Tag Archives: Subsidies

Thomas Sowell explains the economics of cutting health care costs

The Democrats are talking a lot of about their plan to reduce the costs of health care. And they think that the way to do that is by having government take a bigger role in health care provision. Well, Thomas Sowell doesn’t like the idea that the government can reduce health care costs by using govenrment, and he’s written a four part series on it.

Here’s a quote from the first part about how Democrats attack the suppliers of health care products and services:

Despite all the demonizing of insurance companies, pharmaceutical companies or doctors for what they charge, the fundamental costs of goods and services are the costs of producing them.

If highly paid chief executives of insurance companies or pharmaceutical companies agreed to work free of charge, it would make very little difference in the cost of insurance or medications. If doctors’ incomes were cut in half, that would not lower the cost of producing doctors through years of expensive training in medical schools and hospitals, nor the overhead costs of running doctors’ offices.

What it would do is reduce the number of very able people who are willing to take on the high costs of a medical education when the return on that investment is greatly reduced and the aggravations of dealing with government bureaucrats are added to the burdens of the work.

Britain has had a government-run medical system for more than half a century and it has to import doctors, including some from Third World countries where the medical training may not be the best.

And a quote from the second part about how reducing costs means rationing:

There is no question that you can reduce the payments for medical care by having either a lower quantity or a lower quality of medical care. That has already been done in countries with government-run medical systems.

In the United States, the government has already reduced payments for patients on Medicare and Medicaid, with the result that some doctors no longer accept new patients with Medicare or Medicaid. That has not reduced the cost of medical care. It has reduced the availability of medical care, just as buying a pint of milk reduces the payment below what a quart of milk would cost.

Letting old people die instead of saving their lives will undoubtedly reduce medical payments considerably. But old people have that option already— and seldom choose to exercise it, despite clever people who talk about a “duty to die.”

A government-run system will take that decision out of the hands of the elderly or their families, and thereby “bring down the cost of medical care.” A stranger’s death is much easier to take, especially if you are a bureaucrat making that decision in Washington.

[…]You can even save money by cutting down on medications to relieve pain, as is already being done in Britain’s government-run medical system.

You can save money by not having as many high-tech medical devices like CAT scans or MRIs, and not using the latest medications. Countries with government-run medical systems have less of all these things than the United States has.But reducing these things is not “bringing down the cost of medical care.” It is simply refusing to pay those costs— and taking the consequences.

And a quote from the third part talks about free markets versus government price controls:

If you think the government can lower medical costs by eliminating “waste, fraud and abuse,” as some Washington politicians claim, the logical question is: Why haven’t they done that already?

Over the years, scandal after scandal has shown waste, fraud and abuse to be rampant in Medicare and Medicaid. Why would anyone imagine that a new government medical program will do what existing government medical programs have clearly failed to do?

If we cannot afford to pay for doctors, hospitals and pharmaceutical drugs now, how can we afford to pay for doctors, hospitals and pharmaceutical drugs, in addition to a new federal bureaucracy to administer a government-run medical system?

And a quote from the fourth part talks about equality versus liberty in health care:

What about insurance companies denying reimbursements for treatments? Does anyone imagine that a government bureaucracy will not do that?

Moreover, the worst that an insurance company can do is refuse to pay for medication or treatment. In some countries with government-run medical systems, the government can prevent you from spending your own money to get the medication or treatment that their bureaucracy has denied you. Your choice is to leave the country or smuggle in what you need.

However appalling such a situation may be, it is perfectly consistent with elites wanting to control your life. As far as those elites are concerned, it would not be “social justice” to allow some people to get medical care that others are denied, just because some people “happen to have money.”

But very few people just “happen to have money.” Most people have earned money by producing something that other people wanted. But getting what you want by what you have earned, rather than by what elites will deign to allow you to have, is completely incompatible with the vision of an elite-controlled world, which they call “social justice” or other politically attractive phrases.

What’s frustrating to me is how quickly people think of growing government as the solution to their problems. They don’t want to deal with paying for health care themselves. But what the government does to solve the high prices is fix prices and regulate the producers of health care, like doctors and medical device manufacturers. They make the supply smaller. But when the cost apparently goes down, people are signaled to use more health care. That makes the demand larger. And this is why there is a shortage of health care in countries that have health care provisioning highly regulated by the government.

You can even save money by cutting down on medications to relieve pain, as is already being done in Britain’s government-run medical system.

You can save money by not having as many high-tech medical devices like CAT scans or MRIs, and not using the latest medications. Countries with government-run medical systems have less of all these things than the United States has.But reducing these things is not “bringing down the cost of medical care.” It is simply refusing to pay those costs— and taking the consequences.

MUST-READ: How government-run health care leads to euthanasia

I have been writing a lot of posts in the last few months about the pitfalls of government-run health care in Canada’s single-payer system, and in the National Health Service in Britain. Some people may wonder whether comparisons can be made between these systems and Obama’s government-run medical insurance idea.

