Obamacare – Repeal, or Repeal and Replace? PART II

HOW POLITICIANS ARE MAKING MATTERS WORSE

In PART I of this series of posts on healthcare, I made the case that because of the unrealistic beliefs embodied by U.S. statutes and in the minds of Americans, the U.S. healthcare system is unsustainable—and that Obamacare has made matters worse. Obamacare has doubled down on the false idea that the U.S. can afford to pay for all of the healthcare every citizen wants on demand, without each citizen having to bear significant costs for consuming healthcare. The demand for healthcare will outstrip the healthcare supply, and the costs of healthcare will spiral upward as the consumption of healthcare increase.

Those spiraling costs are not only denominated in money. Even assuming there is enough money to redistribute to serve every citizen’s whims with respect to healthcare (which there isn’t), whatever money is directed to the healthcare problem is money that will not be available for any other needs. Given the numerous “needs” Americans are able to conjure, many other needs will then go unaddressed due to insufficient funds. In particular, if America’s healthcare system is nationalized, the fountain of medical research and development upon which all nations rely for innovation will decrease to a trickle, as is the case in all countries with nationalized healthcare. This will be extremely costly to ourselves and our children (and all the present and future people in the world) whose cure could have been invented in their lifetime, but wasn’t.

Lastly, I pointed out that no matter how wonderful it would be if everyone could have access to free healthcare, or how “immoral” it would be to deny everyone’s wants or needs for healthcare, if the costs would be more than the country can bear, then it is impossible for all citizens to have all the healthcare they want at a cost below the cost of producing that healthcare (much less at little to no cost). Labeling unlimited access to healthcare a “right” does not change the reality of unaffordability. It only validates a fallacy and escalates the demands for the impossible.[i]

So, what have politicians been doing to address this welfare problem? Let’s sort that out.
🙛

There are no solutions with respect to any public policy decision—including healthcare policies—because there are unavoidable negative consequences to every policy.[ii] Public policies usually (if not always) advance certain moral objectives and rather other moral objectives— and often at the expense of other moral objectives.[iii] Despite this unavoidable fact of life, politicians tend to do what they can to obscure these realities from the citizenry. (They do this because the gullible and uninformed citizens not only believe politicians when they say they have “the solution,” but also tend not to vote for politicians who do not promise fantastic solutions—policies which do good, have no negative consequences, and are affordable because they are so good (funded by unicorn poop I suppose.)[iv]

Rather than carefully weighing and explaining to the public the unavoidable tradeoffs with respect to healthcare, politicians have been touting what they call “solutions.” In other words, they are doing what they believe will get them reelected. They 1) promise the fantasy of something for nothing (or very little), 2) talk only about the benefits of their proposals and ignore or minimize their costs, and 3) provide plentiful platitudes so that people feel good about themselves for being in favor of the politician’s proposal—in short, they provide half-truths[v] about the morality and affordability of the “solutions” they propose. Without ever stating it explicitly, progressives also take advantage of an unsavory sentiment among a growing percentage of the population. The sentiment is that taking wealth from “the rich” is not only necessary (because that is where the money is), doing so is good because it punishes rich people for their wrongdoing (it is assumed, without evidence, that everyone who is rich is so because of luck, exploitation or criminality), or that the rich do not pay some unquantifiable “fair share” of taxes (often on the bogus argument that Social Security and Medicare taxes should be considered in the determination of everyone’s share of taxes[vi]).

(How policies based on “you work, I (or people for whom I have compassion) eat” is, at a minimum, not an unalloyed good was discussed in my blog post, “Income Inequality Is More Than It’s Cracked Up To Be.”)

The least helpful politicians confuse healthcare with welfare (as discussed in PART I). In the process of turning the healthcare system into a welfare system, they have made healthcare more costly and suppressed its production and innovation. This has been done by increasing regulations, adding layers of costs to the delivery of healthcare, and granting people the right to take healthcare, forcing healthcare providers to fund the delivery of healthcare to the poor and needy. For example, in 1986 Congress passed the Emergency Medical Treatment and Active Labor Act[vii] that requires hospitals to provide services to patients who show up in emergency rooms without regard to whether the patient can afford to pay for the healthcare services. In this situation, healthcare is literally free for many patients—but very costly to hospitals. Having to bear uncompensated costs suppresses hospitals’ ability to produce and innovate healthcare.

That some people cannot afford healthcare is a welfare problem; it is not a healthcare problem. There are good ways to address welfare problems and good ways to address healthcare problems. Treating both problems with one policy (forcing the healthcare system to handle welfare system problems) is extremely suboptimal. Welfare problems are public problems, and funding of alleviation of welfare problems should be fairly allocated among all members of the public. In particular, the cost of such funding should not be arbitrarily and irrationally dumped on one segment of the public, e.g., the healthcare industry. Doing so is fundamentally unfair and economically foolish.  Forcing one sector of the economy (healthcare providers) to bear a disproportionate share of the burden of a public problem unfairly punishes the industry that is producing the goods and services the poor need. It makes no sense to make more expensive (as discussed in PART I) things that poor people cannot afford[viii].

The original governmental sin with respect to healthcare was an unintended consequence of wage and price controls imposed by FDR during WWII. Shortly after the adoption of those controls, the National War Labor Board exempted employer-provided medical insurance from the price controls.[ix] The inevitable consequence[x] was that competition among employers to hire good employees caused employers to offer prospective employees more healthcare benefits. This lead to the disaster known as “employer-provided health insurance.”[xi] To understand why this is a disaster, a brief general discussion of insurance is needed.

