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Old 05-05-2017, 10:45 AM   #1
Act of God
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How Government Regulations Made Healthcare So Expensive

https://mises.org/blog/how-governmen...e-so-expensive
How Government Regulations Made Healthcare So Expensive
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The U.S. “health care cost crisis” didn’t start until 1965. The government increased demand with the passage of Medicare and Medicaid while restricting the supply of doctors and hospitals. Health care prices responded at twice the rate of inflation (Figure 1). Now, the U.S. is repeating the same mistakes with the unveiling of Obamacare (a.k.a. “Medicare and Medicaid for the middle class”).



Figure 1: An Indexed Comparison of Health Care Inflation and Consumer Price Index in US from 1935 to 2009 (Source: US Census 2013) Nobel Prize-winning economist Milton Friedman wrote that medical price inflation since 1965 has been caused by the rising demand for health-care coupled with restricted supply (Friedman 1992). Robert Alford explained the minority view: "The market reformers wish to preserve the control of the individual physician over his practice, over the hospital, and over his fees, and they simply wish to open up the medical schools in order to meet the demand for doctors, to give patients more choice among doctors, clinics, and hospitals, and to make that choice a real one by public subsidies for medical bills" (Alford 1975). The majority of policymakers support either monopolization (e.g. typically Republicans) or nationalization (e.g., typically Democrats).

Both have claimed "physician supply can create its own demand," which means increasing the supply of doctors and hospitals will just motivate them to convince "ignorant" consumers to order more unnecessary and expensive health care. During the 1970s, Frank Sloan, a Vanderbilt University health care economist, explained the success of the most influential pro-regulation health care economist, Uwe Reinhardt: "His theories are highly regarded because he is so clearly understood. Unfortunately the evidence for them is not good; it is not bad either, it is just not there. And it would be a shame to see federal policy set on such a poor, unscientific basis." Since the early 1900s, medical special interests have been lobbying politicians to reduce competition. By the 1980s, the U.S. was restricting the supply of physicians, hospitals, insurance and pharmaceuticals, while subsidizing demand. Since then, the U.S. has been trying to control high costs by moving toward something perhaps best described by the House Budget Committee: “In too many areas of the economy - especially energy, housing, finance, and health care – free enterprise has given way to government control in “partnership” with a few large or politically well-connected companies” (Ryan 2012). The following are past major laws and other policies implemented by the Federal and state governments that have interfered with the health care marketplace (HHS 2013):

In 1910, the physician oligopoly was started during the Republican administration of William Taft after the American Medical Association lobbied the states to strengthen the regulation of medical licensure and allow their state AMA offices to oversee the closure or merger of nearly half of medical schools and also the reduction of class sizes. The states have been subsidizing the education of the number of doctors recommended by the AMA.

In 1925, prescription drug monopolies begun after the federal government led by Republican President Calvin Coolidge started allowing the patenting of drugs. (Drug monopolies have also been promoted by government research and development subsidies targeted to favored pharmaceutical companies.)

In 1945, buyer monopolization begun after the McCarran-Ferguson Act led by the Roosevelt Administration exempted the business of medical insurance from most federal regulation, including antitrust laws. (States have also more recently contributed to the monopolization by requiring health care plans to meet standards for coverage.)

In 1946, institutional provider monopolization begun after favored hospitals received federal subsidies (matching grants and loans) provided under the Hospital Survey and Construction Act passed during the Truman Administration. (States have also been exempting non-profit hospitals from antitrust laws.)

In 1951, employers started to become the dominant third-party insurance buyer during the Truman Administration after the Internal Revenue Service declared group premiums tax-deductible.

In 1965, nationalization was started with a government buyer monopoly after the Johnson Administration led passage of Medicare and Medicaid which provided health insurance for the elderly and poor, respectively.

In 1972, institutional provider monopolization was strengthened after the Nixon Administration started restricting the supply of hospitals by requiring federal certificate-of-need for the construction of medical facilities.

In 1974, buyer monopolization was strengthened during the Nixon Administration after the Employee Retirement Income Security Act exempted employee health benefit plans offered by large employers (e.g., HMOs) from state regulations and lawsuits (e.g., brought by people denied coverage).

