In recent years, there has been a strong push for a universal healthcare plan in the United States. Many would like this reformed healthcare system to emulate the European national health plans. People across the country see that our healthcare system is in crisis, with millions of people who are uninsured and prices that are skyrocketing.
The American healthcare crisis is actually one of affordability rather than access to healthcare. There are very few people who cannot find healthcare; the problem is that many people cannot afford the healthcare that is available. This is true even though laws require hospitals to treat patients regardless of their ability to pay.
A common myth is that universal government healthcare would be free or cost less than private healthcare. This belief violates several economic principles. First, the money to pay for health professionals, medicines, and facilities has to come from somewhere. If consumers don’t pay for these services directly, they will pay indirectly through higher taxes. Second, as the perceived price decreases, demand will increase. In other words, when people believe that they won’t have to pay for their healthcare, they will use more health services.
As demand increases to exceed the available supply of health services, the government will have to take action. The government will have to limit the amount of services to keep the cost of the healthcare system from exploding. There are several ways to do this. First, they might impose rationing and limit the availability of services. A second option would be increase the amount that patients pay for their healthcare. This could be similar to the health insurance premiums and co-payments that many health insurance policies contain now. A third option would be for the government to do nothing and simply allow shortages to build in the system.
A third problem is that government healthcare will likely create a shortage of healthcare professionals. The government will undoubtedly attempt to rein in costs by imposing price controls. It has already followed this strategy in government healthcare programs that have already been enacted such as Medicare. Medical training, especially for doctors, is a long and expensive process. The motivating factor for many doctors is the financial reward at the end of the process. When the government removes the financial incentive for becoming a doctor, fewer people will choose to become doctors and shortages will result. This is especially likely due the increasing need for doctors in the United States and the Baby Boom generation ages.
These problems can be seen in national healthcare plans around the world. Even highly touted plans such as those in Britain and Canada commonly have long wait times for care that is easily available in the United States. Last year it was revealed that government bureaucrats in England had attempted to solve the problem of long emergency room waits by keeping thousands of patients, some critically ill, in ambulances for as long as five hours before moving them to the emergency room waiting list. This, in turn, meant that the ambulances were not available to help other sick or injured people. It should not be surprising that many Europeans and Canadians who can afford it travel to the United States for health care rather than waiting in line for “free” care at home.
The problems are not just in other countries. In 2006, Massachusetts passed a state healthcare plan. Former Governor Mitt Romney touted the legislation in his bid for the 2008 Republican presidential nomination. More recently, the state has begun to experience many of the same problems plaguing nations with socialized healthcare.
Recent statistics show that visits to emergency rooms in Massachusetts have increased since the health reform went into effect. The percentage of uninsured patients in ERs has not changed (in spite of laws making health insurance mandatory), while the percentage of more affluent patients, who in the past got care at a doctor’s office, has increased.
Similarly, the dramatic increase in the numbers of people seeking care has made it difficult for many patients to see a primary care doctor. This is compounded by the fact that doctors are allotted a certain amount of time that they are paid for with each patient. If they exceed this time, they are not compensated for the extra work.
The Massachusetts government had hoped that the legislation would encourage more employers to provide health insurance for their employees. Instead, the newly insured people of Massachusetts are primarily involved in state paid or subsidized programs. 16% have their health insurance paid by the state through Mass Health, while 41% are enrolled in the subsidized Commonwealth Care. In all, about three-fifths of Massachusetts residents receive free or subsidized health insurance. Approximately 5% of the people of Massachusetts remain uninsured.
The high number of people receiving government assistance for their health insurance has led to rapidly increasing costs for the state. The cost of Massachusetts’ plan has increased by a staggering 42% since 2006. In order to control costs, current Governor Deval Patrick is considering price controls, limits coverage, more exclusions, and an overall spending cap.
The federal government already faces similar problems with Medicare. Medicare is an unfunded liability that poses huge problems for our budget over the next few years. Medicare will soon begin paying out more money than it takes in and will be bankrupt by 2019 unless changes are made to increase Medicare taxes, cut benefits, or some combination of both.
Some countries in Europe may go a step further by limiting the treatment available for the elderly, terminally ill, and infants. The amount of return in the form of tax revenue from these patients is limited, so the government health bureaucracy doesn’t want to spend resources on expensive cures and treatments. In Holland, euthanasia is already common, both for the elderly and for infants with health problems, sometimes without parental consent.
The best way to solve the healthcare crisis in the US is to reintroduce competition. Most Americans are locked into employer health plans with specified co-payments. Because there is no choice of coverage and no price difference between doctors, there is no incentive to shop around for a better deal. Most people don’t even know how much their doctor visits cost beyond the co-payment or deductible.
Employer paid health insurance should be eliminated in favor of health savings accounts (HSAs). Consumers should contribute money to their account and use it to pay for care. If money is not spent, it should stay in the account, earning interest, until needed or until the consumer meets the requirements to withdraw it for other purposes. This would encourage people to shop for a good and inexpensive doctor, and also discourage frivolous claims.
Similarly, state governments should resist the temptation to make health insurance all things for all people. When laws mandate coverage for things that not all people want, it drives the costs up for everyone. For example, not all people want or need coverage pregnancy, sex changes, chiropractors, or “recreational” drugs such as Viagra. People should be allowed to buy simple and cheap major medical policies for no-frills coverage. If such a policy is not available in all states, people should be allowed to cross state lines to purchase it.
Some of the best advances in affordable coverage in recent years have come from the private sector. For example, Wal-mart introduced $4 generic prescriptions and was followed by several other chains. Now consumers can get prescription antibiotics totally free at Publix. Similarly, some stores now offer on-site clinics staffed by nurses for minor healthcare.
Universal government healthcare has been tried around the world and has typically not worked well. If it is enacted in the United States, we can expect to move from our private health system to one that has the efficiency of the DMV, the cost of the Department of Defense, and the bedside manner of the IRS. Is this the change that most Americans are looking for?
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Originally posted April 2009
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