American Elephants

How to Think About Health Care. They’re Talking About the Wrong Things. by The Elephant's Child


The late Milton Friedman had a way of clarifying the subject. Contrary to “conventional wisdom — health insurance does not make health care more affordable. Perhaps you have noticed.

In his masterpiece Free to Choose, Milton Friedman wrote of four ways to spend money.

  • Category I — You spend your money on something for yourself. Here you are very careful, because it is your money, and the good or service you are buying is for you.
  • Category II — You spend your money on something for someone else. Here you have the same incentive as in Category I to economize, but since you are buying something for someone else, you are not quite as meticulous when it comes to the purchase meeting the needs or values of the recipient.
  • Category III — You spend someone else’s money on something for yourself. Here you are not concerned about how much you spend, because it is not your money. But because you are spending on yourself, you make sure you are getting what you want.
  • Category IVYou spend someone else’s money on something for yet another person or persons (This is what we ask our legislative representatives to do every day.) Here you are the least incentivized to economize, or to buy something that meets the needs or values of the recipient.

Third party payers operate under Friedman’s Category IV — think Medicare and Medicaid. When the government buys goods or services for other people with other peoples’ money, special interest pleading, politics and cronyism run the game. And “leakage” of money through “waste fraud and abuse” is a given.

Private insurance companies are also spending other people’s money — the premiums paid into a risk pool — on medical services for other people. When they negotiate compensation schedules with providers and facilities, they don’t have to bargain hard enough to reach the best price possible. They just have to reach a price that is good enough — one that allows them to charge premiums that compete well with rival insurance companies. They pass on the difference between what they could have negotiated and what they actually negotiated to the customers who pay the premiums.

People who negotiate direct payment from providers get better deals than the insurance companies get. When health care providers give discounts for direct payment they don’t lose money on the process, or they wouldn’t do it. To keep from losing the direct-pay patient  they need to keep their prices acceptable to those paying the bill.

The foregoing is from an article by Dr. Jeffrey A. Singer. It should give you glimmerings of how health care insurance could be better done. Health savings accounts, where tried, have been both extremely popular and extremely effective.

Here’s another example of how medicine can be more affordable and more effective. Competition improves everything. And that goes for insurance too. With stiff competition, insurers will bargain harder to get good prices. When insurance policies have to compete on a national basis, and policies are sold across state lines, costs will come down significantly.  There are hundreds of good ideas from Republicans. Keeping costs down doesn’t have to be slashing payments to doctors and hospitals, increasing deductibles to astronomical levels — that’s a command and control theme, where the left is always stuck. They just can’t give up control.

A small company called 23andMe offers a genetic-testing kit. It consists of a tube into which the customer spits and returns to the company. The actual test is conducted at a lab that is regulated by another agency. The FDA has chosen to go after 23andMe aggressively for marketing a “medical device” even though the only “device” is a plastic tube, and the client cannot cannot undertake further action on the test result without  consulting a health care provider. This kind of device is part of the new economy, favoring the free flow of information. It is completely at odds with the old paternalistic model, in which regulators and the medical establishment control what patients may learn.

Liberals place great faith in the perfectibility of politics. They believe that the next law or the next regulation will make up for imperfect human nature. Freedom, to be sure, is frightening. There is no telling what values free people will hold, or even what they might do. That’s why they are so frightened by the Tea Party. They must be controlled.

2 Comments so far
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And it all of this, they are using the wrong term to describe what they ultimately want: “Single-payer”. There’s actually no such thing. Oh, I know they think it means that that one provider (the government) is taking care of all costs. But it’s still the same model that is in use today (“NO IT’S NOT”, I’ve had friends yell at me). Let’s examine the transaction…

You (the patient) need a service that you cannot provide on your own, so you go see a professional that provides that service (the doctor or hospital). You can’t afford the procedure they need to do, so you have insurance (a third party that is responsible for payment. Understand?

1st party – you
2nd party – the doctor
3rd party – the insurance

So, what if you’re in a socialized system where there is no private insurance and the government pays?

1st party – you
2nd party – the doctor
3rd party – the government

The difference between the two being that government does not have incentive to keep costs down, to innovate, to be involved. And every negative thing that people have come up with to say about private insurers has been more than matched by the negative things that can be said about government payers (Dropped customers? Check. Poor response? Check. On and on and on…)

All Obamacare did was replace a system that, with all its flaws, worked well for the majority with a system that doesn’t work well for anyone (and no, these are not simply the “birthing pains” that accompany the roll-out of any new product – these were the consequences of the law as written, as anyone who read the relevant portions could tell you).


Comment by Lon Mead

They want the British National Health Service, which they admire extensively. Doctors are government employees, all medical care is free to everyone on NHS. Of course wealthy Brits can ignore the NHS and go to private Docs, (which of course would still be available to people like Senators Reid, Pelosi, Schumer, Hoyer etc.). They seem totally unaware that the NHS is killing old folks right and left with pure neglect, and that on the other hand the NHS is rapidly going broke. It doesn’t work.


Comment by The Elephant's Child

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