City Journal Summer 2014

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Summer 2014
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Paul Howard and Yevgeniy Feyman
Health Care, Unsolved « Back to Story

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My whole point was (a) medical schools keep the market under supplied to keep the prices up and (b) Obamacare is not the solution, if there is any solution for government to be involved, it is to increase the number of Doctors and Dentists. Sponsoring domestic students and breaking cartels, and increasing visa'a for foreign trained Doctors.

Too often we confuse being private with a free market. There are a lot of cartels about, look at the horse meat scare in the UK. I noticed the factory in France supplied a major UK brand and a cheap discount retailer. My bet would be they where the same product, just different packaging and marketing, and of course the branded one was double the price.

I have a Masters degree in Economcis, but I just don't believe a lot of the theories any more. We measure unemployment since world war two, and talk about the efficency of markets and interest rate policy. RUBBISH the definition of unemployment has changed so much the figures are meaningless. Unemployed was less than 16 hours paid work per week, now it is one hour per month paid or voluntary, by OECD definition. How is it possible to compare unemployment rates across this level of change in definition. Any measures since 1945 or before are just not correct, unless you correct for the variation in measurement. See the excellent work on Shadow Economics.

Reagan and Thatcher were right, economics is simple. Make as much private sector as possible, and the rest public sector and efficient. Within private sectors cut cartels up, within public regularly recruit in private sector managers and keep it as small as possible. Balance books, don't borrow unless you can pay for it. Get people working, return to Classical Economics and bin Keynesianism and Neo-classical Economics, they are socialist and Plutocrat pressure groups.





Re: Millions of newly insured, healthy people will flock to doctors’ offices for annual exams they don’t need.

If they're healthy they won't bother. Going to the doctor is a hassle and takes valuable time out of one's day. While there are some true hypochondriacs out there, and elderly shut-ins for whom the occasional doctor trip is the high point of their days, most of us only head to the doctor's office when we have something wrong.
@pied piper - One of your comments is stuck in a logical fallacy:
"But medical care/costs cannot be categoried along with "groceries". First of all, they are sudden and unexpected. Second, they can be life-threatening. Third, they are monumentally expensive even for the most routine services."
On the one hand, you start with "they are sudden and unexpected" and by the end you are talking about "routine". Some medical costs are sudden and unexpected (eg a broken leg), but many are certainly not - eg. someone with hypertension getting their daily blood pressure medication. I don't think there's anything contraversial about that. There is an improper generalization which produces a contradiction. That failure of distinction is at the heart of many of the comments here.

Now I ask myself why ACA overlooks this difference? Why does the government think there is no significant difference between providing emergency room care to someone in a car accident vs. someone getting birth control pills ($4/month at Walmart as someone pointed out). Why the distinction between birth control pills and condoms, and none between birth control pills and cancer treatment? Does this make sense? And what is the benefit of spending $10/month on paperwork about $4/month birth control pills?

That distinction is what you call "greed".
JA -- you and others have highlighted just another example of how the government -- or special interest groups coddled by the government -- either causes or condones practices that put arbitrary constraints on the market for medical services.

Like you so aptly pointed out, Reagan's comment -- that government is the problem -- is the real issue. But I fear that with the Obama Administration we are near, or may have already passed, the tipping point. It's a lot easier for people to say that they government should take from others and give to them, rather for them to than go out, get a job, and become self supporting.

I'm putting on my flak jacket now...
@ Stuart Graham

You are omitting the fact that there are many, many doctors in the USA who - American or foreigner -who went to medical school overseas. These graduates come here, pass an exam, and become licensed doctors.
This strongly suggests that US medical schools turn away thousands of well qualified students, and do not think for a minute this is not intentional.
The medical cartel here in the USA has striven for years - and still does - to limit the number of doctors and this policy is supported by US govt. policy to the detriment of the citizenry.

The shortage can easily be eliminated by fast tracking QUALIFIED foreign trained doctors to quickly obtain citizenship and quickly allowing them to practice their craft here in the USA. The US medical cartel will scream bloody murder, but that is to damn bad.

Also what must be done is to prohibit companies from offering to provide any sort of medical insurance; allow medical insurance companies the ability to provide their services across state lines, allow people to choose whatever level of insurance (including zero) they desire, and get the government the hell out, TOTALLY, of the medical business. Also, doctors must be allowed to take cash payments for services, to take patients with no insurance and allowed to be INDEPENDENT entrepreneurs.