Insurance companies generate profit (stay in business) because over the long haul, total premiums paid to an insurance company for insurance protection are more than the total amount of insurance benefits the company is likely to pay out (it is similar to how casinos set the odds so the house wins on average—some people win, but most people lose). Consequently, on average, purchasers of insurance lose money when they buy insurance. It nevertheless makes sense to buy insurance to shield the purchaser from the costs of risks (possible financial hits) that the purchaser would not be able to absorb in stride. The insured purchasers are paying the insurance company to absorb certain possible financial hits. Collectively, the people who buy insurance pay high enough premiums to cover 1) the total amount the insurer will pay to cover the actual losses collectively incurred by their customers, 2) the cost of the insurance company’s employees, buildings, taxes and other business costs, and 3) a reasonable profit for doing all of this. (On average, healthcare insurance providers keep about 20% of what they receive in premiums; i.e., insurance purchasers should expect to pay a 25% premium for anything purchased with insurance.[xii]) Because insurance is, on average, a losing proposition for purchasers (they can expect to get back, on average, only about 80% of what they paid in), people should buy insurance only to cover expenses that would be extremely hard to handle if some bad event were to happen (why pay 25% extra for a toothbrush by letting an insurance company buy it for you?). Because of government laws and regulations, the healthcare insurance that people buy (or is bought for them by their employer—which reduces the amount the employee would otherwise be paid[xiii]) typically covers costs that people could easily handle out of pocket if the event were to occur. The insurance companies love this, because they make their markup on the cost of a lot of items that employees could more inexpensively purchase directly. Employees should hate this raw deal, but, for the most part they are as oblivious to this as they are the negative consequences of nationalized healthcare.

Many people have the bizarre belief that the high cost of insurance is due to greedy[xiv] insurance companies and high CEO pay. This is a bizarre notion because less than 5% of health insurance premiums go to fund company profits and around 1% to fund CEO salaries. The total profit of the entire healthcare industry as a percentage of industry revenue is about 2%. How much happier would people be if healthcare costs were lowered by a few percentage points? Not much. In short, the profits of healthcare providers and CEO salaries are a barely noticeable part of the cost of healthcare, and without profit and CEO pay, there would be no healthcare insurance.

The greatest confusion arises when politicians and pundits talk about “the cost of healthcare.” Sometimes they use that phrase to describe 1) the out-of-pocket expenses incurred by patients who get healthcare, 2) the amount companies pay to provide healthcare insurance to employees, 3) the amount healthcare providers must spend in order to deliver healthcare services, and 4) the amount of national resources spent on the purchase of healthcare. Of course, each of these considerations is completely different from all the others. Politicians and pundits rarely clarify which “cost of healthcare” they are talking about. The examples of why it is foolish for politicians and pundits not to be clear on the costs they are addressing are many and important.

Aiding and abetting this confusion is the fact that most people obtain healthcare insurance through their employers. Thus, most people consider their healthcare to be free after a copay and small deductible. They do not realize that the company would pay them more if it were spared the cost of providing health insurance coverage—in other words, it really is costing the employees, but they do not realize it, much less know how much it is costing them.

Because most people do not realize what they pay for healthcare (and doctors typically avoid talking about the cost of care), “the cost of healthcare” is a mystery to most people. All they seem to know is, some people get cheap or free healthcare and other people don’t. As a result, many conclude that access to healthcare is arbitrary and unfair. They seek and find arguments (there are plenty of charlatans who profit from spinning this yarn) as to why healthcare should be provided to everyone at very low cost or free. They falsely assume there is no cost to relying on others to pay for healthcare. These confusions and the popular desires derived therefrom have been ripe for exploitation by politicians. Many politicians have been elected by promising to fulfill these misguided and confusion-induced, fantasy-based desires.

Everyone who understands basic economics, however, knows there are huge costs to everyone now (which will grow even higher in the future) when too many resources are extracted from wealth-producing activities and spent on wealth-consuming activities.[xv] (For more information on this topic, see “Wealth,” “Income Inequality Is More Than It’s Cracked Up To Be,” and the last endnote of PART I, Endnote #5.) For most of America’s history, a significant majority of people have understood and believed that ideals of individual liberty achieve better results for “We the People” than collectivist (socialist) ideals. However, “progressivism”[xvi] has risen up to oppose the ideals of individual liberty and promote collectivism, and progressives have gained much ground in convincing Americans that socialism achieves better results than individual liberty. The driving force behind socialism is politicians’ desire for power. Those desires are fulfilled by convincing people they will be better off if politicians and their minions (bureaucrats) control what people do, and to the extent possible, think. A primary tactic to convince people to go along with their aggregations of power is to exploit people’s envy and desires for something for nothing, and to confuse the economic reality of the proposals to deliver on their promises. One of the biggest power grabs of all is otherwise known as “Obamacare.”

The Holy Grail of progressivism has long been to gain control over people’s health. Obama’s goal has long been for America to have a single-payer system, but during his presidential campaign, he sugarcoated his position because he knew “single-payer” (socialized medicine) was unpopular with too many Americans. With control over who gets and who is denied healthcare and in what amount, the government will gain extraordinary control over the People. Unlike other socialist regimes that starve, exterminate, or “disappear” people who cling to their ideals of individual liberty (i.e., who refuse to become the “New Man” essential to a collectivist society), governments with control over a person’s healthcare can “nudge” (with the denial of healthcare) people in a way that causes them to leap to go along with the program.

