The Parse

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Posts Tagged ‘price controls

Health care scarcity by design

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Buried in a NYT story on rising violence in hospitals and poor health care in China is this gem of an economics lesson:

Some experts fear that the newly opened spigot of government insurance money will inspire further excesses, rather than reduce the financial risk of illness for most Chinese.

Wait…health insurance (specifically, government-funded health insurance) leads to excesses?  In this case excesses refers to people utilizing health care resources far beyond what they actually need to get well.

Primary care is scarce, so public hospitals — notorious for excessive fees — are typically patients’ first stop in cities, even for minor ailments. One survey estimated that a fifth of hospital patients suffer from no more than a cold or flu. Chinese health experts estimate that a third to a half of patients are hospitalized for no good reason.

Primary care is becoming increasingly scarce in the U.S., and thanks to Obamacare, millions more people will be pushed into the system without a reciprocal increase in health care providers — doctors, nurses, hospitals, etc.  This is a simple increase in demand with no offsetting increase in supply.  For those of you with a basic understanding of economics, such scenarios, regardless of where they occur in the economy, result in higher costs and higher prices.

Part of the reason health care costs (and, thus, prices) have continued to increase in the U.S. is because of health insurance.  Insurance works to insulate individuals from the costs of risks.  In the case of health insurance, it also  insulates people against the cost of using a good or service.  We are all more likely to use a good or service if we don’t really feel like we’re paying for it.  When health insurance premiums come out of our paychecks, we’re less aware that we’re actually paying for something.  Then when we go to a doctor or buy prescription drugs, we only have to plop down a $10 or $20 copay, assuming any deductible has been met.  Our insurance picks up the rest.  This buffer between individuals and the cost of health care leads to more people using more and more goods and services, which pushes up the prices.  There are only two possible solutions to change this dynamic: make people feel more of the burden of having to pay for health care, thus forcing them to make wiser choices; or, have some other entity (say, government) make these choices for us.  Guess which way we’re headed?

My prediction: Obamacare will result in more people clamoring for fewer health care resources, which will push up prices and increase insurance premiums.  Democrats will then complain about the “excess profits” of health insurance companies and force them to lower their prices, even while their costs continue to increase.  (Actually Medicare already uses price controls and Obamacare makes them even more draconian.)  Soon enough being in the health insurance business won’t make sense to anyone who actually wants to put food on their table.  So who will step in?  Why, government, of course.  The “public option” will live to see another day.  And all of this is by design.


Written by The Parse

August 13, 2010 at 10:02 am