Thursday, April 1, 2010

Don’t Be Messin’ With the Law

After all the political spitting, yelling, and backbiting (and that was among people in the same political party) over the healthcare bill, I thought a more objective, economic-based, review is needed. Because the Law of Economics doesn’t care if you are Republican or Democrat. It doesn’t care how many votes you have in the Senate or what deals were made in the House. It doesn’t care about your race or gender. It doesn’t care how eloquent you are and it doesn’t read opinion polls. The law is the law and it cannot be violated.

The original problem is that healthcare costs (and prices) have been steadily increasing overtime. This increase means that many people cannot afford healthcare services or the price of insurance. Healthcare costs also consume an increasing percentage of most people’s incomes, leaving less discretionary income for other things.

So let’s look at the economics of the healthcare bill:


There is already a shortage of primary care doctors in some regions and now there will be an estimated 32 million more people with health insurance in 2014. This will lead to an estimated (industry report) shortage of 40,000 doctors by the end of the decade.
It doesn’t appear that the bill did anything to increase supply. It may have even decreased supply since more government control (perhaps more price controls) makes practicing medicine a less attractive career.

One major factor that impacts supply is the high cost of medical school. The medical school political lobby must be one of the strongest ever because I never heard a word from anyone, regardless of party, about this issue during the debate. Medical schools limit the number of students and charge outrageous tuition. They make millions of dollars, but the number of graduates is restricted and doctors start practicing with huge student loan balances. This results in higher fees for services.

If you allow more medical schools, you increase the competition for students, driving down tuition costs and increasing the number of doctors. Another strategy would be to give nurse practitioners more authority. Both these moves would increase supply, but the quality of healthcare would decrease. This is a fair trade off. If we want to provide healthcare for everybody, then something has to give. People wanting to see a real doctor who graduated from a top medical school can pay more for that privilege.


Demand greatly increases under the new bill. As stated before, 32 million new customers in 2014. And these are likely to be active customers. If you give people access to inexpensive healthcare, they are going to consume it in mass quantities (although probably not as bad as the Coneheads).


Demand is expected to greatly increase. Supply is expected to remain the same or decrease slightly. Prices therefore are going up, way up. Since few things in the bill adequately address the cost issues, healthcare costs should continue to increase for the next few years and then really take off starting in 2014.

The Result:

The original problem is that healthcare prices are out of control. The “solution” will only make this situation worse. Sure if you like your doctor and current health insurance plan you can keep it, but only if you and your company can still afford it. If you think prices are high now, just wait. The healthcare bill did provide some needed benefits, but at what cost?

Because the government is more involved, there will be more waste and fraud which serves to drive up both prices and demand. I know there are supposed to be provisions in the plan to reduce waste and fraud, but it is ridiculous to believe the government will actually cut waste and fraud. The government is waste and fraud. It is comparable to hiring an obese dietician.

You: “Can I eat a doughnut?”

Obese Dietician: “Yum, doughnuts taste good. I like doughnuts. You can eat one and be sure to bring me one with sprinkles!”

Government involvement will also mean that people will figure out how to exploit the system. There are many people making millions of dollars legally “gaming” the Medicare system. It is incredible the amount of tests and products that are ordered simply because Medicare “will pay for it”.

The worst example is the scooters you see advertised from the Scooter Store. Who needs a scooter to go from the front room to the kitchen? But the commercial shows grandma on a geriatric joy ride. You wonder how much the scooter gets used after the thrill is gone and granny knocks over the big-screen television and runs over the cat. I bet the old guys even race their scooters down the main drag of the retirement village on Saturday evenings (because even the older chicks dig it!).

Don’t Ignore This

One of the best solutions is tort reform (limiting the amount and nature of malpractice lawsuits). The reason tort reform is important is that it is beneficial in several ways. It lowers the cost of production (malpractice insurance decreases in price) for the doctor. This means there will be more doctors and they can charge less for their services. Because doctors would not have to order so many tests to protect them from lawsuits, demand for those tests and thus the prices for the tests would go down. In addition, the system becomes more efficient since the money saved from not doing the tests could be redirected to someone in greater need of healthcare. Unfortunately, tort reform was only given “lip service” in the healthcare bill.

What I Don’t Know

I admit there could be errors in this analysis because I did not read the 2,400+ pages of the bill. But if you really want me to understand and then support a proposal, could you please give me something simple in 100 pages or less? Think about it. If a financial advisor presented you with a 200-page proposal that you didn’t understand, would you give him all your money to invest? If so, I have some shares of the Bernie Madoff Stock Option Fund to sell you.

Next Week: A Big Announcement

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