Health Care Reform – How about we look at root causes?

Posted by Jason | Posted in Economics, Government, Health Care | Posted on 11-10-2009


Health Care reform has been a politically powerful, hot button issue in election cycle after election cycle. It appears to be coming to a head this year, with Democrats pushing a government run health care plan. Republicans on the other hand seem to be very splintered on what health care reform should look like. It seems many elders in the party believe Republicans should just capitulate to the Democrats because they don’t want to look like they don’t stand for something. They don’t want to look like they are a road block. This is why we have been progressively losing our freedoms and the state has been taking more and more control of our daily lives. Our supposed free market leaders just don’t seem to have the will or the insight to fight for the side of liberty and the free market.

The government constantly goes unchecked on their claims of why a system is experiencing issues. I consent to the fact that our health care industry needs some over haul. Surely, anyone who has had to take care of the health care of themselves and a family can empathize with those who say the system is broken. The question that must be asked is why is it broken? Once you establish why it is broken, you can then truly look at reforms that fix the system, reforms that actually get at the root cause of the ailing system. Why in our country and especially in our government do we always look at symptoms and claim they are the problem? This is a huge issue that will not be fixed by addressing some symptoms. One only need to look at the health of an individual to come up with the perfect analogy of how we are treating the health care “crisis”.

Say a man develops acid reflux. They start off treating it themselves with an antacid. This addresses the symptom. After continually taking over the counter medicine and bumping up their doses, they decide to see their doctor.  They go to the doctor and explain their symptoms. The doctor then explains that the stomach is tilted which results in acid coming out of the stomach into the esophagus. “Wow”, thinks the patient, “I can’t believe I have this condition. Can you prescribe something for me to fix it doc?” “Sure”, the doctor says, and the doctor prescribes an even more potent antacid that the patient will have to take going forward. Now, has the problem been solved? No, the problem has been masked. In the mean time, new issues are beginning, because the acid in the stomach, which is normal, is being suppressed.  So now, food might not digest properly, and the patient now has digestive issues. This is how we treat issues in our public policy.

What the doctor should have said is, “Look this ‘disease’ started because you put on 50 pounds, and the beer belly you now have is causing your stomach to tilt. If you want to fix the problem, your gut is root cause of your problem. Here’s a prescription to a healthier diet and exercise.” Instead, doctors many times treat patients like the government treats our societal problems. Diet and exercise are not as easy as popping a pill the rest of my life, so let’s just ignore the cause of the problem. The same goes for health care. Fixing the problem, because it involves real change, is much harder and scarier for people, so let’s ignore the problem and take the societal pill of government control. As with the patient, this will introduce new and probably worse problems in the future.

“So”, you say, “what are the root causes then big shot?”. Well, one must look at economics to understand how markets work. Everyone constantly talks about the rising cost of health care. What causes prices to rise? Prices are just a signal of where supply and demand are at in any given time period. So, if demand increases and supply doesn’t, prices go up. Contrary if supply increases and demand doesn’t, prices drop. What causes this not to function properly? I should rephrase that, because it does function properly, but it doesn’t function optimally when price is hidden to the end consumer and not taken into account when making spending decisions. So, the first big problem with our health care system is third party payer. If consumers don’t look at price, the demand side of the equation is going to unnecessarily grow. If price is taken into account, consumers may decide they don’t need this service or product at this price. They may also shop for substitutes. Both instances will work to drive demand down and thus lower the cost.

The second root cause of the rising cost of health care is the one who claims they are going to fix it, the government. We already explained why hiding price distorts the market and drives up cost. So what happens when you introduce a market behemoth into the equation. Now, you  not only have price signals being ignored, but you have the vast supply of government money thrown in to exacerbate the market distortion to the Nth degree. Government money always drives up costs. Look at all the money that goes into education and the cost of education. The most ludicrous claim of this whole health care debate is the claim that some how the government can drive cost down. Government control of health care can only lower cost by lowering demand. How would government lower demand? The only way government can lower demand is by refusing products and services to people via rationing.