The confluence of 1) a public that is more receptive to socialism than ever before and 2) a charming, funny, smart-appearing and masterful guy becoming president were the key ingredients to setting up what will likely be the coup de gras on individual liberty and the triumph of socialism (which will last until it collapses, as it invariably does). In other words, with the adoption of Obamacare, the progressives have very likely already won the struggle against those who oppose socialism. Progressives need not engage in overt acts of tyranny to impose a single-payer system because all the dominos to achieve that result have been put in place with Obamacare. A monumental change in beliefs away from socialism by a majority of Americans is the only way to avert the impending disaster. (Among many other negative consequences, a single-payer system will mean that Lord Acton’s observation that “Power tends to corrupt and absolute power corrupts absolutely” will be in full swing. Controlling people’s access to healthcare is close enough to absolute power for government work.)

The genius of Obama’s approach was to accept any bill that would result in a new universal entitlement to healthcare. Obama knew, as Jonathan Gruber so infamously disclosed, that even in 2010 the anti-socialist psyche of a majority of Americans would block a direct leap to single-payer healthcare. So, Obama actively deceived the American people about what the Affordable Care Act would do (e.g., telling them it would lower their premiums, and that they could keep their plan and doctors, etc.). The whole Rube Goldberg mess was made to appear to be an extension of the existing healthcare insurance approach to providing healthcare funding. Obama need not, and therefor did not, care much about the details of the Affordable Care Act—recall how he let Congress devise the bill. Even the Speaker of the House, who was the driving force in the House to get the bill passed, could not explain what was in the bill. More important, the details of the entitlement were not important. The only object was to pass a bill that contained a universal entitlement to healthcare. The Democrats strongly (and apparently correctly) believed that if Americans were given any entitlement to healthcare, it would eventually lead to universal, government-controlled and provided healthcare. Holy Grail achieved!

SO, WHAT IS WRONG WITH NATIONALIZED, “SINGLE-PAYER” HEALTHCARE?

Among the reasoned objections to universal single-payer (government-run) healthcare are these:

  1. Government-run services are of relatively poor quality, officiously delivered, and inefficient (for examples, see government healthcare offered by the Veterans Administration and Indian Health Service). See also:  Single-Payer Health Care: America Already Has It.
  2. Because free or nearly free, government-run healthcare always and everywhere creates more demand for healthcare than the system can provide, healthcare must be rationed. This takes the form of long waiting lines (except for the powerful) or deferring or withholding services deemed by bureaucrats to be low priority or not worth the money (and “the system’s” priorities and value judgments are usually different from the patient’s priorities, but in socialized medicine, the patient’s priorities and values).[xvii]
  3. Socialized healthcare systems generally do not provide the latest and greatest treatments and drugs because they cost more than the system can afford.
  4. Refusing to buy the latest and greatest technologies from their developers means less profit can be made by creating better treatments and drugs, and money for researchers dries up as well. (This would be a huge problem for everyone in the world because the U.S. is the preeminent source of medical research and development in the world, and there is no other country in a position to take over U.S. leadership in this area. All the other countries are either too poor or are so involved in redistributing their wealth that there is little left over to fund such activities[xviii].)
  5. Payments to healthcare providers are cut as costs mount. Cuts in payments to providers result in fewer people wanting to pursue careers in medicine and research, development and production of medical innovations slows. (This is especially bad for our children and grandchildren.)
  6. The decision of whether a patient gets healthcare (i.e., control over quality of life, as well as life- and-death decisions) will be made by bureaucrats (and granting or withholding of healthcare will be used to gain political advantage for the party in power—see the Lois Lerner Tax Scandal).
  7. Because employer- and government-provided health insurance already insulates people from the cost of the medical services they consume, people are freer to have unhealthy eating habits and lifestyles (and greater insulation from the cost of bad habits and unsafe behaviors can lead to more such behaviors).
  8. Providing healthcare to millions of people with preexisting conditions is extremely expensive, and the country is already in debt to the tune of about $20 trillion, has unfunded future commitments of several multiples of that number, and is going further in debt daily—plus, taxes currently being collected are a huge drag on the economy that inhibits job creation and wealth creation. More government entitlements will only make these matters worse.
  9. Fouling up the healthcare delivery and innovation system to address a welfare problem is a bad idea.
  10. There are better approaches to lowering the costs of healthcare. (This will be discussed in PART III.)

WHERE DOES THIS LEAVE US?

Given all of the above, all appears to be going in accordance with Obama’s plan. The belief that Obamacare is not working and is not delivering the promised entitlements at the promised costs is essentially universal. Trump’s statement, “Obamacare will soon implode and then explode” is surely as correct as such a curious statement can be. Obamacare provided coverage for people who could not afford healthcare insurance, and for those who could not get insurance because they had preexisting conditions. The stated theory of Obamacare was that the funding to provide health insurance to those who could not get health insurance would come by forcing wealthier and healthier people to buy insurance coverage they could not use at higher prices than their health risks warranted (or to be fined or taxed if they refused to go along with the program). That all of this was a smokescreen to get the bill passed was made clear when Obama authorized wavers and delays in most of the negative consequences in the bill. Obamacare was designed and implemented to fail so as to hasten the day Americans would demand a single-payer system.

For years Republicans have been passing Obamacare repeal bills knowing that Obama would veto them. That political posturing worked great for them politically so long as a Democrat in the White House would veto their bills. Now that they have the power to repeal Obamacare, will they? Surely not (though they may rearrange some of the chairs on this Titanic while retaining that which is causing it to sink, the healthcare entitlement). Regardless of how terrible the bill was for the People as a whole and all their descendants, and everyone else in the world, for many practical and political reasons, a repeal without a replacement that retains the healthcare entitlement would currently be too politically risky for Republicans.

It was fun watching the Republicans dogs running after the Obamacare car when they were sure they would never have the power to catch it. Now that they have caught the car, they have no idea what to do with it.

