'Healthcare' and the free market

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    “Medicare, medicaid, “health insurance” and so on drive up demand.”
    Jeff Herbener.

    How do these payment schemes drive up demand for a medical product/service, unless the product/service is bought in advance, thus flagging the demand for it?


    The reason demand is driven up with insurance is because the costs are spread out among a pool of buyers. Imagine going to a restaurant with 15 people. Prices range from 7-18 dollars and everyone agrees to split the total bill evenly. Now, say someone is there who if they were alone would buy the $10 burger or maybe just the $7 sandwich because the $14 shrimp plate is not worth it to them. But when the costs are pooled, then the to cost to the individual of getting more food is significantly smaller. The cost of going from a burger to a shrimp plate would only be adding about 26 cents to that individuals bill (and 26 cents to everyone else’s as well)…. Everyone has that same incentive to receive something because the costs are born mostly by others so more meals would be bought in the $12-18 than would normally occur.

    The same is in healthcare. Not only does the physician have an incentive to prescribe an antibiotic for sinus infection that doesn’t even make the infxn go away quicker because he is reimbursed based on #of visits and #of prescriptions written rather than how good the pt. thinks the Dr. is at making him well, but also the pt. has the incentive to go get the prescription filled without considering the side effects, the actual cost of the product, etc because the cost is being paid mostly by his insurance company (and those who pay the insurance company in monthly premiums). He pays the same premium regardless (and with maximum deductible laws, he can’t choose to go with a high deductible/low premium plan to avoid costs he doesn’t benefit from).


    That sounds just like our NHS, which is an “insurance” system (it’s a jobs tax really) you can’t opt out of on your payslip – you have to pay NI whether you use it or not, but our independent insurer market isn’t that great either as there are few providers.


    You could also make the comparison to a subscription service, like Netflix or something. Because you pay Netflix a monthly premium regardless of the amount of movies you watch, you are tempted to watch as many movies as possible in order to “get your moneys worth.” If Netflix charged you per movie watched, you would probably watch fewer.

    The same idea with health “insurance” in that it’s really more of a subscription/membership service than insurance (by any traditional definition). You pay monthly premiums rather than per visit/procedure/etc, so you are motivated to have more visits, procedures than you otherwise might.


    The main difference we have from NHS (if I understand NHS correctly) is that since NHS is single payor, the only way they can control costs since demand is automatically encouraged (it’s “FREE!”) is to tightly control the benefits and options available to the consumer (rationing). Being publicly owned, things that are popular and common will be well-funded (maternity care and tooth aches) while things that are more rare, in a specialty, perhaps more extensive are likely to be poorly funded (types of cancers, rare diseases, etc).

    With our private insurance system, people have the freedom to pick and choose what “package” they can buy. Some people want high monthly premiums with no copays or deductibles (anytime you need something, you’ve got it fully covered – this encourages over usage, but they pay for it in their premiums). Other people choose high deductibles (they pay for everything up to a certain amount and then the 3rd payor starts picking up a portion of the tab – this will have cheaper premiums, but if you get caught needing care, you’ll be paying for it up till the deductible). And there’s potentially a plethora of options for people to get insurance that meets their desires (generic coverage vs. name brand, tests covered or not, maternal coverage, flu shots covered or not covered, etc)…

    However, states and federal government have increasingly regulated things that insurance plans MUST cover which limits the variability between plans. Also, people in general don’t have much choice because insurance can’t be sold across state lines and it is much cheaper to get insurance through your employer because employers get tax cuts on employee health insurance (so if you lose your job, you lose your healthcare). In a free market of insurance, high premium plans would probably be pushed up in price by its “tragedy of the commons-esque” nature and people would then choose more cost effective means of insuring themselves (most stuff would probably be paid out of pocket with the exception of real expensive emergency care or “Major Medical” plans).

    Obama wanted a “public option” in his health care reform, which would’ve probably pushed us towards single payor since the rise in private health insurance would’ve driven more people towards the publicly funded insurance until private insurance was run out of business. Instead, that was left out and we are forced to buy from companies that can absorb the costs of increased regulation at the expense of smaller insurance companies that can’t…. So Congress basically chose more fascism over socialism. Don’t let people tell you Obamacare is socialist. Socialist doesn’t force you buy corporate products. That’s fascist.


    CSA1861, your restaurant illustration is perfect. Think how inflated restaurant prices would be if the majority of customers decided to spare themselves excruciating menu choices by participating in ‘socialist collectives’ like the one you describe. The restaurant sector would boom, but anyone without ‘coverage’ would be eating at home, unable to afford or justify the outrageous prices. Medical insurance, in whatever form, private or public, is inefficient and inflationary. It leads, inevitably, to a state-controlled system… Socialism (or the well-intended fascism of Obamacare). And so it should, since private insurance drives the cost of medical services up beyond the reach of all but the ‘well-employed’ elite. As the ranks of this elite shrink, some form of public insurance is required to balance the moral equation even while leaving the economic one ever more distorted… a downward economic spiral to match the upward one in this ‘booming’ sector.

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