It is our corrupt, dishonest, criminally negligent, wasteful government that has totally screwed up the delivery of medical services here in the USA.
The mostly millionaire ruling elites in government, that have devised these destructive policies, have the political connections and economic wherewithal to always have access to the best care and THEY will never be subjected to the whims of the bureaucrats that will populate the death panels.

As Ronald Reagan said, THE GOVERNMENT IS THE PROBLEM. Everything they touch, they destroy, and it is the citizenry that gets royally screwed over.

Food, rents, housing, cars, appliances, electronics, clothing, water, gasoline, heating oil, utilities, airplanes, ships, trains, etc etc. - damn near everything that is essential to modern life - SOMEHOW, SOMEWAY, is readily available, without the criminal elites in Washington "ordering," or "dictating" how these products/services must be supplied.
And where these criminals do step in to maintain "order" the result is ALWAYS the same, HIGHER PRICES AND SHORTAGES.

We need simply to eliminate about 85% of our government bureaucracy and get rid of them ASAP. They are destroying the lives of millions of working families.
Of course, it is theoretically efficient to cover routine and preventative care, to encourage people to monitor and take care of problems early. Just like with your car. The problem as I see it is that too many of the "preventative" medical practices, such as cholesterol, blood pressure and many diabetes medications are worse than useless, on net (according to best data.)

Sadly, at current level of medical technology, probably the only major preventative measure which could dramatically impact health care costs is significant dietary improvement, which is a libertarian no-no, and in any case, ain't going to happen.
Stuart Graham -- your concerns can (and probably will) be remedied by increasing use of Physician Assistants.

And perhaps there is another "tier" of professionals who can satisfy additional requirements if necessary.

Just because there is no "perfect" free market, that doesn't mean that a plan like ObamaCare is better, or the only alternative.
And when ObamaCare does fail, it will forever be a reminder of its namesake, and what a miserable failure of a President he will have been.

And if we're lucky, future voters will learn the dangers of electing a President whose only real experience is in playing politics. But it will be a painful -- and expensive -- lesson for us all.
He quibbled by saying, “may.” But, ObamaCare will not survive. It is a financial, political, economic, and moral monster. Its father was rank corruption. Its mother was lies. It was fittingly born in the middle of the dark, dead night. It survives only by outright deceit and demagoguery. Eventually, it will collapse and probably help to bring down the whole house of cards called U.S. government finance. The only open question is how many American businesses, hospitals, medical doctors, and human lives it will destroy in the process.
OBAMACARE WILL FALL APART AND DIE IT WILL NEVER SEE THE LIGHT OF DAY....
How is $20,000 per year for a family of 4 "affordable" when the average family only makes $43,000 per year before taxes, rent, food, and everything else? Seems like it should be called - The Unaffordable Care Act - but then we've had that for years. The only difference is now they are going to make you pay for the privilege of not being covered... Gee, thanks...
Joe G.
A free market can and does still have what are called "barriers to entry" to the market. These can be high or low, high in the case of a medical degree or the millions of dollars to build an airport, low in cleaning or gardening services.

The result of this situation is that some markets by definition are more competitive as the product is a simple commodity. Firms avoid this excessive competition with restrictions, many of these are technological, legal patients or marketing/ branding to convince us to pay more for X over the other competitors.

Would you say there isn't a free market in consumer electrical products? BUT not all manufacturers can sell their products they need to go through safety checks to be allowed to import the product. We rate the small price increase that this restriction in supply and therefore cost, as aceptable, as the result of not having these safety standard would be increased deaths.

The medical associations are saying we have a high standard required to be a doctor. The doctor will work in a free market, but the market is naturally restricted in supply of doctors, as not everyone can enter this market. The barrier to entry is the medical degree, a high barrier. Price competitivity between doctors (due to a restricted supply due to the higher barriers to entry)will result in a market that is less cut throat that cleaning services with few barriers to entry.

Therefore what I sought to say was, the medical associates deliberately make the obtaining of a degree excessively hard to keep the market under supplied. I am not calling for make medical degrees easy, but by making them (I would suggest) excessively hard and limiting places the supply is restricted.

You refer to a perfectly competitive market, with almost all people free to enter or leave the market, all products transparent to the buyer and seller. I am sure cleaning is much like this "ideal type" market.

A complex market like medicine I doubt will ever be a simple perfect free market, as the customers don't fully understand what they are buying, they don't have medical degrees or hugely expensive medical equipment at home.

If the demand is a constant curve, the medical associations by limiting the number of doctors and dentists shift the supply curve to the left(do you need a first degree in an unrelated subject?). I thought a reduction in supply, leads to a price increase and reduction in demand met by the market mechanism.