A repeal would mean that millions of people who currently have Obamacare insurance would lose their coverage. Once the fines in Obamacare are abolished, people would not continue to buy overpriced policies and insurance companies could not afford to provide coverage free. Many of the 11 million or more people who bought Obamacare “insurance”[xix] were people with preexisting conditions. No company would sell them real insurance for the same reason Allstate will not sell fire insurance to anyone whose house is currently on fire.[xx] Making matters worse, millions of people with preexisting conditions lost their employer-provided healthcare coverage when Obamacare became law. For the most part, the only insurance available to these people was Obamacare insurance. In short, Obamacare vastly increased the number of people who are not insurable without subsidies.[xxi] Overall, 27% of Americans have a pre-existing condition. A large portion of those people would not be able to buy insurance without a government subsidy. It is not reasonable to believe that Congress will pass a bill that takes away astoundingly cheap or free healthcare from tens of millions of people who gained it via Obamacare—especially those who lost their healthcare by virtue of Obamacare. Republicans (probably accurately) believe they would never win another election if they did so—especially if they do not convince the American people of the benefits of avoiding nationalized healthcare.

Much of what Republicans do say about Obamacare is certainly correct. For example, Obamacare is a job-killer, a huge damper on economic activity, and way too costly. Because insurance companies are fleeing the system, it will collapse of its own weight, it might take America’s economy with it, and it will hurt our children and grandchildren. For the reasons discussed above, the cost of healthcare will continue to rise as more and more people survive to live for another medical intervention in the future. These rises in costs can (and will likely) be funded by shutting off funding for medical innovation and lowering the quality of care. That has been the history in essentially all places that have socialized medicine. (Elder care is likely to be the first to be restrained.)

There is a big difference, however, between America nationalizing its healthcare system and all the other national healthcare systems around the world that have piggy-backed essentially free on America’s research, development and production of new medical treatments and drugs, thereby lowering their costs and improving their results.[xxii] That manna from heaven will no longer be able to shower those benefits on all countries, including America, once America’s healthcare is nationalized.

As bad as Republicans have said nationalized healthcare is, Trump, and now Ryan, have made matters worse by saying about healthcare that “We are going to take care of people.” Those words are indistinguishable from what Obama might have said. Most Republicans are so afraid of the public on this issue that they cannot even address the real issues, much less make the case against socialized medicine (their attacks on intricacies and adverse consequences of particular aspects of Obamacare is just making self-serving noise). Most of them continue to confuse healthcare and welfare, and, as a consequence, are proposing things that will foul up healthcare to “solve” a welfare problem. All but a few Republicans are basically saying we are going to continue the socialization of medicine, but we are going to remove the things about it that people do not like, i.e., paying for it. This approach will put America deeper in debt, suppress further research, innovation and development of medicine and make America’s economic woes worse—the opposite of what they have always said they stood for. (Why people thought Trump was either conservative or libertarian is a mystery to me.)

The country (and the world) cannot afford[xxiii] the healthcare subsidies as they are today under Obamacare any more than it can afford all the other things that created the nearly $20 trillion and growing debt. The uniformed or misinformed American people, however, will not let politicians turn off the spigots (heck, they want tax cuts too). Hopefully this blog will help inform and convince people of what the issues are and how they are not being addressed by our politicians.

If your goal is to bring the power and influence of America on the world down to an equal level with the power and influence of other countries (a manifestly obvious goal of the Obama administration), Obamacare was a huge step in that direction. If you believe, as I do, that making America weaker, less innovative and productive, and less prosperous is not a good idea for us or the other people of the world, please help me spread the word.

In PART III of this series, I will discuss alternative approaches to this very real problem.

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[i] For those who assume that today there is enough redistributable wealth to fund all the current desires for healthcare (something that I believe is a false assumption), I urge you to think about two things: 1) What happens when the formerly wealthy are no longer wealthy, as taxes drain away both the wealth they had and the motivation to produce more wealth? and 2) As even more effective and valuable healthcare enables people to live long enough to consume more healthcare in the future than they do now (because new treatments in the future allow them to survive things that would have killed them today), from where is the extra wealth to fund those additional healthcare costs going to come? (There is no reason to believe it will come from the anemic economy that will be much more similar to the economies of those countries that have nationalized healthcare.)

[ii] As for the tradeoffs implicit in various policies with respect to healthcare, see PART I of this series.

[iii] For example, it is good to share what one has with others. If, however, people share so much of their wealth that they too become wards of the state (e.g., they can no longer afford the cost of transportation to get to work, or become so financially strapped that they become depressed and unproductive), doing good creates more harm than good. As this applies to the state, if the government spends so much on one thing (e.g., national defense) that it cannot afford other things of high value (e.g., healthcare), it very well could be that the spending on one thing makes things worse overall. (On the other hand, matters could be worse if the benefits of national defense outweighed the benefits of healthcare and all the nation’s wealth were spent on healthcare. For example, a case can be made that it would have been immoral for the country not to fight another Nazi “Deutschland Uber Alles.”)

[iv] Another sad reality is that because politics require politicians to say things that are not true, the people who seek office tend to be those who are fine with lying or are too dumb or misinformed to know they are not telling the truth.

[v] The venality of half-truths was discussed in my blog post “Truth Is Hard For The New York Times.”

[vi] Some will object to my reference only to income taxes. My reference here is to federal taxes because this is a discussion of federal healthcare policy. The objection would be that payroll taxes disproportionately negatively impact non-rich employees. This is an invalid objection for two reasons:

1) Income taxes provide general funds to be used as politicians see fit. The income-taxpayer has no claim to get any of that money back. On the contrary, most of those funds are used to fund redistribution programs for which few employees are entitled. By contrast, payroll taxes are perceived to be used to fund direct benefits back to the payer of payroll taxes. So far, because that perception overrides reality, it is true for practical purposes.

