Obamacare and the fallacy of socialized medicine

Following the rollout of Obamacare over the past few months, many Republicans have watched with much schadenfreude this spectacle of horrendous government ineptitude unfold.  But before they get carried away doing their “I told you so” dance, there are a couple of points to acknowledge and address.

First, Democrats defend themselves by reflexively pointing out that the American healthcare system before the Affordable Care Act (ACA) had some serious problems, which is what prompted them to action.  Fair enough.  Then, replete with snark and smarm, they ask where the GOP alternative is.  That is the trap.  Understanding the desire exists to come up with an alternative plan or amend the existing ACA so as make it palatable, we have to question if any band-aid can be successfully applied.  As anyone knows, if you misdiagnose a problem, the treatment regimen will be ineffectual at best, harmful at worst.

Addressing the first assertion, most agree that the healthcare system had many problems before Obamacare, but can’t really articulate why.  Not everyone could get coverage and prices of goods and services were too high……….but why?  I believe the answer lies in economics.  When you subsidize anything, you invariably raise the price of it because you are artificially lowering the cost to the consumer and thus increasing demand.  That, in turn, contributes to a feedback loop that distorts the price of everything that sets its price based on the value of the initial good.

This applies to healthcare.  Government programs like Medicaid and Medicare sowed the initial seeds of failure within the healthcare system by artificially setting prices (in the form of reimbursement costs) of everything from pills to MRIs to hemorrhoid donuts by government fiat instead of letting markets determine the price.  Once those initial goods and services had their true prices distorted by government intervention, the prices of everything else related to them followed suit.

Since the price the government sets differs from the actual cost 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.  But now, everything else that had been basing its cost relative to those items/services had to rise as well, hence the upward cost spiral that has people paying $30 for an aspirin at the hospital and hundreds of thousands of dollars for major surgery.

This leads us to the misdiagnosis by the Democrats.  Their solution (socialized medicine) injects MORE government into the market, which is the EXACT OPPOSITE of what should be done.  This reminds me of a poignant quote by German economist Roland Baader, who observed that “the political caste must prove its right to exist, by doing something.  However, because everything it does, it does much worse, it has to constantly carry out reforms, i.e., it has to do something, because it did something already.  It would not have to do something, had it not already done something. If only one knew what one could do to stop it from doing things.”

The correct prognosis, of course, is to let the free-market do what the free-market does—supply will meet demand and the resulting equilibrium will set the price of the good or service, all without government intervention.  Impossible?  Then answer how Devi Shetty, the “Henry Ford of heart surgery,” is able to provide cardiac surgeries at a tenth of the cost it would be in the US at his hospital in India.  It is partly because he leverages economies of scale, but mostly because of the simple fact that if he charged $20K-$100K to poor rural Indians, he would have exactly ZERO customers.  What happens then?  The doctor cannot make a living and leaves and the community is left with many people with untreated cardiac afflictions.  Nobody wins.  Which brings us back to the simplest maxim of economics; something is worth what someone is willing to pay for it.  That’s it.

Further, the second and third order effects of this help are almost always negative and exacerbate the initial problem.  By “socializing” healthcare, we’re actually harming society as a whole.  Why take care of yourself when you can foist the costs of your irresponsible behavior onto everyone else?  When you don’t have to directly pay for the consequences of your poor choices, you make more of them.

Now, there is a legitimate debate that can be had about any government involvement within the healthcare system, and I stand ready to have it.  For example, to protect against pandemic airborne diseases that could negatively affect American society as a whole and are not resultant from poor individual choices, it can be argued that government entities such as the Centers for Disease Control (CDC) fall under the general welfare clause of the Constitution and should receive federal monies.  After all, airborne pathogens do not recognize state boundaries or socio-economic status.  But that is a far cry from a government agency that dictates what treatments I can have or what a particular service should cost.  Unfortunately, no one seems to have thought that far ahead, certainly not those who conjured up this Obamacare monstrosity in the first place.