The health care debate has been taken to the next level since Barack Obama’s election. While I completely disagree with his approach to fixing health care, I must say it is a good thing to bring the issue to the forefront and try to come up with some solutions. As mentioned in an early post though, you have to look at the root causes to see what problems you need to actually address.

For those of you who might not have read my previous post, the problem with health care is the third party payer model we use, which blocks price signals from properly stabilizing the supply and demand of goods and services. In other words, we take actions that drive up the demand for more services and products while not increasing the supply of those services and products at the same time. We also add unnecessary costs on top of those services and products that then is passed onto the consumer or the insurance company.  A government take over will not address the issue of increasing demand without rationing of either quantity of services or quality of services. I know, “Hey fella, the Baucus bill doesn’t have a government take over.” The Baucus bill is leading the way to a government take over. It is creating a massive amount of increased cost on individuals, employers and medical companies. Once merged with other bills, we’ll probably end up with a government take over trigger. This is setting up a straw man that is doomed to failure. It shouldn’t be called a trigger but a lit fuse slowly moving to the bomb of government health care. Instead, we should see bills that address these problems with free market solutions.

So, what are the free market solutions? While I don’t claim to have the genius to provide all the solutions, I do believe there are some simple but hard solutions that can be implemented. Free market solutions must address the issue of rising demand that is the result of third party payer and the state of health for average Americans.

To address the third party payer problem, we must look at the biggest provider of health insurance, employers. Employers offering health care benefits was originally used to compete for employees. It quickly evolved into something that was encouraged by the government and expanded by unions. Government encouraged the expansion via the tax code and mandates. With this constant push towards more and more coverage, insurance began to take care of everything a person needs or wants in regard to health, dental, vision, and mental health.  One can quickly see that more and more people demanding ever expanding coverage only has one effect, increased cost of insurance. Then the very nature of insurance, where it takes the end consumer out of the value decision of the purchase, drives up the cost of the actual service or product. This must be addressed by fixing the root cause, which is third party payer of the insurance by the employer and the third party payer of the service or product by the insurance company.

The first step has already been enacted, but needs to be encouraged and sold to the public. Under President Bush, Health Savings Accounts, or HSAs, were passed into law to address the health care crisis. Like every other issue under Bush though, it was never sold to the public. It’s just not as sexy as “free” health care, even though it actually works.  The gist of an HSA is people purchase high deductible, low premium health insurance that would cover expenses after a certain dollar amount. In addition they can put tax free money into their HSA to cover the deductible. When they go for a doctor visit, they write a check to the doctor from their account. Once their deductible has been reached, the insurance company takes over.

The HSA addresses many of the issues that result from the unique insurance model that is used by the health care industry. In no other insurance model, does insurance take care of everyday occurrences. Insurance is to guard a person or organization against risk. The best example is car insurance. We buy car insurance to make sure that we can get our car repaired or paid off if we are in an accident. We also get liability insurance to insure ourselves against a law suite if one is filed by the other party in a vehicle accident. We do not use our car insurance for oil changes, new tires, or even an expensive item like a transmission replacement. These are wear and tear issues that are guaranteed to happen, while accidents are not. If we are responsible, we plan for things that are guaranteed to happen, and we insure against those things that may or may not happen. This model of insurance is why you can get an oil change for under $20, but a new fender for some reason costs thousands. Notice the part of vehicle repair that is paid by insurance is much higher compared to the part that is paid out of pocket. When we pay out of our pocket, we shop around and demand better deals. When insurance pays, we could care less.

For some reason though, with health care, we ignore this model, and we buy health insurance for our human wear and tear. We all know we are going to get sick. We all know we’ll need check ups. If you have kids, you know they will need vaccinations. For these items, we should be planning financially to pay for these. What we should be insuring against are things like cancer, heart attacks, or situations that can lead to hospitalization. With this change, you will see consumers shopping around and demanding better pricing. With this change in behavior, medical companies would have to compete more fiercely for your dollars, which would drive costs down.

While this addresses the third party payer issues from the actual medical purchase side of the issue, it still doesn’t address the third party payer side of the insurance purchase. Just as employers were encouraged to add health benefits via the tax code, they should now be encouraged to get out of the health care business. Businesses waste vast amounts of resources on the shopping, buying, and administering health care insurance for their employees. Does this add to their business production and to the larger production of our country? No it doesn’t. If employers handed the health care insurance purchasing decision to their employees, they would then be able to focus on what they do best, which is grow their businesses. They also would be relieved of a huge (huge really doesn’t do it justice) expense. This massive reduction in expenses would result in more jobs. There is no doubt that the cost of health care insurance has resulted in many companies not hiring that extra person. It’s a return on investment hurdle that is much higher as a result of the extra cost. In addition, the reduction in the cost of doing business would result in lower prices of the goods or services delivered by the company. As Thomas Sowell points out in his blog, Magic Numbers in Politics, prices are interconnected and the reduction in the price of one good filters through the economy and lowers the price of other goods. He uses a great example.

