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Wednesday, July 22, 2009

A Question Of Economics

Apparently Michelle Bachman's way of persuading the public to oppose the Obama administration's healthcare reform is to talk about how inexpensive it't going to be.

Approximately 114 million Americans are expected to leave private health insurance. Why? Their employers will drop the insurance because the taxpayer-subsidized plan will be 30 to 40 percent cheaper. This action will collapse the private health insurance market, and then the Federal Government will own the health provider game.


As stated before, I'm no economist. I took Micro Econ in college and made a solid B in the class, but that's it. However, I'm well away the first thing that you don't do when attempting to prevent someone from selling their product is telling their potential customer base that the new product is going to be less expensive.

Bachman's rationale appears to be that the higher the price, the better the care. This is about a valid a standpoint as saying that simply because Fox"News" has higher ratings that their reporting is proportionally more accurate and fair. The same excuses have been given in relation to the Bush administration's policies and how they have kept us "safe". I can take the standpoint that I have worn the same pair of shoes all year and haven't gotten cancer, so that must mean that Etnies prevent cancer in 100% of studies.

But lets postulate for a moment that all the hypothetical set that Bachman has mentioned are considering leaving their current provider for the government plan. Wouldn't that cause their current provider to lower their rates? Isn't this how businesses keep their customer base, incentives?

10 comments:

Troy Camplin said...

Here's the problem with your rationale. She argues that the government-SUBSIDIZED insurance will be cheaper for the ones buying it. Indeed, subsidies do make things apparently cheaper -- but not actually cheaper. They are cheaper for the immediate consumer because the cost is distributed to the taxpayers. The actual cost is what is being charged plus the subsidy. When you have one good that is subsidized, while other similar goods aren't, you create an unfair market designed to benefit the producer of the subsidized good. If the government plan is cheaper due to its being subsidized, it will pull off people from private insurance, but in doing so, it will also require more tax money to keep up the subsidy. So the government plan in fact is not cheaper -- it is likely more expensive, only some of the cost is offset by tax money. This will require higher taxes. Obama is suggesting -- as McCain had last year -- taxing health insurance to make up the subsidies. So not only will the government plan be artificially below market price due to subsidies, but they will drive up the price of private insurance by taxing it! All of this is of course designed to drive people into the government insurance system, to essentially create a single-payer (government, with tax dollars) system. Thus we will end up with a government monopoly on health coverage. With medicare and medicaide in most states running deficits, and insanely long waits and bad care in parts of the country where most medical care is paid for through medicare and medicaide (the Rio Grande Valley, where my wife is from, is a prime example of this), a government monopoly on health insurance does not look too promising. One can also look to the long waits in countries with single-payer systems, like Canada and Great Britain, where patients wait for months on end for basic care and simple surgeries.

aironlater said...

Ok, let's run with the subsidized arguement. Based on what you believe it would do to the health insurance industry, would you also argue that anything that is subsidized is potentially bad for the taxpayer at large? Farms are subsidized in many areas. Does the harvest that is produced by those farms suddenly become poison for the agriculture industry?

And, as far as the long wait meme, it is a specious one at best. Certainly there are waits for care in various countries, regardless whether they are under a single payer system or not. The excessive lead-time up to a particular proceedure will be debated until the end of time, I suppose. But the real fact is that you are setting up the arguement from the standpoint of the American system would be exactly like the Canadian system. If people took that standpoint, nothing would ever be accomplished - which is apparently what people like Michelle Bachman are evidently encourage, to simply give up and do nothing at all. The truth of the matter is that wait times from the Canadian system have been severely inflated in order to muddy the debate. This isn't to say that people don't wait ( as people in America do wait as well ) but the figures presented form the opposition standpoint have been debunked multiple times.

In terms of taxing benefits, this is a proposed segment of the current legislational language that, if implemented, would only be valide in specific cases. High end contributions from employers would be marginally taxed, yet the employee would have less of a federal tax burden as opposed to someone who is buying insurance outside of their work.

Whether it be rationing ( a practice that is quite commonplace in the American "free market" system ) to every concievable counterpoint that people like Michelle Bachman come up with, the one thing that many don't seem to understand is that there is a plurality of Americans that are behind not just a massive reform of healthcare, but a single-payer system as well.

aironlater said...

Oh, and nice to hear from you again, Troy.

Troy Camplin said...

Farm subsidies have primarily gone to large corporate farms and have been used to reduce the amount of food prodiced, driving up prices. The result is that smaller farms are run out of business, and food prices are in fact made higher -- something which affects the poor the most -- and all with higher taxes for everyone. So, yes, farm subsidies harm food prices and farmers as a group -- to help a few larger farmers.

