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A DIFFERING VIEW: Government, regulations drive up health costs

Linda Gorman, Independence Institute

Published February 29, 2008 at 12:33 p.m.

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I’ve got to say that the Feb. 25 editorial, “The surging tide of health-care costs,” broke new ground for me in health-care policy. “The popular Medicare program ... .” First time I knew that we had data letting us assess whether something that was virtually mandatory and without any substitutes, unless one is very rich, is “popular.”

Then there were the factors cited by the editorial as driving health-care cost increases: “an aging population, boomer retirees, advances in drugs and medical technology.” Never mind that the boomers are the aging population and so shouldn’t count twice; advances in drugs generally save costs. So does a lot of new technology: MRIs are a whole lot cheaper than exploratory surgery, for example.

I guess the implication here is that to cut costs we should go back to the 1930s: put people in beds and provide lots of nurses to take pulses and temperatures without any medical devices or new drugs. Costs would go down.

The literature actually suggests a bunch of other major cost drivers — excess regulation is estimated to account for about 10 percent of U.S. national health spending each year. The spread of public insurance programs including the expansion of Medicaid/SCHIP also likely increases costs. Rising incomes are a huge factor. Wealthy people consume more health care just like they do more transportation, housing and education.

The spread of third-party payment, which has reduced consumer out-of-pocket expenses to all-time lows, is likely a big factor in the cost increase.

Finally, there’s the line that “And if private Medicare plans become more popular, that too may increase costs.” The embedded assumption here seems to be that private equals higher cost. This often is not the case in the real world.

Linda Gorman is director of the Health Care Center at the Independence Institute in Golden.

Comments

  • February 29, 2008

    9:36 p.m.

    Suggest removal

    Sean writes:

    Ah the Dependence on Mideast Oil Institute from Golden speaks again.

  • February 29, 2008

    10 p.m.

    Suggest removal

    farmboy writes:

    Sean's is typical of the left. No real response, just name calling.

  • March 1, 2008

    6:54 p.m.

    Suggest removal

    Roader writes:

    Re: Government insurance driving up the cost of health care

    Government-financed health insurance schemes (Medicare, Medicaid,SCHIP, etc.) reimburse below cost. Hosptitals and doctors would soon go broke if everyone paid below cost, so to stay financially viable they shift cost to insurer companies and private payers. Government insurance programs typically reimburse at 80% to 90% of a provider's cost, and since government finances half of all health care costs, providers are forced to charge insurance companies and individuals 110% to 120% over what they would normally charge.

    It's easy to beat up on "greedy" insurance companies, but in fact it's miserly government insurance schemes that are increasing the cost of health care. If everyone were forced into government health insurance, the problem would go away, but health care would be have to be rationed, quality would drop, and costs would drop initially. However without a competive market to winnow inefficient providers, costs would soon climb. Everyone would be equally miserable.