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Economics and Models for Healthcare

Trends in costs are well documented, and yet little understood.   See Trends for some of those insights. Clearly the cost curve makes little sense if a free market in healthcare had truly existed.   The current House Bill and Senate Bill are also becoming better understood.  There are 4 points in Obamacare which constitute 7 bad ideas

Massachusetts and Canada are held up as models for our future system of healthcare, at least in the minds driving the acceptance of Obamacare.   Both systems upon examination are not doing well.  See the article on the Disaster in Massachusetts, and the many articles on Canada in Other Countries section.  More analysis on Massachusetts spells out how this disaster is a good case study to understand better the meaning the mandates in Obamacare.

What would make our system work to our advantage?   First of all providing best practice over more of the country.  Second, removing the waste in the government portion of the healthcare expenditures.  Third, removing those regulations and mandates that provide no net value, but are more protectionist.  Fourth, greatly expanding the role of the patient in driving down costs with good decision making at the point of purchase.  More specific ideas are presented in the Proposal Section

So how has this current system evolved?  An article by Milton Friedman from 1997, gives a prediction and insights that are coming to pass.  The system has become far too complex in its attempt to find define system constraints that will work, proving it is impossible to define a centralized system that will work for 300 million people.

Ron Paul said that for the past 30 years we have tried corporate medicine, not a free market, and it has failed.  It is time to pursue patient driven medicine.  A video interview with him summarizes well the issues:

The current inefficiencies within healthcare are driven by a focus within the healthcare industry it seems to lobbying and not productivity.  HMO's were established by Congress, and was not a product of innovation within and by the healthcare industry.   Some argue that we already have socialized medicine, that healthcare is already so under the control of government that is it socialized.

The point being that government already has been a strong cause of managing the factors leading to our current circumstances, so why would we give more of the control to them, to provide more of a Post Office healthcare system?  Kaiser weighs in on what are the imperatives in any reform.

What model options are there, that would give a stable outcome in terms of budget containment, improvements in price and quality?   The market based approach, it can be argued is the only one that meets all of these requirements.   The government control option is not stable and ends with a single payer system designed to restrict or ration care, in order to contain cost.   Some countries combine an aspect of both, but in fact they are centrally controlled.  

Can we take advantage of what works in our current system?   If we look to such successes as found at Safeway and how they managed their healthcare programs, then we can learn what works. There are other examples of good wellness programs, all voluntary, that have great results. Life incentives are a key to managing the catastrophic illness levels and costs.  McKinsey analyzes the risks that any healthcare system must face.   Life style choices are a strong driver up or down in healthcare costs.   Any system must include strong incentives for a healthy life style.

Also what system will give the greatest impetuses to promoting innovation in technology, delivery, etc. ? Again the best answer is the free market with the patient in charge.   Innovation in insurance also provides great value in any reform.  The history of other countries is long-term and is driven by a lack of confidence in the free market. Europe has had a long standing dislike of the market, distrusting its outcomes.  

However the place that many countries send their most difficult patients is the America.  Other countries also rely on America to innovate the new medical the technologies that then are used in their country.  Over 70% of all healthcare venture capital is consumed in the United States.

Single payer systems do not work as well as our best practice.  It is just that simple.  A single payer system gives the government sole control over an industry.   It becomes a monopsony, and the negatives are well understood of this model.

Some criticism of free market healthcare is that some people would be left to die.  An example of this position is:  A brief summary of the problem with a free market approach to health care from James Kwak:

I happen to think that a free market for insurance works pretty well in most circumstances (and I did co-found an insurance software company); for example, if you can afford the house, you can generally afford the insurance for the house. But it doesn’t work very well for health care, because many people are simply uninsurable under free market principles (expected health care costs exceed their income, let alone their ability to pay), and hence would be left to die. We think we have a private, for-profit insurance system today, but we can only avoid its disturbing implications by hedging it in with public backstops and regulations.

The model of a society with free markets is made of up of all cruel, profit seeking, uncompassionate peoples is simply not true.   The philanthropy in America is a great example of how this does work.  People who become wealthier are not unkind, but are more often than not more generous.  This is a myth that clouds public policy, and has lead to the continued bad reforms we find installed  healthcare today.