What does that mean? It means that a huge increase in the demand for ice cream can mean higher prices for catchers’ mitts, among other things.

When more cows are needed to produce more milk to make ice cream, then fewer cows will be slaughtered and that means less cowhide available to make baseball gloves. Supply and demand mean that catchers’ mitts are going to cost more.

via Thomas Sowell : Magic Numbers in Politics – Townhall.com.

As you can see, there would be a butterfly effect in the cost of goods in our entire economy. This would unleash business and job growth. “Hold up there buddy,” you say, “ultimately the worker would carry the burden of health insurance.” This is true, but as explained above, insurance is not meant to cover those things that are guaranteed to happen. If workers buy their own insurance, they will make wiser purchase decisions. They will plan for maintenance, and they will insure against the unknown. This will drive down the cost of health care insurance. In a future segment of this blog, I will expand on this more, but for now you can see the effect of this when seen in conjunction with the interconnectedness of prices. Also, the end user making day to day “maintenance” purchases will drive down the cost of those purchases. In May 2008, Watson Wyatt Worldwide released a study that argues that the rising cost of health care insurance is a huge factor of why employee pay has been stagnant for decades. With the removal of health insurance from the employment process, salaries would undoubtedly rise. Salary increases will also be the result of higher competition for employees. Many employees pick a job based on health insurance. With that removed from their decision, they will choose to go where the work and the salaries are better. They will also not be trapped in a job because they can’t afford to lose their insurance. They will have picked their own insurance, and it would not cease in the result of a change in employment status.

In the next segments of this blog on health care solutions, I will address the unique issues of health insurance that make it much more expensive, how our country’s obesity problem is a major factor in rising health care costs, and how the market has already taken steps in the right direction to address the rising costs. As you can see though, removing the market distortion of third party payer would be better for every part of our economy and every participant involved in health care purchasing. As I said in previous posts, when listening to the health care debate, ask yourself how the proposed solution addresses the root causes of rising costs. A government take over does not remove the third party payer issue, it does not increase competition, and it will actually increase costs. With out fierce competition, the only way for costs to be driven down is by mandate. The end result is a reduction in the availability of services and/or the quality of services.

Why are we Americans moving away from self reliance to the nanny state more and more every year? Do Americans truly believe because something comes from the government, that it is free? Financially, it is much more expensive than the private sector, but the most disturbing cost of government control is the loss of liberty.

America was founded on the belief that the government is a necessary evil, but an evil that must remain small and restrained to prevent it from becoming an unbearable evil. We used to always be skeptical of anything the government said knowing that government always wants more power to control us. Now we just seem to take politicians at their word that they want what’s best for us. Skepticism is something we much pass on generation after generation if we are to last as a nation.

Let’s take the health care reform debate. So many Americans are fed up with the rising costs, that they are begging the government to step in. They believe the government will take over health care, and some how they will be relieved of that burden. Not so fast. With the government controlling your health care, they will control your life on a much larger scale than ever before.

As I said in my previous blog, the economics of health care is suffering from price being hidden from the end consumer. Because of this, demand is constantly driven up with supply not keeping pace. This drives up cost, and the only way to bring cost back under control is to bring down demand. In a normal market this is done naturally through price signals. In a government controlled economy this is done by rationing or by force.

Let’s take rationing first. If the government’s budget for open heart surgeries is X and with the total budget of X only N amount of surgeries can be peformed, how does the government make sure there are not any more open heart surgeries than N? The government will setup strict criteria on who can have open heart surgery. If they find that criteria is allowing more patients than N, they will then make it even more stringent. So, knowing that this is the case, one must ask what criteria will they use? Will you be out of luck if you are too old? What if to keep the number of surgeries at N, you need to have a chance of survival at 75% and your chance is only 60%? What if that is your child’s chance of survival and now yours? As you can see, this is a very scary decision for us to leave in the hands of the cold, lifeless bureaucracy, but what’s worse is driving down demand by government force.

The second way I mentioned the government controlling demand is by force. “Now, come on.”, you say, “You are really going over the top here. Our government would never use force.” While you may see force as guns and tanks, that is not the only force the government uses. Again, as I mentioned in my previous blog on the root causes of rising health care cost, one of the biggest contributors to the demand side of health care is the obesity epidemic in this country. So as the government, how do you control the rate of obesity?

Is it too far fetched for government to outlaw certain foods? How about as mentioned above using criteria to control you? If you want to have access to X, you have to have an accounting of what you eat, similar to doing your taxes. Surely, we can already see the possibility of the government taking your kids away from you if the government deems that you are feeding them too much junk food and they weigh too much.  How about forcing everyone to have a chip injected into them for ease of keeping medical records and driving down cost via efficiency? Even worse, how about forced DNA screening and alteration to minimize the chance of cancer or other diseases? Science progresses so fast, we really have no way of knowing what the government may require of us five or ten years from now as part of the “public good” and “cost containment” when it comes to health care.

