The Democrat's Health Care Problem
Editor’s Note: The following was partially featured as an article in the Washington University Political Review’s December 2009 edition.
The Problem:
Regardless of political ideology, everyone should agree that health care reform is necessary. Health care costs are rising faster than inflation, but we haven’t come to an agreement on the best way to lower costs. In reforming health care, we must not tear up the foundations of our current system because it is evident that the United States has certain strengths: the United States has higher breast cancer (84% to 73%) and prostate cancer (92% to 57%) survival rates than those in Europe. Also, we have 4 times more MRI per capita and 2 times more CT scanners per capita than Canada has. Challengers to our system cite our lower life expectancy and higher infant mortality rates than those in other developed countries. However, these facts are misleading: our homicide rate is one of the highest of any country while we also lead the developed world in teenage pregnancies. Although homicide and teenage pregnancies are problems, we would be remiss in using this information to crush the foundations of our health care system.
The Democrats want to completely overhaul our health care system despite that the fact that the fundamentals of health care in our country are strong. According to the World Health Organization, the United States health care system ranks first in responsiveness, the area that counts for the least but should matter most. At risk infants have the best chance of survival due to the availability of inutero neurosurgery and neonatal intensive-care units. Approximately 47 million Americans are uninsured, but this number fails to take into consideration that approximately 10 million are illegal immigrants, 18.3 million are under 34 years old, and 9 million are making more than $75,000 per year and chose not to be insured. Although that leaves a large number who need coverage, the prospect is not as daunting as it may seem. Drastic change is not needed. The Democrats’ plan to fix health care has more flaws than the number of Botox injections given to Nancy Pelosi. Some flaws stand out more than others.
The Democrats fail to account for the economic challenges health care companies face:
Democrats have fed the American people the perception that health care companies are evil, profit craving corporations. What the Democrats fail to acknowledge is that health care companies aren’t making the profits we think. Fortune 500 ranks health care as America’s 40th most profitable industry, making only a 3.3% profit margin. To put it in perspective, the strapped-for-cash airline industry has a 3.6% profit margin. Low profit margins are due to a variety of factors. First, the health care industry is a victim of adverse selection. Healthy, young people forgo buying health insurance because they deem it unnecessary while older, sicker people are the ones who have a higher demand for health care, thus causing insurers to charge more. Thus, healthy people are put off by the high prices and the cycle continues. Furthermore, the industry is a victim of moral hazard; those who have health insurance are people who will act differently because of it. An individual is more likely to request a more expensive procedure if he or she has insurance as opposed to paying out of pocket. Finally, physicians are expensive. Because Medicare pays hospitals at 71% and physicians at 81% of market value, doctors avoid taking losses by price discriminating; to recover lost profits, doctors charge people who can afford health care at a higher rate.
Democratic Rebuttal: Wouldn’t providing a public option force health care companies to charge a lower price?
In theory, yes. However, the public option is only looked upon favorably by those who do not understand the economic situation of the health care corporations. Democrats believe that a public option would force private insurers to charge less because of increased competition. The only way for health care companies to lower prices is by reducing costs. It makes sense for any corporation to attempt to lower costs to increase surplus. However, health care companies would have tried to lower costs even before the possibility of increased competition to increase their profit margins. In the free market, it doesn’t make sense for a corporation to not attempt to maximize surplus. With the Democrats’ public option plan, it doesn’t make sense for private insurers to even compete in a losing battle.
The public option will lead to a government takeover of health care:
The implementation of a public option will lead to a single-payer health care system for many reasons. First, private insurers will not be able to compete with the government option. The government option, which will cost considerably less than a private plan, will force private insurers to cut prices at such an unrealistic level that they will go out of business, making the public option a monopoly. Also, the public option will instigate what might be called a vicious cycle. Employers have the option of providing health care to their employees that the government deems acceptable or paying an 8% payroll tax and placing their employees on the public option. For many businesses, employers will deem the 8% payroll tax less costly than providing government approved health care. This will take away consumers from private insurance and force the government to seek additional revenue because more than 47 million uninsured people will be forced on the public option. The vicious cycle will continue because the government will be forced to increase taxes on those who aren’t on the public option. This increase in taxes will force more people onto the public option. The cycle will continue as the government raises taxes until it becomes the sole health care provider. The health care bill is a disguise; it’s a way for the government to increase taxes and create a single-payer system that will constitute 1/6 of our nation’s economy.
Democratic Rebuttal: Why are Republicans so opposed to a single-payer system even though it has had success in other countries such as England and Canada?
The universal health care systems in England and Canada are actually worse in many ways than our current system. Foreigners frequently come to the United States to see specialists and get complex surgeries. In England, health care is rationed, evidenced by the reality that seniors over 70 are not eligible for dialysis. In our current health care system, hundreds of thousands of senior citizens are receiving dialysis. The average wait to see a specialist in the United States is under 2 weeks, while overseas one can expect to wait up to 6 months. Long waiting times lead to increased deaths for patients with potentially fatal illnesses. The health care system in the United States has its flaws, but a single-payer system is not apt to handle individuals’ specific needs.
