"National Health Insurance Will Increase the Cost of Medical Care"

National Health Insurance Will Increase the Cost of Medical Care

by R. Morris Coats

Thibodaux Magazine, 23(3):12-13 (June 1992)--slightly revised

This leap year has brought us another presidential campaign with another mixed bag of good and bad ideas.  One good idea belongs to former Sen. Tsongas, that government cannot be Santa Claus, nor should it be, Santa Claus.  Another good idea was being touted by Jerry Brown, Hall and Rabushka's idea of the simple, flat income tax.  If passed, it would force many of our nation's brightest people, our CPA's, to finally do something that is socially useful.

Those are the only good ideas I've heard so far.  The bad ideas are leading the good ones by quite a few laps.  The worst ideas are those on  national health insurance or on federally subsidized  health insurance.  People are, and should be, upset by the unbeleivable high cost of medical care.  Though the diagnosis of the problem may be correct­­that medical costs are too high­­the incorrect treatment has been prescribed, a treatment that would just exacerbate the ailment.

In the 1840s Mountifort Longfield of Dublin noticed a similar problem.  England's poor subsisted primarily on wheat flour during this period.  When wheat supplies would drop because of poor harvests, the increase in wheat prices hit the poor of England very hard.  Wealthy Englishmen, in attempting to help the poor, bought wheat at the market price and resold it to the poor at half price.   Longfield pointed out to these wealthy benefactors that the artificially reduced price increased the demand of wheat by the poor to such an extent that the price payed by the poor was about what it would have been without the charity.  The ones who really gained by this charity were the wealthy grain growers.  What we learn from Longfield we already knew:  that price is determined by the interplay of supply and demand and if we subsidize a given good or service, reducing the effective price to the individual, we stimulate demand to such an extent that the buyers may end up paying about what they would have payed without a subsidy.  

This problem is an illustration of a fallacy in logic called the "fallacy of composition," that what is true of a part must be true of the whole (a fallacy).  If I stand up at a football game, I can see the game better, but if everyone stands up to watch the game, the view is not better.  Though medical insurance reduces my cost for an medical care, it does not reduce the cost to the society.  Others covered by the same insurance pay higher premiums.  If each of us pays only small fraction of the cost for an additional trip to the doctor because of increased coverage, we may end up paying as much per trip with everyone covered as we would have with no one covered, but now the doctor makes much more, just as the wheat growers in Britain made more when the wealthy subsidized the grain for the poor.

Subsidizing the cost of medical care increases the demand for medical care, whether this subsidy comes from the government or comes from others in a risk pool with health insurance companies.  Higher demand means higher prices unless supply is also increased.  Further subsidies means further increases in medical costs.  Perhaps, increasing the subsidies to medical care may not bring about the result we desire­­to lower medical costs.

Laying the blame on technology is also not the answer.  Increased technology brings about either higher quality or lower prices or both.  That MRIs and CAT scans are readily available to all who are covered by medical insurance points how much insurance has increased demand for better diagnosis and better treatment. 

Similarly, laying the blame on the high cost of malpractice insurance misses the point.  These premiums would not be high if doctors could not pay the high premiums.  It is only because the demand is so high that the price is so high. 

"Cost containment" is often suggested as a way to control medical costs.  Price controls have always had one serious flaw that should not be overlooked; they cause severe shortages.  Then some committee decides whether you get heart by­pass surgery or if you will have to wait six months.  This is how cost containment works in Canada and Britain.  Cost containment is access containment. 

Now, Canadians and citizens of other countries (if they are wealthy enough) often come to the United States to get surgery and other treatment.  This is not only because we have no shortage situation in health care as they do (we only have serious waiting lines in our "free" hospitals, such as the VA hospitals and Louisiana's own Charity hospitals), but also because there is an incentive in the U.S. for medical research and for providers to keep up with the latest medical techniques.  For instance, Canada's hospitals use 1940's nursing procedures.  The U.S. may be one of the few industrial nations without national health insurance, but because of that, we are the world's leader in health care research.  If the U.S. adopts some kind of national health insurance scheme, Canadians will not come here for health care and we certainly cannot go there. 

One possible solution would be to outlaw basic medical coverage, allowing only major medical and catastrophic health coverage.  This would be much like outlawing the practice of selling the grain to the poor at half of the market price.  Such a restriction would severely curtail our freedom to contract, and I am not sure that such restrictions would be a good idea.

The way to decrease medical costs without decreasing medical care demand and quality is to increase supply­­the supply of doctors, of nurses, and of other health professionals.  How can this be done?  It is simple.  Take away control over entry into health­care professional schools from the professional organizations, the health­care unions, the AMA, the ANA, etc.  These organizations restrain the output of health­care professional schools, limiting supply of doctors, nurses, therapists and technicians.  The membership of the health­care organizations have a vested interest in keeping the supply of medical personnel in check. 

It is often argued that these restrictions on the schools' enrollments are to maintain quality, but what is the quality of medical care we can no longer afford?