I would argue not for Obamacare, but to look at how many Doctors and Dentists we train each year. Their asociations I believe do their best to keep the market under supplied.

If government is to be involved in the market at all, then I still think it shoudl be involved on the supply side and increase the number of Doctors and Dentists.
JA -- to "answer" your question, food is available and affordable with government intervention because there is a free market in food.

And the way society provides food for poor people is to give them food stamps (i.e. "vouchers"), and let them spend them as they wish. Their decisions as to what specific foodstuffs to buy, and at what prices, along with those of all other food purchasers, provide the best (not perfect, but the best) signals to food providers. This keeps food costs down.
Stuart:

Unfortunately, like many people, you don't understand what a free market really is.

In a free market, there is no "deliberate reduction in supply of medical competition". In a free market, there is, by definition, no outside influence as to the supply or demand of a good or service.

So you can't characterize our current situation in health care as a free market failure. It's actually just the opposite -- a failure of arbitrary and capricious control of a market.

And Obama believes that there isn't enough "outside control" of the health care market -- and that's his (huge) mistake. Having said that, it's understandable because, other than being a superb politician (his sole skill), he has no real-world experience, and little in the way of accomplishments.

As a result, his proposed solutions are unlikely to solve our real-world problems, and will probably make things worse, particularly for the poor.
I think that the reason that the free market has failed is due to deliberate reduction in supply of medical competition. The demand is there, the problem is a supply side one. The number of Doctors is kept below market demand, to ensure higher prices. Obama would be better to spend the money increasing the number of Doctors and Dentists. This increase would be the quickest cost cutter in the industry.
Finally, my brother is a Dentist (ex Dental Technican), he often says, people don't clean their teeth enough even when he tells them that 5mins x2 a day will save them thousands. A mutual friend is a Surgeon and she says over half the knee and hip operations she does are due to the patients being overweight and simply not exercising at all; that is effectively self inflicted. If they eat sensibly and walk for 20 minutes a day, they won't have needed this operation, they actually choose painful operations over eating sensibly and cutting down on the junk food.
Why is it that homeowners or auto insurance is affordable for the most part?
How come food is mostly affordable and readily available without resorting to insurance to pay for this "life saving" necessity?
What would happen if grocery shopping required a co-pay of $15 to $25 and insurance "paid" the rest?
What would happen if auto insurance paid for flat tires and new wiper blades and gasoline?
What would happen if homeowners insurance paid for routine house cleaning or lawn mowing or for utilities like electricity and gas?
Why is it that given the outrageous shortage of doctors - as demonstrated by the length of time to actually get to see one - that the "free market" has not stepped in to meet this shortage?
Well, clearly, the problem is our government - once again. They have totally screwed us over, AGAIN !! , and now they are going to "save" us by instituting a system that the USSR employed for 75 years in which ONLY the ruling elites benefited and the rest of the "masses" just got totally screwed over.
We have a doctor shortage BECAUSE the govt. has allowed the medical CARTEL to limit the number of doctors. This arrangement was struck to convince doctors to support implementation of Medicare in the 1960s.

If the free market was truly allowed to operate, medical care would cost 1/5 of what it does today and we would NOT have a shortage of doctors.

You can bet that when the death panels are up and running, the ruling elites (Pelosi, Obama, Durbin, Kerry, etc., + their propaganda arm, the media lefty elites) will have the connections and resources to exempt themselves from any and all provisions of Obamacare.
Obaacare may fall as a result of it's own weight. Crushing added costs of expanded mental health % medicaid coverage coupled with massive shifts from enrollees from employer funded plans to exchange subsidized plans coupled with the realization by millions of seniors that they are subject to widespread rationing may very well crush Obamacare. Unfortunately if the GOP doies not have a viable alternate on the table and well vetted or sought constructive changes along the way the door will be open to rush thru a Single Payers Plan or extension of Medicare to all.

It would be a error to view Obamacare and the law of the land yet we need to start talking about viable alternatives. The so called Ryan Voucher Plan may very well be part of the reason for diminished 2012 turnout and our loo and certainly is not a viable alternative.We might start with some of the ideas coming out of the House Doctors Caucus and add other good ideas submitted to the 2012 Tampa Bay Convention Platform Committee.
Albigensian, Thank you. Of course you are right. So is Delaware C., I'm afraid.
No one here seems to be addressing the author's argument- which is that what we call "health insurance" is not really insurance (as the term is used in other contexts) because it covers predictable expenses. If car insurance were like health insurance it would have to cover oil changes and tire rotations at no cost ("preventive care"). And it would be very expensive, as some would decide their vehicles would last forever if only the oil in them were changed every week or so (and please check the brakes while you're at it- how do I know they won't fail?)w.

