Topic: Health Care
Government's Benevolence Equals Higher Costs Have you ever noticed that our federal government is always venturing out of its jurisdiction in trying to make things more affordable for all of us? Our paternal/maternal leaders in D.C. never pass up a chance to try to do something to make our lives easier.by Kenn Jacobine
(libertarian)
Friday, July 31, 2009
Their examples of benevolence are many and always end up in disaster.
Take education for instance. Uncle Sam has lavished grants and loans on us in an effort to make a college education affordable for most Americans. However, has the price of college decreased? Ever? The answer is no and in fact it can be argued that government grants and loans have actually contributed to the perennial increase in college tuitions. When students qualify for federal largess it makes them less likely to comparison shop based on cost. By eliminating cost competition in the college market institutions of higher learning have less incentive to lower costs. Perhaps this is why the rate of defaults on student loans is so high. Like subprime mortgages, instead of shopping around for economy, people commit to loans that they ultimately can't afford to pay.
Then, there is Washington's attempt to make retirement years more affordable. Social Security checks are mailed to millions of Americans every month to provide supplemental income to seniors. Because the program has been played up as the greatest thing since sliced bread by the Establishment many Americans have been deluded into believing that they can retire on Social Security alone. They forego saving for retirement and find when they retire that the monthly payment hardly makes ends meet. Perhaps this is the reason why many elderly folks sell their homes because they just don't have the funds to pay the ever increasing costs of property taxes. Taking into account that the Social Security Trust Fund is empty and estimates for future obligations are about $45 trillion imagine the inflation that will eat further into Social Security income when the Federal Reserve must print dollars to monetize government checks.
By now, we should all be familiar with Uncle Sam's attempt to make home ownership more affordable for all of us. This has been primarily attempted through cheap money from the Federal Reserve and loan guarantees from Fannie Mae and Freddie Mac. But, believe it or not, low rates and easy guarantees increased the demand for housing thereby raising prices and shutting out millions of home seekers. Of course, in the end, artificially low interest rates and the benevolence of government caused the bubble which popped and placed millions more Americans into foreclosure.
Lastly, and more germane to the topic of this article, is the attempt of Washington to make medical care more affordable for many Americans. The two major programs to deliver this service since 1966 have been Medicare and Medicaid. Coincidently, since 1966, healthcare costs have skyrocketed by an incredible1800 percent!. Naturally, all the costs cannot be blamed on these government programs our population has aged and new technologies are expensive. But, certainly, since healthcare is the biggest expenditure as a percentage of GDP of the federal government, Washington's payments through Medicare and Medicaid have required the printing of new dollars which in turn have bid up the price of medicines and medical care.
Now Obama and his fellow statists in Congress want to implement a total takeover by Uncle Sam of our healthcare system in order to make healthcare affordable for every person in the U.S. The plan would cover everyone including the slothful and those in the country illegally. It would cost at least $2 trillion over the next decade and probably more given demographics and the inefficiencies inherent in all government programs. As usual, the politicians are talking compassionately while totally ignoring the real causes of the problem.
The fact is that there are tens of thousands of regulations and mandates that health providers and insurance companies must follow. The costs of adhering to these regulations are staggering. For instance, all states mandate coverage of certain diseases and disabilities in insurance plans. This raises the costs of coverage and limits choice for consumers. Regulations should be reduced and coverage mandates repealed to help contain healthcare costs.
The Food and Drug Administration (FDA) is a major culprit contributing to the healthcare crisis. To get a drug approved for consumption takes on averagetwelve years and over $350 million. This cost and time commitment squelches competition because many small drug firms do not have the long term funding to survive the process. The FDA should be abolished and replaced with a private Underwriters Laboratories type rating organization. A private system would encourage efficiency, increase competition, and lower costs.
The third party payer system has not served us well. Because either the government or insurance companies pay most of the costs of our healthcare there is no incentive for us to shop around for the most efficient health services. Medical savings accounts (MSA) would allow taxpayers to save money tax free and be able to withdraw it to pay for medical bills. These plans could allow individuals to save up to $7500 (the per capita amount government spends on healthcare) a year tax free. Individuals would be responsible for their own medical expenses up to that amount and could opt for a catastrophic plan beyond that. This would ensure comparison shopping, thereby lowing costs. Additionally, consumers could save premium dollars by only needing to purchase insurance that covers hospitalization and long-term care.
Lastly, it is no surprise that an article by this writer would not be complete without a call for sound money. A commodity backed currency would restrain costs in healthcare because the government would be forced to live within its means. The Federal Reserve would not be able to monetize infinite amounts of debt and this would contain price inflation especially in high demand sectors like healthcare.
Yes, Washington has failed miserably at making anything affordable for Americans. From education to retirement to housing, everything the politicians touch increases in cost. You would think Obama, Conrad, Reid, and Pelosi would realize this and scrape their grandiose plan to make healthcare more affordable.
Kenn Jacobine teaches internationally and maintains a summer residence in Haywood County, North Carolina. Visit his blog site online at: The View from Abroad.
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Posted By: Walt Thiessen
Date: 2009-07-31 05:04:51
Good article.
You point out that since the advent of government grants and student loans, "...has the price of college decreased? Ever? The answer is no, and in fact it can be argued that government grants and loans have actually contributed to the perennial increase in college tuitions."
That's true. College tuition has increased roughly 10x to 20x since the 1950s. During that same time, the dollar has lost roughly half its value. Clearly, college tuition increases have skyrocketed compared to the cost of living. The main reason for this increase is nothing more than government forcibly putting more dollars into consumers' hands, designated for the particular product: a college education.
By guaranteeing student loans, government also guaranteed to universities that students could afford higher tuition. Once tuition went up, government kept increasing the amount of money students could borrow. This became a vicious cycle, just as happens with any government program or law that forcibly puts more money into the hands of consumers. The result must always be higher prices, often dramatically higher (as in this case).
Social Security, originally designed as a "supplemental income" has driven the cost of retirement up dramatically as well. Combined with the impact of denying people the right to keep (and save) what they earn, Social Security has guaranteed that retirees now face the prospect of getting only 70% of their promised benefit back when they retire (so far...it'll probably be worse once all the Baby Boomers retire). This is exactly what happens when you force people to engage in a massive Ponzi scheme.
Excellent analysis of Medicare/Medicaid too. And it's not just direct government spending causing all the price increases in health care. It's also the regulatory requirements which never get adequately accounted for. In fact, even the act of granting employers tax deductions for health care has increased the cost of health care, because it provides an incentive for more health care dollars to be put into the hands of employees.
It's an old economic law, and it doesn't go away. Supply and demand. Increase the supply of available money designated for a particular product or service, and the price of that service will go up, every time, without exception.
I agree with you on all points, as I usually do, except for your mention of a medical savings account. Any deduction allowed for one taxpayer has to be funded by another to collect the same aggregrate amount of taxes [and you know they are not going to lower the total tax amount!]. So, a medical savings plan simply allows one taxpayer to fund another's savings account. It also adds money to the system that might not get there otherwise, which raises costs.
Posted By: David Segesta
Date: 2009-07-31 20:23:57
This page shows tuition rates at university of Michigan law school between 1950 and 2009. [link edited for length]
Its gone up dramatically
Example 1950 -$105 per semester
2009 -$20655 per semester
I went to engineering school there and during my last semester in 1971 the rate was about $330. That's pretty close to the rate shown for law school. The current rates give me a nose bleed.
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