elderly that is on the verge of insolvency.

It is a fact that innovation and entrepreneurship in the field of medicine has improved the well-being of our citizens beyond anything that could have been imagined 100 years ago. However naysayers in the U.S. have demonized the free-market suggesting that medical care costs have skyrocketed beyond the average taxpayers’ ability to pay, demanding government remedy. The reality though is that government intervention in the market place always stifles innovation and brings about scarcity. It is government policy that leads to most slowdowns in the economy through market interference. The foundation for the recent housing bubble was laid down by long-lived easy money policies enacted by the Federal Reserve Bank and government policy that encouraged Freddie Mac and Fannie Mae to make mortgages available to millions of people who obviously could not afford them. Politicians who supported these policies are now shifting the blame for the mortgage crisis to the private sector.

The cost of medical care is high, but grossly overstated. Yes, Americans are paying more for medical care, but because of innovations and a free-market economy, they can afford to pay more and they have many more options available to them. Look how advanced the medical field is now compared to 50 years ago. In the 1960’s heart bypass surgery was not available at any cost. People died from blockages in the heart that can now be fixed. Other advances that were unheard of, or were in their infancy in the 1950’s were knee replacements, hip replacements, lumbar disk replacement, arthroscopy, MRI’s and the list goes on. People lived with severe arthritis and pain back then and died younger because of it. Now these developments and many other life saving procedures are performed routinely thanks to free market innovation in the medical field and we live longer!

Unfortunately, these incredible blessings in medical technology are being taken for granted because claims that medical costs have increased have convinced voters that the free market system has failed to provide acceptable medical care. The free-market opponents have somehow gotten the ear of the public and convinced them that because they are paying more for their medical care that it costs substantially more. People are confusing to some extent the increased spending on their health care with the costs of care. In reality, free markets have increased individual wealth, increased vastly the number of medical procedures available to individuals, and made medical care worth more than any other time in history. Yes, costs have increased, but so have the medical options that people have available to them.

The fact that 16 percent of our population is uninsured and do not have access to adequate medical care is a problem, but this problem doesn’t warrant turning our healthcare system upside down and socializing it. Socialization will bring about scarcity and discourage innovation. All we have to do is look to our neighbors to the north to figure this one out. The Canadians have had a government administered healthcare system for years now and yes, access to healthcare is the same for all Canadian citizens regardless of their ability to pay, but scarcity and innovation is a major problem and so is their ability to keep doctors. Many of their young doctors are educated in the U.S. and some choose to stay in the U.S. and the most obvious reasons are higher compensation and less bureaucracy. Canadian healthcare works great from the standpoint that it is available to all regardless of their ability to pay, but the waiting lines are long. The Canadian system provides good routine healthcare, but breaks down for specialized care. For example, the wait for hip and knee replacement surgery is a few months in the U.S., but can take 1 to 2 years in Canada. Is this the kind of healthcare we want? It’s no secret that Canadians who can afford it, travel across the border to the U.S. for specialized care.

What then can be done for the uninsured? Government can help lower the costs of medical care by providing incentives, but a public insurance option that will compete with private plans is not a good thing. Hospitals need to lower their costs for the un-insured and so do doctors. Government could offer tax credits for those who cannot afford insurance in an attempt to get them on insurance plans. There are options that should be looked at before letting the government turn our health-care system upside down.

Has the free market really failed the health care industry or has government failed it? This is the question that people need to be asking. The foundation for what is going on in the healthcare industry was laid down by government policy. Because so many in the U.S. are insured, or covered by Medicare, patients are divorced from the true cost of healthcare. Patients do not pay the true cost of their healthcare, they only pay a portion of the cost through their insurance plan or Medicare plan, so the incentive to economize is not there. Medicare and private health insurance plans create this diseconomy problem, but this is a subject for another article.

Bob Smathers is a the North Idaho Regional Manager for Idaho Farm Bureau, and is a former U of I Economist

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