2) “The rich” are entitled to a smaller percentage of the payroll taxes they pay than everyone else, and, unlike everyone else, their social security benefits are subject to income taxes.

In short, payroll taxes are like forcing employees to buy an insurance policy that will be a good deal if they live long enough. There is essentially no similarity between buying a contingent personal benefit (with payroll taxes) and paying for the general welfare of the nation (with income taxes). It is false to assume otherwise.

[vii] The emergency departments that accept payments from Medicare to provide an appropriate medical screening examination (MSE) to individuals seeking treatment for a medical condition, regardless of citizenship, legal status, or ability to pay. There are no reimbursement provisions. Participating hospitals may not transfer or discharge patients needing emergency treatment except with the informed consent or stabilization of the patient or when the patient’s condition requires transfer to a hospital better equipped to administer the treatment.

[viii] Another example of such folly is minimum wage laws that punish (by forcing employers to pay workers more than the value of their work) only those companies that produce jobs that low-skilled workers need. Wouldn’t it be better to facilitate rather than suppress the growth of those companies? What are we thinking?

[ix] The costs incurred by companies in providing employee benefits are tax-deductible by the employer and not treated as income to the employee. In light of this tax treatment, when people buy medical insurance themselves, it becomes excessively expensive.

[x] Given progressives’ quest for ever more control, there is reason to suspect that FDR intended this consequence, but a quick search for evidence that this was the case has produced none. I’ve even found assertions that this result was not intended, but those assertions appear to be based exclusively on official pronouncements (propaganda?). I would appreciate a reference from anyone who has knowledge on this subject.

[xi] Wage and price controls and their implementation caused employers to get involved in healthcare insurance. See THIS for more details.

[xii] If your $100 prescription is to be paid by an insurance company, the insurance company will charge a premium that results in it keeping 20% of what you paid. This means the insurance company will charge you $125 to pay for your $100 prescription because 20% of $125 is $25 (leaving $100 left over to pay for the prescription). This means you paid $125 for a $100 prescription. This is a really bad deal if you could have afforded to pay the $100 in stride. It can be a good deal if you would be financially ruined to pay the $100.

[xiii] In order to hire employees, employers must compensate employees in an amount approximately equal to the expected value of their work. (See my blog, Greed.) Under the current way of doing business, some of that compensation comes in the form of pay and the balance comes in the form of benefits. If benefits are reduced, pay must go up or else employees will be compensated less than they are worth. If an employer tries to compensate employee less than they are worth, the employees will take jobs with employers who will pay them what they are worth. So, in a very real sense, employees incur the cost of their benefits with reduced pay. To the extent that the benefits include paying for insurance that is a bad deal (in that it covers expenses that could be handled in stride), employees are getting a raw deal.

[xiv] Why greed is not a significant driver of profits was explored in my blog, Greed.

[xv] Clearly some healthcare spending facilitates greater wealth creation. For example, the work done by a highly productive employee after she goes back to work will more than offset the cost of healing her. Also, spending money to heal people is valuable in and of itself, and cannot be discounted. There is a huge difference in the prosperity and wellbeing of the People when people’s wealth is spent on wealth-consuming activities rather than on wealth-creating activities.

[xvi] “Progressives” have operated under this ambiguous moniker because to operate under a more honest banner (“socialist”) would have gotten them nowhere. Opposition to collectivism was too ingrained into the American psyche. As “progressives” implemented their collectivist policies, the horrors of collectivism unfolded. Rather than trying to defend the horrors—but wanting to continue their quest to have government run as much as possible— progressives changed their moniker to the venerable word “liberal,” despite the fact that most of their ideals are antithetical to what “liberal” had traditionally meant (i.e., another deception). Whenever the odor of the policies under one banner grow too malodorous to continue operating under that banner, they switch to the other banner.

[xvii] Sarah Palin has been much ridiculed for her use of the term “death panels” to describe the fact that bureaucrats will decide whether “the system” will spend money on a particular patient (assuming the patient has not already died while waiting in a queue). In some cases, the withholding of services will mean that someone dies sooner than would be the case if additional healthcare were supplied. The details of how services would be rationed were intentionally omitted from Obamacare because, as Jonathan Gruber, an advisor to Obama, said, “[Why should we deny healthcare to everyone because] we don’t yet know how to control costs in a politically acceptable way? Let’s get the people covered, and then let’s do cost control.” (If you do not like the term “death panels,” come up with your own term for what will inevitably happen with single-payer healthcare.

[xviii] What makes this result inevitable in socialist countries is that once the principle that government can and will give people stuff if they demand it vehemently enough, then no matter how much government is already giving people, there is a never ending demand for even more stuff. Given that those demanding more feel no need to consider the cost of the “free” stuff (apparently assuming the stuff is funded by unicorn poop), people remain perpetually indignant that government ever holds out on them, i.e., never happy. As a consequence the government is perpetually broke and has too little money to do that which it should do, and woe be unto any politician who suggest government cuts back on any of the stuff.

[xix] While what they bought is labeled “insurance,” those policies issued at little to no cost after the Obamacare subsidies were really disguised welfare payments to people whom the act deemed to be poor.

[xx] Note that is not the insurance company’s fault that the person needing healthcare (or to have their burnt house replaced) are in that condition. They are in the businesses of selling a product that people want and need to protect themselves in the event people find themselves in those conditions in the future. Moreover, people who have a preexisting medical condition don’t need healthcare insurance; they need money to buy healthcare. Friends, family, charities, and governments hand out money to people expecting nothing in return. Businesses cannot do that and continue to provide their products to people who need them.