When you look at medical services that are NOT covered by insurance (e.g., LASIK and similar eye surgeries) you can see competition work to reduce costs and improve quality- which stands out because (although commonplace in other parts of the economy) it is so seldom seen when it comes to most medical services.
I found this interesting: "the U.S. has the fifth-lowest percentage of health-care spending out of pocket—about 11 percent to 12 percent of total health-care spending—among OECD economies. (In Switzerland, which has universal insurance coverage, the out-of-pocket ratio is 25 percent.)"

Especially when I just finishd reading: "Qualified medical expenses that exceed 7.5 percent of adjusted gross income can be deducted if the taxpayer itemizes. ... (The 7.5 percent threshold is for the 2012 tax year. In 2013, medical expenses must exceed 10 percent of the taxpayer's adjusted gross income.)" From http://www.bankrate.com/finance/taxes/how-to-pay-no-federal-income-tax.aspx?ec_id=cmct_comm_finhp

All those folks who voted for Obama because they thought they'd get free stuff, will now have to pay 10% out of pocket before even getting a deduction. Who does that extra 2.5% hurt most? The sickest and the poorest.

Physical therapist


In the Soviet health care system of yesteryear, free to everyone, there were some novel treatments available for common conditions, like running a temperature. Patients would be given sheets of miraculous blotting paper to insert in their shoes, and sent home. Sometimes it worked.

Alternatively, you would go to a Party clinic - if you could.

The American hoi polloi, unwittingly, may face similar prospects. Just give it time, and run the printing presses with abandon. The rest will take care of itself. Forward!
Lake Worth:

You haven't read what I've said. You keep bringing up statistics about the inefficiency of the health care market. There currently isn't a FREE MARKET in health care -- that's the problem. And that's my point.

We'll just have to wait and see how well your beloved ObamaCare does in the real world, and over the long term. I just hope that there will be enough doctors around to treat all the baby boomers in their old age...

Like a typical Liberal, you refuse to think in a rational way, or argue in a fair manner, so I'm not going to waste any more time with you.

Re: Joe G

"Aside from the military, the government can't/doesn't provide any product or service as well as a free market private sector can."

That is ideology. Opposed to fact.

The public VA and CHC systems (like the much smaller Mayo Clinic) treat chronic care illnesses at 1/3 the cost of for-profit operations. Tri-Care does these illnesses at slightly more than 1/2 the cost, related to doing more work at hospitals instead of clinics.

Inefficient private systems cost the country going on 3/4 of a trillion dollars are year in contra-indicated procedures/drugs and for-profit useless referrals and phony billing practices. They make Bernie Madoff look like a pick-pocket.

The public systems cover almost 40% of the country's chronic care patients. They don't steal a dime. (Fraud by providers is on the for-profit side. Of course.) Seriously, the public health operations are manned by some of the most honest people you will find -- a pride of our American democracy !
Lake Worth: And I guess the Unions don't bribe politicans as well?

Simple solution -- if you bribe/pay off a politician, you go to jail. If you are a politician who accepts a bribe, you go to jail.

If you have sufficient free-market competition in the private sector, you'll have the best services at the lowest cost. But you must enforce the Antitrust Laws. Health care is no different than any other good or service.

Aside from the military, the government can't/doesn't provide any product or service as well as a free market private sector can. You will see this with ObamaCare. It will be a disaster, and the thing most (honest and fair-minded) people will remember Obama for.

Good intentions are certainly noble, but it's actual results that count. We have to live in the real world as it is and actually works, with human nature's virtues and vices -- not in the idealized world that we wish it to be. This is the biggest misunderstanding that virtually all Liberals I know have.
Re: Joe G

"What you and many people would call 'greed', others who have worked harder, worked smarter, gotten more schooling, and have taken more risks than the next guy would call being fairly rewarded for doing so. But that's admittedly a lot harder to do than complain."

-- Aetna scams $22 a claim.

-- Medicare does the same work for $ 0.89 a claim.

WTF are you talking about ??? Bribing politicians and running multimillion dollar lying attack ads every year has nothing to do with being smart or doing higher-gain risky investments.

Aetna's one of the pack.

Capitalism's weakness is its vulnerability to organized crime. Happens again and again. Pumping up claims processing costs and the other health scams are clear example of regulation-beating fraud. Covered by political bribes. What else ???
And here is a much better "free market" solution to health care than ObamaCare (which will ultimately fail miserably):

1) Require insurance companies to take everyone, regardless of pre-existing conditions.