In 1984, prescription drug monopolies were strengthened during the Reagan Administration after the Drug Price Competition and Patent Term Restoration Act permitted the extension of patents beyond 20 years. (The government has also allowed pharmaceuticals companies to bribe physicians to prescribe more expensive drugs.)

In 2003, prescription drug monopolies were strengthened during the Bush Administration after the Medicare Prescription Drug, Improvement, and Modernization Act provided subsidies to the elderly for drugs.

In 2014, nationalization will be strengthened after the Patient Protection and Affordable Care Act of 2010 (“Obamacare”) provided mandates, subsidies and insurance exchanges, and the expansion of Medicaid.

The history of medical cost inflation and government interference in health care markets appears to support the hypothesis that prices were set by the laws of supply and demand before 1980 and perhaps 1990. Even the degree of monopolization and nationalization promoted by politicians before 1965 was not enough to cause significant cost inflation and spending increases (Figure 2) until demands created by Medicare and Medicaid outstripped the restricted supply of physicians and hospitals.



Figure 2: Health Care Spending in U.S. by Sector from 1960 to 2005 (Source: US Census 2013) Spending on prescription drugs didn’t accelerate until after pharmaceutical monopolies were strengthened in 1984. Spending has increased even less for administrative, net cost of private health insurance and nursing home care, and not much at all for dental, structures, equipment, public health, other personal and professional care, home health care, research, non-prescription drugs and durable medical equipment. Since the 1980s, the government has used its buyer monopoly power, through its Medicare and Medicaid programs, to effectively set price and quality controls (e.g., underpayments) on physicians and hospitals (Stagg-Elliot 2012). For the same purpose, the Federal and state governments promoted the concentration of private insurance into buyer monopolies (e.g., HMOs).
Much more in the link. You'd think at some point we'd realize that government makes things more expensive and harder to get.
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Old 05-05-2017, 11:11 AM   #2
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Originally Posted by Act of God View Post
https://mises.org/blog/how-governmen...e-so-expensive
How Government Regulations Made Healthcare So Expensive


Much more in the link. You'd think at some point we'd realize that government makes things more expensive and harder to get.
Just like all those socialist government healthcare systems in every other First World country burdened with 10% GDP costs vs. our more free-market system coasting along with a mere 18% GDP cost.

Thankfully we're not burdened by full coverage like they are.
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Old 05-05-2017, 11:17 AM   #3
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Just like all those socialist government healthcare systems in every other First World country burdened with 10% GDP costs vs. our more free-market system coasting along with a mere 18% GDP cost.

Thankfully we're not burdened by full coverage like they are.
Except our system has the worst of both worlds: the illusion of a free market, but saddled with every bit as much bureaucracy and needless regulation as the terrible third-world systems you love so much.
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Old 05-05-2017, 11:54 AM   #4
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A bit of a tangent, but I am still very interested in learning anyone's rationale for why getting your medical insurance from your employer is a good idea. Any suggestions?
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Old 05-05-2017, 12:32 PM   #5
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A bit of a tangent, but I am still very interested in learning anyone's rationale for why getting your medical insurance from your employer is a good idea. Any suggestions?
I think the idea was that it allows pre-tax earnings to be used before payroll? If you did it the other way you'd have to pay with post-tax and then wait for refund.
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Old 05-05-2017, 12:58 PM   #6
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Old 05-05-2017, 01:54 PM   #7
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Just like all those socialist government healthcare systems in every other First World country burdened with 10% GDP costs vs. our more free-market system coasting along with a mere 18% GDP cost.

Thankfully we're not burdened by full coverage like they are.


There are ways to keep the GDP percentage down but you may not like them.
The way the First World Countries do it, is by delaying "elective" surgery and curtailing the use of cutting edge prescription drugs.

I have first hand experience to use for reference. I have had 2 surgeries that could have been put off for months without long term harm. The only drawback is that I would have had to suffer agonizing pain. If you ever had a severe tear in your rotator cuff you would understand the need for speed in repairing it.
In Britain or Canada, I would have been triaged and probably had to wait the better part of a year.
My mother had severe congestive heart failure and was prescribed what was at the time (20 years ago) a new medicine. The Canadian system would not allow her to get even if she paid for it. Thankfully she kept her U.N. insurance and had her meds shipped from the U.S. every month with a manageable copay ($200/month for a few months).
She will be 95 next month.
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Old 05-05-2017, 02:34 PM   #8
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A bit of a tangent, but I am still very interested in learning anyone's rationale for why getting your medical insurance from your employer is a good idea. Any suggestions?
Isn't it because of a bigger pool? The more people in a group the better odds of lowering the price.
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Old 05-05-2017, 03:05 PM   #9
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People of working age are healthier and thus cheaper to insure.