I have a friend from Canada who would disagree with you completely about the state of things in Canada. He tells me they are in fact worse, with doctors burning out by 50, if they are not running off to the U.S. My friend was astonished that he could see a doctor immediately and get all the tests he needed done within a week rather than several months.

Yes, people do wait in the U.S. You and I are both familiar with Trover Clinic in Hopklins County, where it was not uncommon to wait quite a while. But please note that there were no other options in Hopkins County. We only had trover -- which made them essentially a monopoly. They did not have to care if patients had to wait. My wife is from the Rio Grande Valley, where almost everyone is on Medicare and Medicaide (my wife took out daughter to a hospital there, and they didn't know what to do with her insurance). People have to wait for hours on end. The waits are so long that people just get up and leave. My mother-in-law had to wait 3 hours for the doctor to tell her that the results of her test weren't in and that she'd have to come back another day (why not tell her when she checked in at the desk?). But in Dallas, when my wife has an appointment at 3:30, she leaves at 3:15, and is back by 4, having waited however many minutes early she had gotten there. The difference? A combinatino of hospital competition and a general lack of government insurance claims.

This isn't to say that our current system is all that great. It's not. But it was made this way by other government interventions, and more of the same won't fix it. Third party payments are what have drive up costs. More, health care is anything but a free market. In a free market you can shop around. Ever try to comparison shop among treatments? Good luck getting a hospital to tell you what anything costs. Costs are so high because 3rd party payments allow consumers to consume far more health care than they really need. More, hospitals and clinics are unsure what insurance (private or government) will pay for, so they charge higher prices on everything, to try to recoup the overall costs. The result is that prices go up overall at a very fast rate. To really get costs under control, we need for indiivduals to pay for their health care costs, with catastrophic insurance for real emergencies. After all, home owner's insurance is for fires, floods and tornadoes, not for Endust, paint, and minor repairs. Could you imagine what would happen to the prices of home improvement goods if home owner's insurance paid for such things? It's simple supply and demand.

Personally, I don't care of a plurality or a majority want the kind of health care reform the Democrats are proposing this year -- or even if they want single-payer. Just because a lot of people want something, that doesn't make it good -- or good for them, even. All the evidence shows that government-run health care programs create a ton of problems of various sorts,less liberty for the people, and no improvement in things like life expectancy. A basic understanding of economics shows that the best, most cost-effective approaches are those of the free market. What we do not have in this coutnry, though, is a free market in health care (and, increasingly, anyplace else -- with government takeovers of banks and industries). With the failure of socialist, interventionist, and welfare statist approaches around the world, it would seem to me that we should try something that has never actually been tried: a true free market.

You can thank Todd for letting me know about your blog. :-)

aironlater said...

While it is not my intent to change you mind in regards to this issue, it is beyond my understanding that simply giving up the healthcare industry to the alter of the every diafied "free market" is going to make everything better. This line of thinking is predicated on the hope, not the knowlege that it will happen, but the hope that there will be more hospitals built, more medicine made available, more doctors, and more specialized services ( ie medical transportation, home care, et al ) and that all this will suddenly drive down the costs that are the root cause.

What I do understand is the supply and demand side of the issue. There is a flood of demand, but the supply is either limited or far too expensive.

For healthcare for my family, purchased through my employer, it would be 15% more than our house payment. And it's not that much better if purchased outside of that arena. We do have coverage on the kids, and limited coverage on ourselves, but it is a struggle sometimes to pay for this coverage. I know that it is needed, but when you see what you are paying for, it's hard to even feel comfortable with it.

Simply saying that healthcare will reform itself if left up to this invisible entity called "the free market" is something that I and many people simply can't believe. Where, in any industry, is there a true "free market" and what does that even mean anymore? Sure, it's a great sounding talking-point, but I honestly don't believe it goes any further than that.

Troy Camplin said...

With the death of God, man was deified, and the state along with him. It is not the free market which is deified. The free market is a naturally occurring system, self-organizing from the bottom-up in an evolutionary fashion. Supporters of state control of our lives, including the economy, believe in a top-down controlled system and are no different in their beliefs than are the creationists who apply the same logic to organisms.