2) Charge reduced premiums to people who demonstrate healthy living practices

3) Ensure free-market competition in health care/insurance from multiple providers, and enforce it with Antitrust laws

4) Provide government paid-for vouchers to poor people, which they can only spend on health insurance, health care, and preventative care. The voucher must pay for a credible, reasonable basic benefits package. The patient can choose which health care plan and providers, and pay out of pocket for additional services if they wish.

This system will do a much better job of allocating resources, and unlike ObamaCare, won't discourage people from pursuing careers in medicine, reducing the supply of providers.
Re this from the article:

-- "Because of Medicaid’s low reimbursement rates, though, the program’s beneficiaries have trouble finding doctors and specialists willing to treat them."

That is why God, Vermont, Ted Kennedy, and Bernie Sanders have pushed the Community Health Center system. 22 million patients served at 9,000 locations. CHC's avoid the false-reference scams and for-profit-no-benefit medical tests that drive up health care costs. The country could use 15,000 CHC's asap.

Veterans Administration achieves the same efficiencies.

VA and the CHC's do chronic care services at 1/3 the cost of the general run of for-profit insurance-ravaged medical organizations.

In the private sector we do have the wholly wonderful Mayo Clinic doing the same efficiencies and getting first-rate outcomes. At three sites now in three states. Using modern diagnostic tools and the best treatments -- that's the key, not trying to run up the bills.

(You folks could try to follow the economics literature. Evidence matters. Professional experience is available across the different sectors. Tracking performance within a sector ain't rocket science.)
Pied Piper:

What you and many people would call "greed", others who have worked harder, worked smarter, gotten more schooling, and have taken more risks than the next guy would call being fairly rewarded for doing so. But that's admittedly a lot harder to do than complain.

The sooner you and others realize that society has no chance whatsoever of changing this fundamental notion of human thought and behavior -- regardless of your desire to mischaracterize it -- and builds an economic system that recognizes it, the better the health care system will become for everyone. This is particularly true for lower-income people. Unless of course you plan to turn doctors and nurses into slaves -- which IIRC, Lincoln outlawed.

You may perceive your intentions to be noble, but in the end, the actual result achieved is the only thing that really counts. Far too many peoople don't understand this.
Re: Pied Piper's comment:

-- "The real problem, of course, is that health care/insurance should not be a profit-making enterprise."

-- "The free-enterprise system didn't work because it was based, ultimately, on greed."

But evidence is nice to see. What insurance companies do is to pile their overhead scams and supersized executive compensation packages into their claims processing fees.

Evidence: Aetna piles on $22 a claim.

Honest Medicare piles on $ 0.89 a claim for doing exactly the same work. OMB and GSA provide excellent oversight where the private sector has no such controls -- it's all fooling regulators and greed and Aetna is not the worst of the lot.
I am constantly amazed - and discouraged - whenever I read an article such as this.

The authors attempt to equate health insurance/costs/needs/etc. as simply another "consumer product".

They say, for example, "...routine care that most people could afford to pay out of pocket (just as they pay for home furnishings, gas, and groceries)"

But medical care/costs cannot be categoried along with "groceries". First of all, they are sudden and unexpected. Second, they can be life-threatening. Third, they are monumentally expensive even for the most routine services.

(I recently had my ears "cleaned" and the total cost came to over $150 for a 10 minute job using high pressure water and an instrument in use since the 1940s...absolutely preposterous).

The real problem, of course, is that health care/insurance should not be a profit-making enterprise. But this idea is anathema to people like the authors of this article (why, I don't know).

As far as I'm concerned, the "free-marketers" had their chance in the pre-Obama years, for decades. Whatever their system was, it failed. Every year, if you will remember, fewer and fewer people were "allowed" to have health insurance, due to age, pre-existing, blah blah blah.

When that number reached the 10s of millions (!) that were uninsured, something had to be done. And it has been done.

The free-enterprise system didn't work because it was based, ultimately, on greed. As I said, health care should simply not be a profit-making enterprise left in the hands of "capitalists".

ObamaCare is not intended to solve problems. It has an intermediate purpose, to bankrupt and eliminate our present health care system, while imposing costs that are so high the USA will be forced to adopt a single-payer system, with its de facto rationing of health care. That's the real goal of ObamaCare.
Paul, please take a look at my new book, "Saving Private Healthcare" at all major book outlets. I address the fundamental problem which you hit on in your article, however I have gone a major step forward and have launched "The Initiative" which will take the open-market proposals in the book and turns them into 7 bills for Capitol Hill. It will work, it will save healthcare.