Health Care Predictions
August 10, 2009
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Posted by Michael S. Langston
One of the main issues with socializing large chunks of any part of society is the perversion of incentives.
When the government gets involved in more and more social control through the legislation, the incentives towards rational behavior changes.
For instance, when Fannie & Freddie, quasi-government agencies, bought up bad loans without proper auditing controls, the banking system went from ensuring secure loans for their investors to pushing loan origination fees and pushing the risk to Fannie & Freddie.
In the end of course, due to corrupt business leaders & reckless consumers gaming the system combined with Fannie & Freddie continuing their bad practices, a larger portion of the economy suffered as a result.
But using game theory and basic human behavior it is almost expected. Indeed, lots of prominent economists, politicians, statisticians, and many others told us we were heading to exactly where we are.
The reason is the government changed the game by making owning a home a perceived no risk situation. This had one major affect: it increased demand artificially.
By artificially lowering the costs, you in turn artificially increase the demand causing artificial shortages causing an increase in prices & so on…until something gives.
Whether increasing demand for homes or for medical services through universal health care, the results are bound to end up the same.
For example, France is having severe issues on the amount of money health care is costing them (see here):
…In recent months, France imposed American-style “co-pays” on patients to try to throttle back prescription-drug costs and forced state hospitals to crack down on expenses. “A hospital doesn’t need to be money-losing to provide good-quality treatment,” President Nicolas Sarkozy thundered in a recent speech to doctors.
And service cuts — such as the closure of a maternity ward near Ms. Cuccarolo’s home — are prompting complaints from patients, doctors and nurses that care is being rationed…
Of course as we know, all health care is rationed, but here in France, Ms. Cuccarolo had issues with having a hospital capable of delivering a baby close by:
When Laure Cuccarolo went into early labor on a recent Sunday night in a village in southern France, her only choice was to ask the local fire brigade to whisk her to a hospital 30 miles away. A closer one had been shuttered by cost cuts in France’s universal health system.
An issue America doesn’t currently have as we don’t tend to close hospitals at all.
The reason they are missing access to the care they need is because the costs have gotten out of control. The reason costs are out of control is because the government changed fundamental market incentives by artificially increasing demand. Since it continues to artificially increase demand, these problems will continue forward and continue to get worse.
As Cato noted in one of it’s recent policy analysis papers (see here):
…Supporters [of Universal Health Care] claim that a new government program could deliver higher-quality health care at a lower cost than private insurance, and that competition from a government program would force private insurers to improve.
A full accounting shows that government programs cost more and deliver lower-quality care than private insurance. The central problem with proposals to create a new government program, however, is not that government is less efficient than private insurers, but that government can hide its inefficiencies and draw consumers away from private insurance, despite offering an inferior product….
This fundamental perversion of normal market conditions, leads not only to scarcity problems, but also to a system whose costs will continue to unnecessarily rise faster over time.
So whether we see this played out in the housing boom/bust, see it playing out in health care in France, or see it play out here if we go down this road, the results will likely be the same.
Categories: Economics, Free Market Principles, Game Theory
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