The following represent additional factors contributing to unsusustainable health care inflation.  They are secondary to the distortion discussed in "A Tragic Mistake of History" but are contributors nonetheless.


A Sleight of Hand

Politicians have recently demonized health insurance companies, doctors and drug manufacturers as the source of rising costs.  The innovators who create life saving drug treatments and diagnostic tools are apparently the problem.  Doctors who spend a decade training to become experts in their profession and deliver health care are the villains.  Companies who make health care affordable by selling insurance policies are driving inflation and bankrupting America.

The only problem with this politically expedient fiction is that it defies the facts.  If the health care inflation were the result of doctors, health care providers and insurers earning excessive and rapidly increasing returns, it would be visible and quantifiable.

If the political fiction was reality there would be a dramatic increase in the number of enrolled medical students, and a proliferation of health care providers and insurers seeking to capitalize on the opportunity to earn similar excessive, risk-adjusted returns.  This increase in the supply of providers would affirm the existence of excessive returns and act to regulate out of control expenses. 

We see no such phenomenon.  Doctors are increasingly squeezed by high and rising insurance expenses and Medicare/Medicaid reimbursement rates which don’t cover costs.  In fact, there presently exists a shortage of personnel within many medical disciplines which is expected to become more extreme over time.  This macro-economic reality defies the narrative of physician generated inflation. 

In reality, the health insurance industry earns razor thin margins.  There is no evidence that their actions or profitability are the cause of unsustainable cost increases.  Many drug companies do earn impressive profits, but this is expected of an industry that is capital intensive and involves speculative risk.  Without risk-adjusted returns, capital wouldn’t be available to create life-saving drugs.  And there is no evidence that medical innovation is the source of rising health costs. 

Apply Common Sense to Tort Reform

The United States has never had more effective drugs, better doctors or more sophisticated diagnostic tools.  It defies common sense that as science progresses and the quality of medical care improves, that the number and cost of health care-related lawsuits would rise dramatically.

The explosion of lawsuits, legal expenses and a corresponding increase in insurance costs is the direct result of bad Government and a broken judicial system which tolerates abusive lawsuits and excessive awards.  The current dynamic is broken, but policy makers refuse to reform the system because they are direct beneficiaries both politically and financially.

Regardless of where you live, you are likely inundated by advertisements on buses, billboards, the radio and TV for attorneys seeking personal injury lawsuit opportunities.  An examination of my local yellow pages revealed 165 pages of such ads.  (in addition to having 5 different ads printed externally on the front, back, spine and pages edges of the publication)

The phenomenon reminds me of the abuse of the securitization model which occurred during the Housing Bubble mania.  Securitizations were originally used to monetize and distribute the risk of fundamentally sound loan originations.  Bankers, attracted by fees generated by the transactions began sourcing originations for the purpose of securitizing them.  When the goal became the fee from securitization, the quality of the origination became secondary or irrelevant.  Housing prices were further distorted and mortgages which would inevitably result in foreclosures were issued.

Today, instead of serving the legal needs of individuals who have been legitimately victimized by unethical or incompetent health care providers, there is an entire industry of lawyers who consciously troll for lawsuit opportunities.  The Government has enabled a dynamic which encourages meritless lawsuits which result in disconnected financial settlements.

These legal costs, settlement expenses and higher insurance premiums represent a huge, unnecessary cost which acts as a direct burden on the health care system.

The threat of meritless lawsuits further exacerbates healthcare expenses.  Doctors fearful of lawsuits are pressured to order unnecessary diagnostic tests to protect themselves from potential malpractice suits.  These distortions drive up costs. 

No effort to reform health care can claim to be honest, reasonable or effective that does not resolve the devastating effect of abusive lawsuits and uncorrelated financial awards.

Common sense tort reform which limited lawsuits based on merit, correlated awards to economic reality and removed the behavior distorting threat of litigious malpractice suits would solve this illogical and growing problem. 


The Government Should Not Mandate What You Buy With Your Money

Individuals should have the right to legally spend their money the way they want.  To revisit the restaurant theme, when a person goes to Outback Steakhouse for dinner he or she gets to order what they like.  This is the same as customizing one’s auto insurance policy.

Yet when it comes to health care, Government mandates that insurers cover a range of items that may be unnecessary, costly or would not have been chosen by consumers if they had to pay for coverage directly.

Imagine if the Government mandated that at Outback customers must order Soup, Salad, Cheese Fries, two Adult Beverages, a glass of root beer, a steak and a dessert.  Politicians might argue that such an edict would have a stimulutive effect on the economy.  But the result would be wasteful and you couldn't afford to dine there often. 

If the Government mandated that auto insurance policies must cover oil changes every 2,000 miles, and included new shocks, tires, brake-fluid and windshield wipers, your auto insurance would be more expensive.  But you actually pay for your auto insurance so this burden would never be imposed on you by politicians eager to keep their jobs.  The difference is that you don’t pay the costs of health insurance directly, your employer does, so these incremental costs are not relevant to you as long as you keep your job.  And even if you do lose your job, would you really attribute it to Government-mandated, health insurance inflation?

The Government can and does manipulate health care costs by ordering that health insurers cover excessive and expanding services. 


The Government Has an Unenviable Record Capturing Efficiencies and Cost Savings

The preceding recommendations would largely solve private sector health care cost inflation by reintroduction competition and restoring the individual’s incentive to spend money efficiently. 

The remaining health care cost problems result directly from irresponsible and fatally conceived Government programs.  Unfunded pension liabilities and health care Ponzi Schemes will inevitably fail because the mathematics underlying their operating assumptions does not work.  There is no incentive to control current costs or future liabilities when expenses are conveniently deferred to the next generation.  This dynamic is even less sustainable when self-serving politicians can manipulate future obligations for political gain.  

It has been asserted that a Government administered national health plan would capture material health care cost savings.  The Government is not efficient, productive or good at capturing cost savings.  This reality is born from the fact that politicians and bureaucrats are not motivated by profit and are not held accountable to the requirements of solvency.  Undistorted, private enterprise will always provide goods and services more efficiently than Government.

The political class has clearly demonstrated its inability to administer a public health care option efficiently with its Medicare track record.  The costs and liabilities associated with this program have grown at a rate far in excess of inflation, income growth, population growth and the expansion of Government.  Politicians have exhibited a complete inability to control costs and their projections of future expenses have consistently been proven to be inadequate. 

The Obama Administration is presently arguing that if we don’t nationalize health care that the Government will eventually go bankrupt.  To argue that Medicare has done such a terrible job controlling costs and future liabilities that we must nationalize health care is bizarre.

If actual, free-market competition were re-introduce into health care, and Government distortions were removed the majority of cost problems would be eliminated.  Medicare is a failed Ponzi Scheme that is doomed to result in a cataclysmic financial disaster.  It would actually be preferable to mail every senior citizen the equivalent sum of money as would be spent on Medicare with the requirement that they buy health care coverage and pocket any remaining funds than to have the Government administer the program.

I recognize that there will always be some number of people too poor or disabled to afford their own insurance.  To that end, the Government should provide a minimal health care safety net for this segment of the population.  Of course, the politically expedient temptation will always be to expand this coverage recreating the current failed dynamic.  

Dismal Reality

Members of Government are thrilled to see health care costs spiral out of control because they may be used to justify a nationalization of the system by blaming unsustainable costs on the failure of Capitalism.  In actuality, the only reasons for rising costs are the failure of Government programs, legislation and inexcusable market interference.