In anticipation of the Supreme Court ruling of King v. Burwell in the next few days, Republicans are frantically trying to conjure up an alternative to Obamacare should the subsidies outlined in the case be deemed illegal. While the GOP should get an A for effort, if they don’t properly diagnose the reasons why the healthcare system needed “fixing” in the first place, the treatment regimen will be ineffectual at best, harmful at worst.
Most agree that the healthcare system had many problems before Obamacare, but couldn’t articulate why costs were out of control and not everyone could get coverage. My bold assertion is that programs like Medicaid and Medicare sowed the initial seeds of failure within the healthcare system years ago by artificially setting prices (in the form of reimbursement costs) of everything from drugs to equipment to services by government fiat instead of letting markets determine the price.
Just as government intervention in the economy distorts free market capitalism, government intervention in healthcare knocked that system out of whack. Since the prices that government sets for goods and services differ from the actual costs to the providers in the private market, those providers relying on government reimbursement had to raise their prices in order to make money and continue to operate. Once those initial goods and services had their true prices distorted, the price of everything else related followed suit, hence the upward cost spiral that has you paying $30 for an aspirin at the hospital and hundreds of thousands of dollars for a surgery. As providers asked for relief, in came more government “help” in the form of subsidies.
However, economics shows us that when you subsidize something, you invariably raise its price because you are artificially lowering the cost to the consumer and thus increasing demand. It contributes to a feedback loop that distorts the price of everything that set its price based on the value of the initial good. If the GOP alternative includes more subsidies, then they are not really attacking the root of the problem. They would simply be applying a band-aid that would eventually require another band-aid down the road, and then another, and then another.
The correct prognosis is to let the free-market do what the free market does; let supply meet demand and the resulting equilibrium will set the price of the good or service without government intervention. Citing the example of Devi Shetty, the “Henry Ford of heart surgery,” we see that it is possible to provide cardiac surgeries in India at a tenth of the cost it would be here in the US. How? Simple. If he charged $100K to poor rural Indians, he’d have exactly zero customers, so to survive, he’d have to find a way to get costs down. He did just that, and so can we.
Unfortunately, we see that once government confers an entitlement paid for with money it doesn’t have backed by promises it can’t keep, it is almost impossible politically to rescind it. Perhaps by turning Medicare and Medicaid into block grants and then slowly lowering payments over a set period of time, we can return the healthcare system to its natural state with patients and doctors finding personalized, localized solutions without bumbling government making things worse. But absent spine transplants, brain enhancements, and intestinal fortitude supplements for most of Congress and the White House (all not covered by Obamacare), I fear we are in for more of the same.
Greg Archetto is a former State Department and Defense Department official who specializes in security cooperation issues in the Middle East. He has also spent time on Capitol Hill and is now an independent consultant with One World Consortium LLC. You can find more of his writings at www.thereasonablerepublican.com.
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