[xxi] Normally subsidies work like this: Taxpayers and buyers of bonds pay money to government. Government gives that money to people or companies who are entitled to subsidies. “Subsidies” in the Affordable Care Act (Obamacare) do not fit that description. Obamacare “subsidies” are funded by purchasers of insurance, not taxpayers and bond holders. Purchasers of healthcare are forced to pay an amount equal to what their insurance would cost the insurance company, plus an additional amount needed to fund some or all of the insurance poor people and people with preexisting conditions would get under Obamacare, or pay a fine or tax to fund other people’s insurance. This is all a ruse to get people to believe that Obamacare will not make the budget deficit worse. None of the numbers worked out when Obama delivered benefits on schedule and deferred the requirements to fund the benefits.

[xxii] Have you noticed that the same drugs in foreign countries are much cheaper than they are in the U.S.? That is because foreign healthcare agencies can, with credibility, say that if the drug companies do not sell the drugs at slightly above the cost of manufacture, they simply will not make those drugs available to their people (i.e., they will not buy them). The drug companies can make a little profit from sales to foreign governments, which is better than foregoing that profit. But the amount those governments pay is too little to fund the cost of research and development of new drugs. Because the higher costs charged to Americans are worth the benefits from the drugs and they can afford them, Americans fund most of the research and development of new drugs that is done in the world. In short order, a national healthcare agency in America will also have to cut what it pays for drugs. American R&D will then look like the R&D in the rest of the world, much to our and the world’s chagrin.

[xxiii] What “afford” means in this context will have to be the subject of another blog. The last Endnote of PART I, Endnote #5, however, provides some highlights.

Obamacare – Repeal, or Repeal and Replace? PART I

The U.S. healthcare system was unsustainable before Obamacare and is even less sustainable with Obamacare. The implosion of Obamacare is happening before the eyes of anyone who is willing to look. The nation is at a crossroads: The nation will turn to either a collectivist “solution” or a more free market “solution” to deal with the demise of Obamacare. The quotation marks around “solution” are there to imply that neither approach will solve all of the problems of healthcare. Each presents a different set of tradeoffs. The issue before the House (and the Senate and the nation) is which direction we should take. The answer will be momentous.

The issues that must be understood to make a sound decision about healthcare are many. Why are both the pre-Obamacare approach and the Obamacare approach to healthcare so unsustainable? Why is there mass confusion about what to do with U.S. healthcare? What are the tradeoffs of both paths? All of these issues desperately need to be sorted out, and this topic is too large to cover in one blog post.

This is the first post of what is planned to be a three part series. Part I explores why the pre-Obamacare approach and the Obamacare approach to healthcare are unsustainable (the understanding of which is essential to responsibly supporting any healthcare policy). Part II will explore how politicians and pundits are confounding a clear understanding of what is at stake with changes to healthcare. Part III will explore the better approach to dealing with healthcare.

Let’s get started.

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Everywhere and always, people’s need and ability to pay for healthcare varies from one person to another. Much has changed about healthcare over time, especially its effectiveness, its cost of delivery, and the skills needed to deliver it. Another important change is the growing sentiment that people’s access to healthcare should not be limited because they cannot afford healthcare. In light of the greater wealth today, the growth of those sentiments is understandable, but the extent to which they should be accommodated is an important issue. The rationales for and benefits of greater access to healthcare are obvious and well-chronicled. Understanding “the cost of healthcare” is as essential to good policy as understanding the benefits. The public discussion of the costs of healthcare is mired in confusion, however. The following discussion will hopefully bring some clarity to the subject.

Neither politicians of any party nor the press are telling the People about the real issues and problems of Obamacare. Essentially, every discussion of the cost of healthcare confounds the important difference between the cost paid by a patient for healthcare or health insurance with the cost of delivering healthcare. I fear that the more that people listen to the confused public debate about healthcare costs, the more misinformed they become. Supporting a particular policy without a reasonable grasp of its positive and negative consequences is both irresponsible and foolish. Teasing out the real and hard issues about healthcare from what you hear from Washington is essential to deciding which policy to support. Let’s try to sort this out.

We should start with the basics, first taking the perspective of healthcare providers and then taking the perspective of healthcare consumers. Healthcare insurance (how the costs of healthcare are managed) is a different subject that will be discussed later.

PROVIDERS: For there to be healthcare, people must produce healthcare. Therefore, the producers of healthcare must be paid enough to induce them to produce it. The more profit that can be made from producing affordable healthcare, the more healthcare will be produced; and the greater resources and incentives there will be to improve healthcare goods and services. Just as important, the less profit that’s available from the innovation and provision of healthcare, the less innovation and provision there will be.

CONSUMERS: From the healthcare consumer’s perspective, when a person or her family needs healthcare, few things are as important and pressing as acquiring healthcare. Consequently, people are willing to give up or forego many other things when someone’s health is in jeopardy. On the other hand, everyone prefers to give up as little as possible to gain the things they want, including healthcare. In addition, while people are willing to give up a lot for healthcare, they generally are not willing to give up everything they have for healthcare (and buying health at a cost that leaves no money for other things, including food, shelter, or clothing, can be a bad choice). Additionally, the most important economic consequences of this are: 1) the less a person must give up to get the things she wants (e.g., healthcare), the more of those things she will consume, and 2) on average, the more things people have to relinquish in order to acquire healthcare, the more likely they will be to do what they can to avoid the cost of healthcare (including adopting healthier and safer lifestyles), i.e., the less healthcare they will consume. (Note: This is one main reason that extra taxes are imposed on cigarettes – to encourage healthier lifestyles and a lower consumption of healthcare.)

