Saturday, October 23, 2004

The Kerry Health Plan

When a person has no information but a politician's word, accurate conclusions are difficult, if not impossible to draw. This is the reason why so many Americans vote according to party, character, or so-called "wedge issues". Because while a politician will say almost anything to get elected, you can be fairly sure that Republican will vote like a Republican, and a Democrat like a Democrat. You can count on a leader to remain a leader, and a follower to remain a follower. And you can assume that when a politician chooses to highlight a wedge issue, it is because he genuinely believes there is a difference between his position and that of his opponent. One such issue which has gained great currency in this election is that of the national health care plan.

Kerry proposes a system in which catastrophic health care costs are assumed by the government. On the other hand, Bush counters that catastrophic health care costs are precisely the reason insurance exists in the first place, and that it is not these extreme costs, but the steady drip of shots, doctor's visits, medicines, and other basic needs that drives up the cost of insurance. Thus, the candidates look at the same problem and draw opposite conclusions.

Kerry, working from the assumption that health insurance costs would be dramatically reduced were the insurers themselves insured against extreme payouts, such as those related to cancer and other debilitating diseases and injuries, offers a plan in which the Federal government takes on responsibility for these health care costs. One could examine the details of his plan, but to do so is pointless, given that any such plan must be radically altered in order to pass congressional muster. Instead, let us examine the principles which lead to such a plan.

Medicine is a market, like any other, controlled by supply and demand, costs and profits, production and consumption. Hence, in order to change the cost structure of health care, one must act to increase supply or reduce demand, to increase production or reduce consumption. How will increasing the government's role in paying for health care alter these factors?

It would seem obvious that shifting the costs of health care off of individuals and onto the government should increase demand. After all, if water is free, people use more water. If gas is cheap, people use more gas. And if health care is free (even if only at a very high expenditure level), people will use more health care. It is equally obvious that our health care system is already stretched by an imbalance in supply and demand. It is not the greed of health insurance companies and doctors that drives up the costs of medical care, any more than it is the greed of oil refiners that drives up gas prices. Instead, it is the insatiable thirst of the consumer that drives up costs for both these products.

Every time you go to the doctor when you could stay at home and take Nyquil, you drive up healthcare costs. And the reasoning behind your individual decision to do so is sound: if you have insurance, seeing the doctor is cheaper than being sick, just as if you have a car, driving a mile to the store is cheaper than walking. Conservation is simply not a rational option for the insured consumer of health care goods.

An interesting thing about economics: one can neither create nor destroy money. A dollar is a share of the total dollar-demand of the world economy, and its value is forever proportional to that demand. One can transfer this value, but one can't create it from nothing. If I burn a one-hundred dollar bill, every other dollar becomes more valuable, and if I counterfeit my own money, every other dollar loses value to compensate. In the same way, one cannot change the value of health care by minting ones own insurance. One can only create insurance inflation. That is, it will take more and more insurance in order to maintain the same level of coverage.

Kerry's rationale would seem to be that he is simply expanding access to what the wealthy already have: inexpensive (relative to income) health insurance. Would his plan have this effect? If insurance companies were no longer responsible for the profit-killing cost of health catastrophes, they might indeed have incentive to lower their prices. But only for those who agreed to use the Kerry health plan in such an instance. In other words, Kerry's plan would provide incentive for the health insurance companies to drive individuals toward cheaper (and more profitable) plans that encouraged dependence on government coverage. These costs would be passed on, and the consumer would end up paying twice: once for taxes covering this government service, and again for the insurance the government doesn't cover.

Assuming that insurance companies acted fairly and the government was as efficient a broker as the original health insurance providers, these amounts would precisely offset one another. However, we all know that insurance providers have little incentive for fairness, when unfairness adds to profitability, and the federal government has no talent for efficiency, when inefficiency adds to bureacratic power.

So what would Kerry's plan accomplish? It would certainly increase demand for health care, thus increasing wholesale prices. It would increase costs, through the inefficiency of government action and the opportunity for insurance companies to lower prices while padding profits. It would raise taxes and increase the deficit, though both these problems would primarily effect the wealthy (at least initially). And finally, it would do nothing at all to address the true problem of health insurance: lack of supply in the face of ever-increasing demand.

But does Bush's plan address the root cause of excessive health insurance costs? That will be examined in my next post.

14 Comments:

At October 26, 2004 at 7:43 AM, Blogger openmind123 said...

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