We now have health insurance through companies because of wage controls during WWII. Employers couldn't pay more, so they supplied health insurance. This created the third party payer system, which gorssly distorted supply and demand. Since you could get more care without having to pay for it (never mind that you were paying for it, through insurance premiums, etc. -- the separation of payment from service makes you think you aren't paying for it), you demand more of that service. This results in higher costs and, eventually, higher insurance costs. Government enforcement of cartels and monopolies in health care, including barriers to entry for doctors and medical education keeps supply down. The vast majority of medical service people require do not in fact require a physician. Nurses can and could do most of it. If it were legal for nurses to open up clinics for minor medical problems, prices would go down, because supply would go up. But that is illegal. The government is the one which restricts entry into the market, keeping up prices. You cannot tell me that if you rediced restriction to entry into the market, and reformed the insurance market so that it was not connected to the company you work for, and it was used only for catastrophic care, meaning you paid for minor things (meaning you would shop around for the best deal) that prices wouldn't go down. Of course they would. It's basic supply and demand. It is government interference that drives up prices.

And I personally don't have health insurance. My wife and daughter do, but I don't. I am not working, and I cannot afford it. I fight for a free market because in such a system, I would not be in this situation. I would have affordable health care and affordable catastrophic insurance.

You say you odn't believe in this "invisible entity" called the free market -- but let me ask you: do you believe in the environment? You hear people talk about it all the time, but what is it? Can you point to it? Isn't it just as "invisible"? The economy is a kind of environment. So are the culture and society -- both similarily self-organizing, and "invisible." The free market is the kind of economy that arises naturally out of the free interactions of people. It cannot be seen, but it certainly exists.

Movies are a good example of a free market good, by the way. And boy are they cheap to consume, whether at the cinema, at places like Blockbuster, or online. In theory, for less than a dollar a movie, through places like Blockbuster.com, I could watch a movie a day for under a dollar a day. What do you suppose would happen to the price and quality of movies if the government decided you had a right to watch movies, and came up with a program to provide them for you?

Yes, there are in fact few examples of a truly free market in most goods. But we can see that in goods with the least government involvement the goods are more readily available and cheaper than are goods with the most government involvement. This is true within ecnoomies and when one compares economies. And the fact that governments consistently try to control the economy to ensure they have maximum power in the country doesn't mean it's a good idea, or good economics. In the end, I have no faith in the deified government.

aironlater said...

I did quite a bit of thinking regarding your comparison between the alleged "free market" and the environment. That, in and of itself, is cause enough for me and many others to believe it is the last place that healthcare needs to be.

In the environment, plants, and creatures of all kinds either thrive or perish dependant on the environment. A flower of specific biological makeup with wither and die next to one that has flourished there are decades. In that instance, the later flower has a monoploy on it's ground as no other flowers are able to survive. This can be for several reasons. Perhaps the earth is not moist enough, maybe the opposite is true. It could be that there is a dense moss that chokes out the roots of the flower. Even inadequate sunlight could be a factor. In the environment, change takes place over decades, centuries, millenia. Considering the inescapably long period of time for certain aspects of the environment to come together in harmony, are you actually suggesting that we simply leave the healthcare industry up to its own devices? That "environment" and the one that we live in are not comparable in any sense. it's like comparing an apple to an Oldsmobile Olympic 73.

The reason that the allege "free market" wouldn't apply to healthcare is due to the fact that there is massive amounts of money to be made. Sure, the flower profits from living in a certain area because it has life, but in the healthcare industry, money is God to many, if not all. Simply walking back all government interaction with the healthcare industry would result in a catastrophic explosion of exploitation, corruption, and death. Of course, there is a certain amount of that happening as we are discussing this, but the removing regulations, controls, and safeguards put in place by government would increase these ills within the industry by an exponential amount not realized by either of us.

But let's run with your approach of removing government control in certain aspect of healthcare that are already in place. The FDA would be gone. Medicines that are intended to help people, if not potentially cure life altering sicknesses would be untested, or tested improperly, or the results of prescribing such treatments could lead to further illnesses or even death. The rate at which providers of insurance bill the consumer would increase, as there would no longer be any sort of regulation in place that prevents peole from being overcharged. You see where this is going, don't you?

The alleged "free market" sounds good, but that's where it stops. It's a fun sounding talking point that tests well within a certain demographic. In essence, the term "free market" means to do nothing, at all. It means that people simply walk away and watch whatever has been released into the "free market" either live or die. It's a 50/50 shot in most cases, and in the current state we are in, it's looking more like 90/10 against.

If you'll pardon my own comparison, but would you allow your child to run rampant through your home, tearing up the carpet, the sofa, throwing the Wii controller through the television, leaving lights and water on at all times? Would you allow them to take all of the clothing and food in the house and throw it into the yard and then urinate on it. After all, it is the "free market" way of letting a child learn how to act and what will happen to him as a result without parental interaction.