We cannot afford a $1.3 trillion overhaul to our health care system when our national debt is increasing beyond $12 trillion:
The last thing we can afford to do right now is spend more money. First the bailouts, then the $787 billion stimulus, and now $1.3 trillion over the next 10 years decreasing the quality of health care. Gas and many other goods are currently rising in price due to the decreasing value of the dollar, so why weaken the dollar further by increasing our $12 trillion national debt? Now is the time for fiscal conservatism: we need less government spending and lower taxes to foster businesses and job creation. The economy is the problem that the government should be attempting to fix. If we can fix the economy, more people will have steady jobs and therefore more people will be able to afford health insurance. Pelosi’s plan imposes more than $150 billion in new taxes on small businesses, which will dig us further into an economic recession. Regardless of the economy, Pelosi’s plan is the wrong choice.
Democratic Rebuttal: Why can’t we pay $1.3 trillion for health care when we have spent more than $1 trillion dollars on two wars this decade?
The wars in Iraq and Afghanistan have had a negative effect on our economy. However, the difference between the $1 trillion spent in Afghanistan and Iraq and the $1.3 trillion to be spent on health care is that the money spent on our two wars is a sunk cost. In economics, a sunk cost is an expense that cannot be recovered and should not be considered in future decisions. Thus, the $1 trillion spent on Iraq and Afghanistan should have no impact on whether or not we decide to further cripple our economy by spending money on a severely flawed health care plan.
The Solution:
We must understand that fixing our health care system is very important, although it cannot be consider as a crisis yet. For decades, failure has been the result from legislative attempts to reform health care. Success must come in two major parts. The first is that Senate must pass a health care bill that does not even slightly resemble that of the House. The second is that we must tweak our current system in a variety of ways. Health care corporations have the luxury of essentially being monopolies, since usually one corporation provides insurance to a given state. Lacking competition, health care companies will sell health care coverage where there marginal revenue is equal to their marginal costs, instead of at the socially optimal price. We need to have states open up their borders to allow all people have their choice of insurer and coverage. To allow this, each state must abolish its own minimum policy mandate. Furthermore, the federal government must implement a plan to help those with preexisting conditions. These major changes, along with a variety of minor ones such as tort reform, will provide health care to more people at a cheaper price while actually strengthening our economy.
Abolish minimum policy mandates to allow insurers to sell policies across state lines:
Every state has mandates that require health care companies to provide specific coverage. Abolishing these mandates is necessary to allow insurers to sell policies across state lines. Not only would abolishing mandates be a giant step to allowing more competition into the health care market, but it also would give the consumers more say in what coverage they want. Instead of the state mandating certain aspects of coverage, causing prices in some states to be more than double those in other states, the consumers will be able to customize their plans so that they can pay for coverage that they deem necessary. In 2006, a 25 year old male living in New Jersey would have to pay almost $6000 annually for an individual plan. However, if he lived in Kentucky, insurance would cost less than $1000 annually. Abolishing these mandates is a precursor to allowing health care companies to compete across states borders. The market will shift from monopolistic power to an oligopoly, thus increasing competition and giving consumers more leverage and surplus.
Implement a safety net for those with preexisting conditions:
A big part of the health care problem is covering those who have preexisting conditions. Unfortunately, it is not in the best interest of the health care companies to insure these people, given that it is almost guaranteed that they will lose money. People, especially those with preexisting conditions, must understand that health care companies are in the business for profit, and it is not their civic duty to insure everyone. Thus, it is important to find a way to get people with preexisting conditions insured. A cheaper alternative to the public option would be setting up a government program that insures people to make sure that they are provided health insurance in their future. This program would work by having parents, as soon as their child is born, would have to pay a flat fee to the government. This fee would be a government guarantee that their child will get health coverage when the child is on its own. Thus, if someone is born with or develops a preexisting condition and is denied health care insurance, the government uses revenues from this new program to give money to a health insurance company to cover the cost. In short, the program would be to provide insurance for purchasing health insurance. Although this wouldn’t work for those who currently have preexisting conditions, the program would guarantee coverage for those who do in future generations.
The major health care issue is that we are paying so much more for health care than people in other countries. However, the quality of our care is far superior, so it seems like we must decide whether quality or quantity is more important. Is insuring 96% of Americans worth increasing the deficit, weakening the doctor-patient relationship, increasing taxes, destroying job creation, and rationing care? The Democrats are feeding us a perception that we are in a health care crisis, but there is a way we can lower health care costs without overhauling the fundamentally sound system we have in place. Our country is at the top of the medical world, so higher prices are expected. However, we can lower prices so many more Americans can be covered. The current 3.3% profit margin of health care companies shows that they are not evil corporations. By abolishing minimum policy mandates, health care companies’ costs will decrease because of fewer obligations. By allowing health care companies to sell plans across state lines, the market for health care will no longer be a monopoly, passing economic surplus from suppliers to consumers. Also, implementing a government program that essentially insures people to get insurance, future generations of people with preexisting conditions will have the health care coverage that they deserve. Even reforming tort can drive down health care costs by reducing the number of precautionary tests doctors give when practicing defensive medicine. It is possible to lower costs and insure more people while keeping the fundamental structure of our current system in place. This is a case where we can have it both ways.