THE CONSEQUENCES: If unicorns dined exclusively on rainbows and pooped money and the government had a large enough stable of unicorns, the fact that neither the pre- nor post-Obamacare systems did much to induce less demand for healthcare would be a non-issue. The government would just make sure it had a large enough stable of unicorns to induce healthcare producers to produce enough healthcare. Inasmuch as the cost of healthcare is huge and there are no unicorns, however, what the government does with respect to healthcare has a huge impact on the delivery of healthcare, the pace of innovation in medical treatments, and the economies and people’s health in the U.S. and around the world. This means that we had better come up with a good set of tradeoffs.

The immutable reality of healthcare is that the demand for partially or fully subsidized healthcare (nearly or fully free healthcare) is exceedingly high while the amount of healthcare that will be produced free or nearly free (or even below the cost to produce it) is exceedingly low. The same is true of food. A big difference between the purchase and sale of food and healthcare is that food is, for the most part, purchased in a vastly freer market: i.e., there are many fewer subsidies for and government tinkering with the manufacture and delivery of food than the same for healthcare (and subsidies are only available for poor people and are funded by general government funds instead of other purchasers of food insurance). Food transactions are between the buyers and sellers of food – with the buyer bearing the costs of her decisions as to what she can and should afford. (Other big differences exist, but they are not relevant to this discussion.) While some people shop for food at Walmart and others at snooty gourmet stores, for the vast majority of people, there is a large supply of life-sustaining food at prices they can afford. For those who cannot afford food, there are charities and welfare programs to address that problem. As a result, obtaining food is easy and reliable because food is accessible and affordable to everyone (or to as close to everyone as the government can be expected to achieve).

The salient point of the previous paragraph is that the country has not messed up its food delivery systems by turning them into welfare programs. The food delivery system works much better than the healthcare system because the government has stayed out of the production and delivery of food to a significantly greater extent.

So, for some inexplicable and serendipitous reason, politicians appear to understand that not being able to afford food is a welfare problem rather than a food delivery problem. As a result, they have kept their sticky fingers (some of any money that passes through the government tends to stick to the politicians’ fingers) out of the delivery of food. For an all-too-explicable[i] and premeditated reason, however, politicians have treated the problem of people who cannot afford to buy healthcare as a healthcare problem, i.e., not the welfare problem it actually is. The confusion of healthcare with welfare by politicians and pundits has mired us in nearly hopeless confusion and bad public policy and policy proposals. If Americans do not wise up to this confusion, things will continue to get worse.

In sharp contrast to food, most purchases and sales of healthcare take place in highly regulated markets in which intermediaries (insurers, employers, government bureaucrats, and politicians) involve themselves in the acquisition and delivery of healthcare. So, unlike freer market transactions, the cost of “healthcare” includes payments to multiple intermediaries who are not providing healthcare. All of these third parties add thick layers of costs to the cost of purchasing healthcare.[ii] That adds greatly to the cost of healthcare, but that is only one of the problems with the government’s involvement with healthcare.

In addition to adding layers of costs, the process of siphoning off so many healthcare dollars to intermediaries creates other huge problems. Perhaps the biggest issue is that it reduces the amount of money received by the healthcare providers. This is a problem because with less money to be earned from providing healthcare, less healthcare is produced, i.e., healthcare is scarcer than it would be without the intermediaries. The scarcer something is relative to the demand for it, the higher its price will be. (No man-made law can overcome this immutable law of economics.) So the presence of intermediaries not only adds layers of costs, those costs are layered on top of artificially heightened prices because of the siphoning of money to intermediaries.

Siphoning: Another big problem is that, when the government sets the rules of money flowing from some parties to others, how these rules are written and enforced makes a huge difference in where the money flows. When the government controls the flow of money, it can be profitable for businesspeople to do what they can to cause lawmakers and regulators to make and apply rules that send more money toward their businesses. The government exercising power over the flow of money not only invites corruption and costly lobbying, it welcomes and encourages it. Businesspeople paying politicians (via campaign contributions or otherwise) increases politicians’ chances of getting reelected. The richer the big companies become, the more money they will have available to give to politicians. This creates an unvirtuous cycle by causing politicians to do even more favors to induce more campaign contributions. The accumulation of special advantages from regulatory schemes confers monopolistic powers to large healthcare companies (enabling overcharging) – which leads to more healthcare money being siphoned off from the provision of healthcare to company profits and campaign contributions. The more the government gets involved in healthcare, the more healthcare dollars get siphoned off to things other than providing and inventing new and better forms of healthcare. In short, government involvement greatly increases the cost of healthcare.

There are negative consequences of giving welfare money to people who cannot afford healthcare, but doing so would cause healthcare to be much cheaper than is the case under the current system.

The artificially high demand for healthcare caused by subsidies to patients[iii] also artificially increases the cost of healthcare. In a system in which 1) people rely exclusively or to a great extent on others (e.g., employers or the government) to pay for their healthcare and do not directly bear (or even perceive) more than a small fraction of the total cost of providing the healthcare they consume, and 2) much of what they pay for healthcare does not reach the healthcare providers (because of siphoning), people’s unconstrained demand for healthcare will always be greater than the constrained supply of healthcare. (The supply of healthcare is constrained by the fact that providers must be paid in order to buy and maintain equipment and facilities and hire highly skilled people to provide the healthcare.) This causes the cost of healthcare delivery to increase because of the excess of demand for services relative to the supply of people willing to provide services for what little is left after all of the siphoning.

