When is rationing not rationing?

Healthcare Rationing George Orwell-Style

by yours truly on Townhall.com  9-4-11

When is rationing not rationing, a mandate not a mandate and price-fixing not price fixing?

When the government says so.

Price fixing is not Cost Control

Health insurance premiums have risen even faster since the PPACA became law. How does the government respond? With price controls. But price controls do not address costs and will lead to shortages. Economics 101. Unless you are a politician--then it leads to votes.

Insurers Told to Justify Rate Increases Over 10 Percent

In some states like New Hampshire, groups of more than 20 workers have experienced premium increases of around 20 percent this year, while smaller groups have seen increases of 40 percent or more. At the same time, insurance agents say, coverage is shrinking as deductibles have increased and insurers limit the choice of hospitals.

To ensure that “consumers get value for their dollars,” the new health care law required annual reviews of “unreasonable increases in premiums...”

Under the new rule, federal and state officials will review rates in the individual and small-group insurance markets...

Federal officials acknowledged that they did not have the authority to block rates that were found to be unjustified. But they said many states had such authority, and the federal government is providing $250 million to states to strengthen their capacity.

What do Medicare, the Housing Bubble and the Chinese High Speed Rail have in Common?

Megan McArdle, writing about the Chinese high speed rail and its parallel to the 2008 U.S. housing bubble-and-crash had this to say:

Prices are really useful. But in whole large sectors of the Chinese economy, particularly the banking sector, the government sets those prices. This means huge information loss, and the concomitant possibility that there is a vast misallocation of resources.

Don't those things happen in markets? Hell yes: witness the housing bubble. On the other hand, witness East Germany. To get a really catastrophic misallocation of resources, it seems to take a government; corporations can only screw things up on an artisinal scale. For that matter, it's worth noting that our government has spent the last seven decades trying to keep the price of housing low, and that much of that intervention, such as the creation of mortgage securitization, ultimately significantly contributed to the crisis.

It's worth remembering that at the time they were built, all those useless houses looked like prosperity.

The same argument can be made for the current mess we are in with health care prices. With the government as the single largest payer for medical care in the U.S., the administratively-set prices for Medicare and Medicaid wreak havoc with supply, demand and resource allocation.

Also -it's worth remembering that at the time they are consumed, all those unfunded Medicare benefits look like a wonderful health care program--until you pay attention to the effect they have on rising health care costs and government insolvency.

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Do American's pay more for their healthcare?

A major rationale in the push for government involvement in the U.S. health care system is the claim that the U.S. pays significantly more per capita for medical services than countries with some form of nationalized (e.g. government controlled) health care.


Source: Organization for Economic Co-operation and Development. OECD Health Data 2006, from the OECD Internet subscription database updated October 10, 2006. Copyright OECD 2006, http://www.oecd.org/health/healthdata.

Or that we spend a greater amount of our GDP on health care:



Source: Organisation for Economic Co-operation and Development. OECD Health Data 2006, from the OECD Internet subscription database updated October 10, 2006. Copyright OECD 2006, http://www.oecd.org/health/healthdata.

But looking at dollars spent on the purchase of medical goods and services does not capture the full costs of healthcare decisions.

In all forms of nationalized health care, spending for medial care is capped, either as a budgetary total, or in the form of price controls on reimbursements. Limits on budgetary totals lead to obvious rationing, but a less obvious form of rationing also occurs with price controls. Whenever the price of something is held artificially below its true costs, demand rises and shortages occur. This is a basic, fundamental economic fact.

When demand exceeds supply, the normal economic response is for the price to rise. Higher prices signal greater scarcity and discourage overuse and waste.* People have the information they need to prioritize and to make better decisions about their purchases of these scarce resources.

When prices are not allowed to rise, means other than price discrimination emerge for allocating resources. Waiting times lengthen, and quality deteriorates. Office visits shorten. Some services--like phone consultations or home visits--disappear. Procedures that used to be accomplished in one visit, now require two or more. All of these are ways of shifting the "costs" of a good or service elsewhere.

Longer waiting times for medical treatment increases pain and suffering. Disability, and even mortality, increase due to delayed diagnosis and treatment. Significant economic consequences accrue through lost wages and productivity. Such changes in access and quality, and the increased economic costs not measured by the direct purchase of medical treatments, are not captured by the data on per capita spending.

If a person has to wait a year or longer for knee or hip surgery (as they do in Canada and Great Britain) how much economic productivity is lost as compared with receiving the surgery in less than 4 months (as occurs in the US)? What is the value of less pain and suffering? What is the dollar cost of disease progression due to prolonged wait times?


The answer to the question "Do American's pay more for their health care than people in other countries?" is not answerable by simple per capita or %GDP spending comparisons.

In fact, given our current mixed economy, and its destructive effects on price signals, it is not answerable at all.



Addendum: Also not included in official figures are any bribes, "gifts" or black market purchases--which in some countries can be quite significant. Check out this story about healthcare in Japan.

*The higher prices also allow for higher profits, which encourages others to enter the market, increase supply, and subsequently bring about lower prices.