2014-01-24

A Plain-Language Guide To Health Care System Problems

Much has been written about the problems of the US health care system, and of health care systems in general. Most articles rely either on insider jargon and wonk-language or vague generalities. As a result, most people do not understand the real problems. This became painfully apparent to me after reading the replies under a recent, uncharacteristically political Facebook post from the genius musician Mark Zonder.

What follows is my attempt at providing a plain language, easy-to-understand synopsis of why health care is so expensive, why so few people can afford it, and why all attempts to find a legislative solution only serve to make things worse.

How Costs Increase
Once upon a time, people used to pay cash for medical products and services. In some developing countries, it is still like that. This system had pros - such as the affordability of, and easy access to, medicine - and cons - such as low levels of regulation and consequently high levels of danger and "trust" in poorly motivated, profit-seeking firms.

At some point, people in the developed world decided that they would like to give some affordability in order to gain some safety regulations. This reduced affordability because producers of medicine now had higher costs thanks to the fact that they had to clear medical burdens.

Regardless of whether you think this was a good trade-off, the fact remains that it was not fair. Rich consumers gained a great deal at the expense of both poor consumers (who could not afford the new, higher prices) and producers of medicine (who now had higher costs). Reasonable people can disagree about whether this is "worth it," but we must all agree that costs increased as a result. It is a plain fact.

In order to make up some of the possible "unfairness," legislators offered medical producers patent protection on their medicines. Patents are government-enforced monopolies on the production of a product. As we all know, monopolies create special profit protection for the monopoly holder in hopes that by offering patent protection, the government can help encourage producers to innovate. Reasonable people can disagree about whether this is "worth it," but we must all agree that patent protection increases prices and reduces supply, as every type of monopoly is bound to do so, by economic definition.

Note that in the case of patents, producers of medicine gained a great deal at the expense of poor consumers (who could not afford the new, higher prices) and rich consumers (who now had to pay higher prices for the same medicine).

Thus, we see that there is a certain duality involved here. Governments act to regulate products and services, which results in higher costs. Then, to prevent businesses from fleeing the market altogether, governments offer special protections to businesses in order to incentivize their participation in the market. But both the regulations and the special incentives increase costs to consumers. That's important because it means that regulation increases costs and government protection of industry increases costs.

The Poor Are Left In The Lurch
Despite the fact that regulators have poor consumers in mind when they regulate the health care industry, the result of the new regulations is increased costs. Your medicine might be safer, but you might no longer be able to afford it. Similarly, despite the fact that regulators have access to medicine in mind when they offer special incentives to medical producers, the result of the new incentives is increased costs. Your medicine might be readily available on store shelves, but you might no longer be able to afford it.

Or, alternatively, a government mandate that you must buy health insurance or receive subsidized insurance from government might increase your ability to schedule an appointment with a doctor; but you are now on the hook for costs that you previously were not paying. Thanks, ACA.

Pharmaceutical safety regulations and patents are but one example. We can say the same of medical licenses: The regulations exist to ensure that patients receive qualified care, but doctors must now incur steep costs to meet the regulations. Costs increase, and poor patients on the margin fall off the ledge - they can no longer afford that which they were once able to afford. Meanwhile, these same licenses serve as a market protection for doctors by being a barrier to greater market entry; but again, this merely translates into a decrease in the supply of care, and thus higher prices.

That which is intended to help consumers in general only serves to help the wealthy ones. The poor, meanwhile, are left in the lurch.

Conclusion
So we see that there is a certain duality involved here. Governments are good at heaping on regulations and lending special incentives to businesses. Reasonable people might even conclude that these regulations and incentives are "worth it" in the long run. But there can be no denying that the result of these policies is an increase in price and a decrease in supply.

Quite often, leftists see the problems of government incentives to business but fail to see the problems of government regulations. Equally as often, rightists see the problems of government regulations, but fail to see the problems of government incentives to business.

The reality is, though, that you can't have one without the other, and that both types of policies serve to reduce access to medicine, especially for the poor.

You may ultimately conclude that this is the way things have to be. I hope, however, that you will reconsider.