Troy Camplin said...

The problem is, in a nutshell, that you don't have the least understanding of what a free market really is. It is not "do whatever you want, and damn the consequences." That's how government officials with the kind of power you want them to have act. In a truly free market, you would have, at minimum, the following: property rights protections, including an ability to sue for actual harm done, information transparency (clear and accurate labelling laws), and laws against initiation of force and use of fraud. What you are describing is literally economic anarchy, which is NOT the free market system. At best, it is a gross characature of the free market, designed to shut down rational discourse. I accuse your sources, not you.

And, yes, the environment is a good example. If you do not provide what is needed in either an environment or economy, you should not be there. In other words, peole providing bad services go out of businesses, while those providing good services stay in business. Why do you want to protect those providing bad health care services? That is the very argument for the market: that it improves the quality and lowers prices for services. A DVD player in the 80's was almost $800. How much do they cost now? Yet government interference in the health care system has driven up costs while driving down quality. And you want more of that?

I recommend you read a few postings by some ecnoomists I read on a regular basis:

http://econlog.econlib.org/archives/2009/07/what_makes_heal.html

http://econlog.econlib.org/archives/2009/07/centralizing_me.html

aironlater said...

the express purpose of government reform of healthcare is precisely to do away with harmful practices.

Ok, here's a great example. If government provided healthcare is so horrible, why is it that every elected official in America has it?

Also, if there were a true "free market" ( I'm basing this on your personal description ) then the RMC here in Madisonville would be shut down in a matter of months. What would that leave us with? Jennie Stewart in Hopkinsville is not better, and neither is the Muhlenberg County Medical Center. Would we be forced to commute for medical care?

Surely, there are private practice doctors in Madisonville that would provide basic care ( yearly check ups, writing scrips for common medications, et al ) but when my grandmother has to have specialized treatment, is she going to have to commute to Evansville, Nashville perhaps?

And though to take umbridge with my particular point of view of the alleged "free market" I laid it out to you in the exact fashion that it is explained by virtually every Republican elected official that is rallying against healthcare reform. So, what does this say of them? As prefaced in my initial posting, I know little to nothing of economics, only what I read. So, based on your assertion that I am describing economic anarchy, it appears that the Republican elected officials need a bit of schooling as well.

Troy Camplin said...

It is the rare Republican who actually defends free market economics. At the same time, I haven't heard any of them defending anything like economic anarchy. If the Democrats are trying to move us toward socialism in 4th gear, the Republicans are only trying to do it in 2nd -- though I would argue Bush tried to do it in 3rd. Especially in his last few months in office, whihc Obama has done a fine job of emulating.

Now, I know what the government officials are all telling us, but I don't believe them as far as I can throw any of them. Some may actualyl believe what they say -- but what a politician says and reality are rarely ever in the same room. As for the politicians' health insurance, the fact is that they all have the absolute best private insurance your tax dollars can buy them. What would be interesting to see is what sort of programs they would suggest if they were all required by law to only receive the worst insurance, care, etc. provided by their own programs. Do you really think they would have even half the programs they give us? I don't think so. Those in power always make sure they have the absolute best. After all, they're not paying for it -- you are. And they have the power to do it.

As for RMC, what you have there is a government-enforced monopoly -- it just happens to be the local government. The key isn't to get rid of RMC, but to open up competition in Madisonville and the surrounding counties. Competition would drive down prices, because with competition, you can shop around for the cheapest price. Of course, insurance (both private and government) in no small part prevents that from happening, so in reality something has to be done about insurance to keep them from driving up costs, as they do. Ideally, if one could eliminate all health insurance as it currently works and only have catastrophic insurance (like the kind you have for your house), that would cause people to shop around, driving down costs. If you insist on a safety net, one could set up health care savings accounts that you could contribute to, and in which the government could put money to ensure that everyone has money available for regular helath care costs. That money could only be used for health care costs, and at the end of life, whatever percentage you contributed could be inherited by your family, while the rest could be returned to the government to help continue the program. This combination would both help the poor and dissociate the government entirely from health care, which would in turn drive down costs dramatically. That is the real result of a free market -- and that is a real free market solution. Of course, no politician would go for it because there is no power in it for them, there is no control in it for them. That is another benefit of the free market: it distributes real power (which is political power, the power to force people with the threat of violence to do things) throughout the society. That is why you won't find but a handful of people in all the governments across this country who actually favor a real free market. Do not mistake what Republicans favor for free market economics. They just disagree with the Democrats on which socialist programs to support.

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