The last root cause that I’m going to mention is what I explained earlier in my analogy between the person with acid reflux and the way government handles societal problems. Even though in general we live longer now than ever before, that doesn’t mean it doesn’t come with out a societal cost. Part of the problem we have is people live longer now with illnesses and sicknesses. How does this group effect the supply and demand curve. Of course, the more people you have dependent on pills to stay alive or to treat a condition, the more demand is driven up. I can understand that there are people with no control over these circumstances, but in many  more cases there are actions that people can take to fix their health issues themselves. In America, over 60% of the population is overweight, and roughly 25% of the population is consider obese. With excessive weight comes most of the illnesses that our population is dealing with and the popping pills at an every increasing rate. If we want to see a drastic change in the cost of health care and to see the demand side of the supply and demand curve driven down, we have to take action lower the percentage of populace that is overweight.

As you can see, these are real root causes. These don’t have easy to swallow answers that politicians like to use to address symptoms. It’s so much easier to say, “Oh no, you aren’t the problem. You don’t need to make changes. The government needs to take more action and help you.” Really? Do you think the government is going to fix the supply and demand curve to lower price? If anything, government control always lowers supply and increases demand, which, REPEAT IT WITH ME, raises prices. Do you think you are going to have the same freedoms after the government takes over? Not only will you pay for these programs in taxes, but you will pay a much heftier price in lost liberty.

I know, I know. “Well genius, it’s easy to stand on the sidelines and point out problems. How do you think we should fix this ‘crisis’?” As I said before fixes to all root causes are much more difficult to swallow than bandaids on the symptoms. The good thing is these fixes actually fix the problem, where bandaids just hide the problems. In my next blog, I will do my best to put out some ideas on how we can address the rising cost of health care. They will be fixes along the line of solutions to the root causes I laid out here. Until then, when watching the health care debate unfold, ask yourself when you here a so called solution espoused by a policitian, “How does this drive down demand or increase supply to lower price”. If it sounds like it will decrease supply or increase demand, you know the problem is only going to get worse with the prescribed fix.

Do you think you are going to have the same freedoms after the government takes over.
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Comments (8)

Excellent analysis. As a democrat and someone in health care, I agree with your factual assessment of the perversities in health care economics. I suggest these perversities are a creation of the free market. Businesses began to offer health insurance to compete for workers. Employer-based health care became an integral feature of the US economic model. It is the prime reason why price signals are suppressed in health care.
Do you suggest doing away with employer-based health care? Do you think any solution must include mandatory insurance coverage? Do you think drastic changes such as these are politically possible?
You oversimplify the solutions currently I’m the table as “government takeover of health care.” president Obama made clear that a public option is not the focus of reform, but rather a means to an end. Until the free marketeers suggest real alternatives, the legislation on the table will reflect the liberal solutions (after having given the free market a good long ride).

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Agreed, it was the creation of the employers to begin with, but then as all things that start off in the private sector, the Government decides they need to get involved and promote it to more people. They do this of course by picking winners and losers via the tax code. If the government would stay out of the private sector, these things would work themselves out.

I’m not sure your argument really makes sense since you are conceding the fact that the market is distorted because price is hidden from the end consumer. How can you then say, that having a huge Government option would help. Even if the public option isn’t in the bill, although we know it will be some how, it doesn’t matter because government is going to coerce the private sector into providing more health insurance, and thus driving up demand.

Also, you basically say the free market had it’s chance, but that isn’t true when half of health care spending is through medicare and medicaid. You know that drives up demand and costs astronomically?

For some reason, statists always blame capitalism, just like Michael Moore in his new movie, but you aren’t even talking about capitalism.

I will put out the steps I think we need to take shortly. Bush actually started us down the right path with the HSAs, but as with everything else, he never sold it.

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[...] I said in my previous blog, the economics of health care is suffering from price being hidden from the end consumer. Because [...]

Amazing! Not clear for me, how offen you updating your

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I update it all the time. You can click the RSS link and load the link into an RSS reader or Google reader to be notified. I’m also going to be adding subscription services which will allow you to stay up to date. Stay tuned.

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[...] Just as a reminder this bill does nothing to fix the problems as I explained in my post on root causes. [...]

[...] payer in health care all the way down to checkups has also heavily inflated prices. Read my post on root causes of the health care crisis to see why health care costs are so [...]

Thank you for writing this! I have to write a paper on what we think is the most serious problem facing the U.S. today. This helped me so much. I will be adding your website to my works cited page. Thanks again! I have used a few exact quotes from this and I have credited you next to the quotes. Thanks again!

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