After more than an entire year of inoculating debate on health care, the Democrats managed to pass Obamacare while ignoring the biggest diver of higher health care costs in America: the price controls in Medicare and Medicaid. Last Wednesday’s headline on the Drudge Report, “Regional Walgreens says ‘No New Medicaid,’” reminded me once again that the political mainstream is still oblivious to the elephant in the room.
And no, I’m not talking about John Boehner.
If the government wants to get serious about making health care more affordable, it needs only to look in the mirror. It’s tough to blame insurance companies for all our health care problems when the government controls more of the entire industry (around 50%) through Medicare and Medicaid. Not only do these program deny more people coverage per capita than private insurers, these programs significantly raise costs for everyone.
Medicare and Medicaid pay Walgreens, doctors, and pharmaceutical companies at a rate set by the federal government. This is a form of price controls. The wonderful news is that the Obamacare bill that was rammed through the House last Sunday is going to multiply this practice throughout the entire industry.
Governments have never been great at regulating prices. Remember the gas crisis in the 70s? The long lines and rationing came because the United States attempted to control gas prices. This is what we get to look forward to with Obamacare.
While we haven’t yet seen rationing in Medicare and Medicaid, here’s what has already been happening with their price controls: Medicare and Medicaid pay about 85 cents on the dollar of what private costumers pay, and in order to break even, doctors and pharmaceutical companies overcharge private customers to make up for their lost revenue.
Basic economics tells us than when a price is mandated below market value, a shortage develops. However, with only 48 percent of the industry under these price controls, doctors and pharmaceutical companies can afford to stay in business by just charging the insurance companies more to make up for it. The insurance companies then pass these costs on to consumers through significantly higher premiums.
Instead of trying to fix this problem, the Democrats have decided they want to make these price controls universal. I find it curious that the solution to too much government regulation is always more government regulation.
Governments have never been effective at regulating prices because they do not understand how prices actually allocate resources. Profit is a four-letter word to politicians; they don’t get that an industry or product that makes a high profit attracts more suppliers and better technology, bringing down prices.
Doctors are in high demand and have high salaries for a reason. Medical school and other training takes time and lots of money. However, many people remain willing to go to medical school because of the financial security the profession offers.
We already have a shortage of doctors today, and when the government begins to demand that doctors be paid even less, the shortage will worsen and quality will fall. At this point, rationing will be inevitable.
The same is true for pharmaceutical companies. Above and beyond the profit required of them by their shareholders, the risky investment required to do research for new drugs and groundbreaking procedures is not cheap. When the government removes the profit motive for these services, we will see a dramatic fall in medical technology.
Government bureaucrats and politicians should not be involved in any further health care pricing. It’s going to take more than just repealing Obamacare to fix our health care system. If we want to make America’s health care better and more affordable, we have got to purge the price controls we already have in the system.
This doesn’t mean we should get rid of Medicare and Medicaid tomorrow. Retirees and near retirees have planned on having these benefits, and we need to give them a better option.
For current Medicare and Medicaid recipients, the government should grant them a voucher to choose any private plan they prefer. Whatever voucher money they don’t spend they get to keep, incentivizing them to chose wisely and economically. Empowering personal freedom and cutting out the government middleman would bring down prices for everybody.
This reform, mixed with other policies like tort reform, mandate reduction, interstate insurance purchasing, and health savings accounts, could positively revolutionize our health-care system. Unfortunately, I doubt it’ll happen any time soon.
It’s easy for me — a 20-year-old college student — to be willing to take on Medicare and Medicaid a.k.a the third rail of American politics. My generation will be the ones forced to pay off the debt for these massive entitlements while reaping none of their benefits.
It’s much harder for DC politicians to aggressively reform these programs when special interests like the AARP would bombard them immediately. Rep. Paul Ryan‘s entitlement reform plan is a step forward, but it will take uncommon courage to address the real problems in our health care system.
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