If you think the IRS is bad, how about the how about the Medical Records Service (I made this up, I think). Is it possible that the government would require an annual accounting of all medical services delivered to you to insure you are having regular checkups, following the doctors orders, etc?

“No problem.” you say, “I’ll just refuse this “required” screening or this “required” procedure.” Really? Can you refuse to do your taxes? There are already provisions in the bill for not having health care under either a private plan or the public option. If you don’t have health insurance, you will pay a fine and face prison time. If the government isn’t getting the results it wants, surely it will increase the fines and the prison time.

We have gone so far away in this country from what our founders believed, that they would roll over in their graves just at the thought of the IRS, and here we are today contemplating giving the decisions over our health to the government. Here we are begging the government to ration health care and force us into servitude so we can avoid going bankrupt or pay the family doctor out of our pocket for services rendered. We once believed that liberty was worth dying for in this country. Now it seems we don’t even think it’s worth being financially stressed for. Time will tell if we made the right decision, but I beg my fellow Americans to think this decision through with the worse case scenarios. Chance are those scenarios will come to fruition. Liberty is dear, so don’t give it away so cheaply.

This morning, our President woke up to the news that he is one of the few Presidents to have received the Nobel Peace Prize. It seems everyone is asking why it was awarded to Obama, who has only been in office for nine months and has had no accomplishments worthy of the award.

So, one must ask what does this award mean? In particular what does “peace” mean to those who choose the winner? While all Presidents hail peace and want to achieve peace, how is peace achieved? It appears there is a discrepancy between liberals and conservatives in regard to the definition of peace.

Conservatives believe that peace comes through freedom, which in essence is individual liberty and Capitalism. Even Thomas Friedman, who most recently praised dictatorships for their ability to take swift action, wrote in previous books that no two nations that have McDonalds have gone to war. What he is saying is that no two capitalistic countries have gone to war.

Liberals, on the other hand seem,  to believe peace is a matter of the status quo. The liberal peace, as well as Obama’s, is peace at the expense of liberty and freedom. This is more than likely the result of the liberal mind set that the state is above the individual in the hierarchy of existence. So in order to achieve peace, states must agree to not interfere with what each other imposes on their own people. If peace is not internal to a particular state, that doesn’t matter as long as peace exists between states.

With the Conservative definition, you must ask then how is peace achieved? It is achieved by freeing people. In this regard, Reagan and Bush undoubtedly would have won a peace prize. Reagan ended the Cold War and helped release the shackles of the Soviet Union over millions of people. Also, Bush freed 50 million people in Afghanistan and Iraq.

As you can see, those who choose the winner of the Nobel Peace Prize do not care about peace of the individual, freedom, or liberty. It’s no wonder a President who has accomplished nothing won. By accomplishing nothing, the status quo prevails, dictators survive, and the states can rule over the people.

Monica Crowley’s article in the Washington Times this morning highlights how completely upside down our government is anymore. Government’s first role is to protect the people militarily, and the Commander-in-Chief’s primary role is a military one. Lo and behold in the current administration, our foreign wars are the last thing that seems to get the attention of our President. The President and the Congress have no problem finding time for Health Care, which Americans don’t want, Cap and Trade, which will cripple our economy, or working on a subversive stimulus bill number two. Our representatives and our President need to read the Constitution as well as writings of Thomas Paine, John Locke, etc to learn what the purpose of Government is.

McChrystal goes rogue

“You might have a tough time getting President Obama’s attention unless you are a member of the International Olympic Committee (IOC), a golf ball or Jennifer Lopez.

Over the past few weeks, he has deposited a huge carbon footprint by jetting to Copenhagen, only to have the IOC unceremoniously dis him. He has spent five hours each Sunday on the golf course. He also has entertained celebrities including J.Lo and Arnold Palmer at the White House, not to mention schmoozing Oprah Winfrey on their ill-fated Olympic trip.

Given these self-indulgent presidential distractions, the commanding general in Afghanistan, Stanley A. McChrystal, can be forgiven for publicly airing his strategic and troop-level preferences. Appearing on “60 Minutes” and addressing a prestigious London think tank apparently are the only ways Gen. McChrystal can get Mr. Obama’s attention. It was the general as matador, waving the red silk, hoping the bull would turn and notice him.”

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The president has been busy chasing nationalized health care, an Olympic dream and his Titleist golf balls. Gen. McChrystal had no choice but to go public to get him focused on the realities of the battlefield and the dangerous world in which he, his soldiers and the rest of us live. The general’s responsibility is to keep us safe from attack. It’s a shame he had to remind Mr. Obama that it’s the president’s responsibility as well.