Several political candidates are talking about some sort of universal health care. Everyone knows I am for socialized medicine. If we provide free basic education because we believe education is a right everyone has, then how can being healthy not also be a basic right? I would say health is a basic right before education even.
Few would argue the basic premise there; the issue is that it is too expensive; however, all other industrialized nations provide universal healthcare at a total cost less than what we are already spending. In essence, we’re already paying for universal health care…so why don’t we have it?
Let’s run a simple thought experiment (luckily no economists read this page) that models the health care market, and allows us to see why costs might spiral a bit…and mainly points out why more government intervention in our current health care system will raise prices, not reduce them:
Let’s say there are 3 people in the economy and they each have 1 dollar. One is sick and has to go to the hospital. How much can the hospital charge? One dollar. Nothing can cost more than a dollar, because the hospital will go out of business if it charges more (because no one can pay).
Let’s say insurance companies get into the mix and you buy a 1 dollar insurance policy, and of course you potentially get more than that in health care. Now there are two hands in the pot. Your 1 dollar and some amount from the insurer…for the sake of argument let say they are adding an extra dollar on top. How much can hospitals charge now? 2 dollars.
Let’s say the government gets in the mix, and subsidizes health care by 1 dollar. How much can the hospital charge? 3 dollars. Now we are starting to get the picture…
Every dollar added to the total pot to spend on health care expands the total dollar amount that can be charged. You can never charge more than what people can pay. Conversely, the price a market charges for a good/service will always expand to fill the total money in the pot.
Everytime the government says they will pump money into the health care market, they are raising prices because more total money is available to be spent. If there is a tax credit of 30%, in the most simplistic model, prices rise by 30%. The goverment is accomplishing the very opposite of what they’re hoping to do.
On a related note, here is the reason why the goverment may or not pander to universal health care, but nothing will really change: Too much is already invested in the current system. Thousands of jobs and billions of dollars in business revenue would disappear.
Imagine the extreme model (again simplified): Nationalized Health Care.
Nearly the entire health insurance industry (BILLIONS of dollars) could close up shop overnight. What good would private or employer-provided health insurance do if you already had it through the govt? It would be useless. All those jobs, gone. (some could get a job with the govt…but not nearly the same numbers would be needed.)
Employer provided benefits disappear. HR departments would thin out significantly…no more Benefits department. All those jobs, gone. You may think non-health care employers would be all for that, but the US is unique in that you HAVE to have a job to get health care…that sort of forces you to get a job (and keep one). I’m not so sure employers would be for it (although surely some would).
Health Care Consulting/Outsourcing would disappear overnight. I actually worked for nearly 4 years in health care outsourcing. This business is billions of dollars a year…just helping companies sort out all the laws and options, and helping adminstrate (coordination between all the health care providers, the business, payroll, employees, etc). 10,000 plus jobs…gone.
The health care providers (hospitals, doctors, etc) would see prices drop in nationalized healthcare. There might be price controls, health care would no longer be a for profit business, a single payer system (if that happened) would put a natural cap on what could be charged. Overall, health care providers have a profitable and fairly predictable business model right now….fear alone would give them a vested interest in the status quo. (unlike insurance/consulting/outsource though, at least most of these jobs would remain)
Big-pharma would lose too…they are some of the big winners (profit-wise) in the current health care system. Anything that damages their pricing structure is a threat. Drug companies would still exist in a nationalized system; however, they will complain that reduced profits means less money to research new drugs (which may be partially true).
So you see three things here: 1) The vested interest of these multi-billion dollar corporations is to continue the current system…so we’re unlikely to see a change no matter how well-intentioned (<– yeah right) the politicans are, 2) SOOO many people are employed in the health care industry who would almost instantly be put out of work……nothing is going to be done, and 3) All these thousands of people and billions of dollars in revenue is a large part of WHY your healthcare costs so much today…the more hands in the pot, the more it will cost.
Tags: economics
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