Consider the words of bioethicist Wesley J. Smith: (H/T ECM)

The UK’s National Institute for Health and Clinical Excellence–the Orwellian-named NICE–is the template promoted by Obamacare’s primary non government pusher, Former Senator Tom Daschle, called by the New York Times to be the most influential adviser to the POTUS and Congressional Democrats on health care reform.  Indeed, he has repeatedly stated we need an American version of NICE.

That means what NICE does matters to Americans.

Smith then notes this article from the UK Guardian which explains what NICE does.

Excerpt:

A drug which can give women with advanced breast cancer extra weeks or months of life has been turned down by a government watchdog body for use in the NHS. The National Institute for Health and Clinical Excellence (Nice) says it proposes to reject Tyverb (lapatinib) in spite of changes in the rules brought in specifically to allow people at the end of their lives to have the chance of new and often expensive treatments.

Tyverb is the only drug licensed for women with advanced breast cancer whose tumours test positive for a protein called HER2 and for whom Herceptin, a Nice-approved drug, is no longer working. In much of the rest of Europe, Tyverb is then given, in combination with a standard chemotherapy drug called capecitabine. Around 2,000 women in the UK could be eligible for the drug, which has the additional benefit of being taken in pill form, which means that women can stay at home and attempt to live normal lives. Nice turned down Tyverb earlier this year, saying it was too expensive for the benefit to patients it offered…

Smith concludes:

And don’t forget NICE also pushed the Liverpool Care Pathway, that may have brought back door euthanasia to the UK.  Similarly, we recently discussed a similar refusal of coverage in Ontario, Canada, for life-extending colon cancer chemotherapy.

This is our future if we pass Obamacare, unless we explicitly forbid by statute such rationing power to the cost control boards. But attempts to do so have all been turned down.  NICE isn’t nice, and it is an approach to health care that Americans should reject.

Now consider this story about the Liverpool Care Pathway from the UK Daily Mail. (H/T Andrew)

Excerpt:

A grandfather who beat cancer was wrongly told the disease had returned and left to die at a hospice which pioneered a controversial ‘death pathway’.

Doctors said there was nothing more they could do for 76-year- old Jack Jones, and his family claim he was denied food, water and medication except painkillers.

He died within two weeks. But tests after his death found that his cancer had not come back and he was in fact suffering from pneumonia brought on by a chest infection.

To his family’s horror, they were told he could have recovered if he’d been given the correct treatment.

[…]Mr Jones was being cared for at a hospice which was central to the contentious Liverpool Care Pathway under which dying patients have their life support taken away, although the hospice claims it wasn’t officially applied in his case.

The scheme is used by hundreds of hospitals and care homes, and is followed in as many as 20,000 deaths a year.

Read the whole thing.

In a socialized system, you pay you income to the ruling elite based on your ability to produce. You only have value to the state while you are working to pay taxes, taxes that socialists can use to buy votes and control other people lives. When you stop working and start needing services, you become the enemy of the state.

Contrast socialism with a free market system. Now you have the power because you have the money. Doctors and hospitals only get paid if they give you what you want – quality health care for the lowest price. You can go a competitor if you don’t like what you are offered from any particular provider. Choice and competition.

More NHS horror stories listed here.

MUST-READ: Mexico shuts down government-owned utility and lays off entire union

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Here’s the story from Investors Business Daily.

Excerpt:

The Mexican president shut down a money-losing state-owned electrical utility, taking a labor union down with it. The union is howling, but the shutdown is one of the best things to happen to Mexico.

For months, the SME union had been trying to intimidate Felipe Calderon into continuing to subsidize the Luz y Fuerza del Centro electrical distributor, even as its $16 billion in revenue didn’t come close to its $32 billion in salaries and pension costs.

And why not? The union had done the same thing to all the other reform-minded Mexican presidents and saw all of them back off.

But it didn’t have a clue about Calderon, a former energy minister who on Sept. 24 warned the union to cut costs or else. The union ignored the warning and tried to intimidate Calderon with political tactics, whipping up fear that he intended to privatize the utility. Calderon had a better idea: shut down the utility.

The stunning decision to disband the company and lay off 44,000 workers effectively ends the SME union.

Yes, he’s a conservative.

Check out the effects:

It took just hours for Mexico’s peso to rise on news that a huge financial burden had been lifted from the government. Luz y Fuerza del Centro was a money pit that cost the government $42 billion a year in subsidies. Analysts said the shutdown would save $25 billion — enough to enable the government to scrap a planned 2% tax hike.

The improved fiscal picture will keep interest rates in place and avert a ratings downgrade. All of this increases Mexican purchasing power, helps the government finance itself and releases money for lending and investment in a new economy.

Read the whole article. He sent in troops.

It’s a proud day for Mexico. Like Canada, Mexico is on the way up. But the United States is on the way down. Canada elected a conservative, and Mexico elected a conservative. Only the United States was blind and ignorant enough to elect a radical socialist.

One other thing: I was having lunch with one of my agnostic co-workers today, who was following this story. He was concerned that Mexico would start up a new company to take the place of the old, inefficient one. But that is not the case. The Mexican government has decided to liquidate the inefficient company and pass its customers to another firm.