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Saturday, April 9, 2011

If You Do Not Understand the Economics of Health Care – Read These Few Lines

The provision of health care is one of the most complicated businesses around. People do not go to their doctors or hospitals for fun. Much of the payment for medical care is through third parties, giving users the impression that it is free. Since 1965, federal and state governments have been heavily involved.

We are now in a wrenching debate about increasing state involvement in health care, full of charges, counte rcharges, truths, half truths, and lies.

Simple economic analysis, however, provides a tried-and-true guide for those who really want to understand the debate. Economics suggests the following points.

“Affordable” universal health care cannot be provided to everyone without mandatory reductions in payments to doctors, hospitals, drug companies, and nurses. Everyone, in effect, will get a “voucher” for health care to be provided at a low (or zero to the patient) price.

Lower mandated payments to health-care providers will have the following effects. Health-care providers will:

Treat only those who pay a price higher than the mandated price.

Transfer into unregulated medical activities (such as cosmetic surgery or weight loss programs).

Withdraw from medicine for related professions that reward them for their training and education.

This means that the government “vouchers” for medical services will have little value. Few medical professionals will honor them. The state health care program is therefore discredited. When this happens, the state has two choices:

Let those who least can afford medical care endure long lines, wait for life-saving treatments, and forego necessary medication. The treatment of the “rich” will be unaffected as financially-strapped medical care providers welcome them to special VIP programs. This option is a political disaster.

Use coercion to force medical care providers to accept voucher patients. The state imposes severe penalties for violations, and, in extreme cases, makes it illegal for any health care provider to charge a price higher than the state-reimbursement rate. At this point, we have a single payer system kept in place by state coercion.

The second solution will result in a loss of economic freedom, from which it will be difficult to recover.

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