Note that whether people do or do not have a “right to healthcare” is irrelevant to the economics with respect to the provision of healthcare. The immutable economic reality is that if healthcare is to be provided, the money needed to produce its production must be paid for with funds that could be used for other beneficial things. If the costs of healthcare are unnecessarily high, the amount of money that must be withdrawn from wealth-creating activities and spent on wealth consumption increases. As discussed in my blog on “Wealth,” shifting resources from wealth creation to wealth consumption slows the rate of wealth creation, and slowing the pace of wealth creation creates a separate set of problems both in healthcare innovation and elsewhere.

In short, the cost of spending money on healthcare is exceedingly high, especially in terms of the kind of world we will deliver to our children and grandchildren and their children and grandchildren. For example, spending on the consumption of healthcare includes money that will not be used to invent and develop better medical treatments and other life-enriching things. Given such a high cost of spending on healthcare consumption, it is selfish and unwise to support policies that cause the cost of healthcare to be higher than it needs to be.

STRUCTURAL REALITIES OF HEALTHCARE: With the background presented above, we can now turn to longer-term structural issues related to healthcare.

The effectiveness (and therefore the value) of healthcare constantly improves. Technology is constantly making available improved lifesaving and life-enriching equipment, techniques, and drugs that enable people to live ever-longer lives. As a result, there are progressively more and better things to buy for one’s health, and buying them allows people to live on and consume healthcare that cures or ameliorates conditions that they would not have survived in earlier times. In other words, people consume exponentially greater amounts of more valuable healthcare over time. The per-person consumption of healthcare over a lifetime has increased significantly, and there is every reason to assume that it will continue to increase in the future (unless the government blocks people from obtaining healthcare or shuts down innovation in healthcare – which countries that adopted nationalized healthcare have done to a large degree). The amount of money needed to provide healthcare also rises as new devices and procedures become available. The number of doctors with the skills needed to deliver that healthcare also increases. It takes a lot of money to induce people to endure the many years of study and preparation and constant updating required to be a good physician; to pay for medical research and the development, manufacturing, and delivery of new methods and devices; and to pay for the buildings, equipment, and staff to provide that healthcare. In addition, because regulatory hurdles are constantly being raised, the cost of introducing improved treatments and drugs, and the risks of being sued for malpractice in the event of a mistake have grown, the cost of innovation has and will likely to continue to increase.

So, the more that medical treatments improve over time, the more valuable and expensive they become, and the more people will want medical treatments. Because of the higher cost and value of these wonderful new treatments, there will likely be even more people who cannot afford to defray the cost of their delivery. From a national perspective, we must multiply these multiplying costs by a growing number of citizens. Is any of the above a “healthcare problem”? No. It is a wonderful miracle and a blessing that medicine has so improved and that people can live longer, healthier lives. We must acknowledge, however, that these miracles and blessings to mankind[iv] are and will continue to be a growing welfare problem. This welfare problem will be made more costly if we continue using the same approaches to healthcare as are currently in place.

The government has promised, “It’s going to be — what my plan is is that I want to take care of everybody” (Trump). This approach, however, creates no limits or inducements to cause people to choose less healthcare and retains a high degree of government involvement in the delivery of healthcare. Therefore, the country probably does not have the financial resources to deliver on that promise without destroying the economy (which will lead to even fewer resources). If an insufficiency of resources is not true as of this minute, it will be so soon.

In conclusion of PART I, any alternative to Obamacare that enables everyone to have whatever healthcare they want at little or no cost to them will be both unworkable and unaffordable[v] and is funded and controlled by sticky fingered politicians subsidizes unhealthy lifestyles, would 1) raise the cost of the delivery of healthcare, 2) suppress the amount of healthcare produced, 3) suppress the invention of better medicine, 4) allocate an unlimited amount of the nation’s resources to healthcare – whether or not there are more urgent need for that money, and 5) would bequeath to our children a drained economy loaded up with event more debt and unfunded promises.

So how are politicians dealing with this reality? Stay tuned for Part II.

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[i] Sadly, this is a politically acceptable (but deceptive) way for politicians to grab additional power for themselves.

[ii] That most people get health insurance through their employers is the result of government policy. How detrimental and costly that way of purchasing healthcare is, however, is the subject of a future blog. Do note here that the cost of groceries would be considerably higher and more cumbersome if they were being purchased through intermediaries. Note also that: 1) Much of routine healthcare that could be purchased directly is currently being purchased through insurance companies – much of which is purchased by employers; and 2) The cost of medical procedures that are not covered by insurance (such as Lasik and cosmetic surgeries) has fallen rapidly over time as the quality of the results has improved. Compare and contrast that to healthcare bought through insurance companies.

[iii] Unlike most government subsidies, which are funded by general funds, the subsidies provided to those who cannot afford or are ineligible to buy health insurance through Obamacare are designed to force some healthcare insurance purchasers to pay for insurance coverage that they cannot use and to overpay for insurance that they could but probably won’t use.

[iv] The medical treatments, devices, and drugs, most of which are developed by U.S. companies, eventually become available to people around the world. Without the fountain of U.S. medical research and development, most of the recent advances in medicine would not be available to anyone in the world. (Germany used to be the world leader in medical research, but the German medical industry has become too regulated and socialized to retain that position.)

Note also, much of the medical research and development in other countries is justified only by the expectation that wealthy Americans will pay market prices for the good ones (something their nationalized healthcare system will not do), i.e., those drugs would not be invented absent wealthy Americans willing to purchase them.

[v] By “unaffordable” I mean that the country will not be able to afford it. The federal government could not afford to do all that it was doing back when Obamacare was enacted (in fact, it was over $13 Trillion in debt and it was annually spending about twice the amount of tax revenue it was collecting – and none of its unfunded promises to pay even more in the future were not included in the national debt figure). Taxing more would suppress the economy even more. A suppressed economy would result in fewer jobs (when we need more jobs), which would lead to fewer taxpayers and more people in need of government help.