Universal Health Care - Economics 101

What single element always brings rationality, productivity and lower prices to any market? Semiconductors, personal computers, mobile phones, HDTVs, automobiles, computer storage, green home building, and the list goes on forever. All of these are free markets and demonstrate the results of unfettered capitalism.

Only when government or organized labor subsidizes or unionizes markets, do they become closed and manipulative. Look at Oil. Big oil companies do not set prices … and their 10 cent per gallon profit (which Red Nancy characterizes as “obscene”) actually pales in comparison with the Federal government’s 60+ cent per gallon profit. Were getting to Health Care, I promise. Oil is a heavily regulated and controlled market created by OPEC, and thus is not free and open. OPEC owns most of it and prices it in accord with their perception of supply, demand and desired capacity. Oil is then priced on the open markets by commodity futures traders who guess what the supply, capacity and demand is going to be in the future. Until oil gets to the commodity traders, it has a base price set by OPEC and non-OPEC producers who can draft right behind.

Oil is effectively the same as public school education costs, or US automobile costs, or the cost of your government. It is effectively unionized. Which brings us to health care.

The average guy on the street never cared much for Economics in school … I mean, what a bore, and how will this be useful to me in the future? Besides, if you put hundred economists in a room. eight hours later you would have a hundred theories about the best way to do anything. It is crystal clear to me that the economists who got it right are Hayek, Schumpeter, Freidman and Laffer who created a model for free market capitalism that has driven this country to unprecedented wealth and prosperity and dragged the larger part of the free world along with it.

It appears that the house and the senate are either populated with average guys on the street, or shameless politicians who care only about being re-elected … or both, I suppose.

To say the words, “We should provide affordable health care for every man, woman and child in America” politicians get to sound caring, bold, populist and re-electable. What they actually sound is reckless and unaccountable. The only way to provide affordable health care is to create a free market for health care. And, if anyone should know this, it is Arnold Schwarzenegger. This man does not have a socialist cell in his body. His entire history is a model of free market capitalism. So, proposing universal health care in California is clearly a populist political gambit designed solely to get him reelected and then, who knows? Orin Hatch has proposed an amendment that would essentially overturn Article 2 of the Constitution and allow Arnold to run for the big job. Stay tuned.

The big problem today with health care is the complete disconnect between the consumer and the providers. Instead of the consumer deciding what kind of health care s/he wants or needs, like when shopping for a flat screen LCD, the providers decide what they are going to offer and because there are no choices, the consumer gets screwed. When the consumer has very little control over a market, the market goes in the toilet … the now defunct Soviet Union is a great example.

Most private heath care plans cover everything imaginable and individuals are forced to pay for that coverage even though they will probably use less than 5% of the services provided. It is sort-of like a health care plan designed by Microsoft; pay a lot for Excel and Word but use only 5% of their functionality.

Instead of a de facto nationalized “universal health care” which will only increase costs, add more bureaucracy, eliminate incentives for increased productivity and innovation, and result in waiting lines for MRIs (try to get one in Canada), we should launch an aggressive HSA (health savings account) program allowing individuals to choose the health care they need.

One approach that makes sense is a two pronged non-taxed HSA (like the 401(k)) where 25% of the premium goes toward catastrophic health care with a $5000 out of pocket cap, and 75% goes into a savings account that is used for prescription medicine, routine doctor visits, etc. If it isn’t used, it sits as working capital and is invested similar to your 401(k) plan, another boost for the economy.

FEHBP (the largest union health care membership in the country) is probably representative of the norm; 47% of patient expenditures go to prescription medicine, while only 20% goes to hospital in-patient care and physicians visits, yet most of what you currently pay in premiums is spent on hospital in-patient care that you will probably never use and physicians whom you will never see. So, 80% of the cost pays for 20% of what you actually need. Again, we are paying for a system designed not by consumers but by bureaucrats, and not open to the competitive vengeance of the free market. Catastrophic care is pretty cheap and if you factor in the current employer contribution and the current deductibles, a properly structured HSA would lower the costs of health care to both individuals and their employers and allow individuals the freedom to manage their own health care.

The problem with implementing such a plan is political. Red Nancy has multiple problems with such a plan. Not only would it change her demographic dynamics by reducing the dependency of her voters on the Democrat party, but it would essentially result in a tax cut to Joe six-pack, expose Nancy to a less rich health care package for herself while exposing the Union health care coverage to the light of day (as a Federal Union employee, her package is worth a lot of money and Bush’s proposed $15,000 tax plan would cause Nancy to pay taxes on the amount North of that) and demonstrate the efficiencies of free market capitalism. But, it appears that we are rapidly headed in the other direction. In addition to the government banning trans-fat from restaurants and outlawing foie gras, we now have public schools measuring body mass and sending warning letters home to parents. George Orwell appears to have been right, yet off by 20 years or so.

Why can’t we truly reform Congress and send in people whose goals are to stimulate the economy and create prosperity for their citizens? It should be obvious to everyone that when people control their own money, they tend to get more value from it and create a competitive, equalizing free market environment where productivity, investment and the economy thrives. When the government controls it, we get the US Post Office, Public Education and National Health Care. Hello?