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Old 05-07-2017, 10:12 AM   #10
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A bit of a tangent, but I am still very interested in learning anyone's rationale for why getting your medical insurance from your employer is a good idea. Any suggestions?
It's a perk and optional for the employer. They don't have to offer it to you if they don't want to, and many don't. It's a nice way to attract talent. Having said that, if it wasn't expensive, no one would care about getting it from their employer, it would be like being offered all the post its you want. You can't stop a private company for offering perks to attract employees. Having said that, I'd be more interested in a slightly different implementation, perhaps a reimbursement policy rather than a purchase policy.
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Old 05-07-2017, 06:18 PM   #11
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It's a perk and optional for the employer. They don't have to offer it to you if they don't want to, and many don't. It's a nice way to attract talent. Having said that, if it wasn't expensive, no one would care about getting it from their employer, it would be like being offered all the post its you want. You can't stop a private company for offering perks to attract employees. Having said that, I'd be more interested in a slightly different implementation, perhaps a reimbursement policy rather than a purchase policy.
I never cared whether an employer offered health insurance before the ACA mandate. Now, I wouldn't mind accepting the inefficiencies of a government run healthcare system assuming the money my job pays into insurance for me went directly into my paycheck instead, but of course that wouldn't happen.
In fact, I would love to see the monetary value that my job pays in benefits that I don't see on a monthly basis, the total money that my company pays minus taxes. I bet I could utilize it far, far better than what I end up with as an hourly rate.
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Old 05-07-2017, 06:24 PM   #12
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Most likely yes, you would.
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Old 05-07-2017, 06:32 PM   #13
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Most likely yes, you would.
Not at the moment, at least. The last time I needed to see a doctor was about five years ago, just to get a referral to see a dermatologist about some long lasting acne issues that I got cleared up. I have zero health concerns and no pre-existing conditions so I likely won't even step inside a clinic or hospital for many years. The last time I did it was for smashing my thumb and I paid in cash even though I could have used insurance. I get what you're getting at, eventually I would be impacted by long wait times, or crap service, but at the moment I could use cash more than I could use employer subsidized insurance.
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Old 05-07-2017, 09:25 PM   #14
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Not at the moment, at least. The last time I needed to see a doctor was about five years ago, just to get a referral to see a dermatologist about some long lasting acne issues that I got cleared up. I have zero health concerns and no pre-existing conditions so I likely won't even step inside a clinic or hospital for many years. The last time I did it was for smashing my thumb and I paid in cash even though I could have used insurance. I get what you're getting at, eventually I would be impacted by long wait times, or crap service, but at the moment I could use cash more than I could use employer subsidized insurance.
Let's hope you don't choose to have cancer or choose to step in front of a hit and run driver. You know, healthcare being a purely free market choice thing and all.

Of course, you could choose to be rich, which is greatly helped by choosing to be white, male and the spawn of already rich parents, then this wouldn't be much of an issue at all, just something for the Poors to worry about.

Choose well.
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Old 05-07-2017, 09:35 PM   #15
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Old 05-07-2017, 10:28 PM   #16
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All the scare stories. I guess before the ACA doubled the cost of my insurance people were dropping like flies.
It is logical to assume that since the gubmint saved so many people from dying in the gutter, life expectancy would soar since Obamacare kicked in. And yet:

http://www.post-gazette.com/news/hea...s/201702270106


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Old 05-07-2017, 10:34 PM   #17
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As for the if we don't spend the money to give the freeloaders that same thing producers have, people will die! argument. Tell that to my buddy whose stepdaughter came up on a visitors visa, pregnant with complications.
She had the baby some 3 months early, requiring an extended stay in the NICU. She had complications to deal with and the bill of almost $400,000 was absorbed by Medicaid. The mother still had a bill of almost $200,000.
They went in, spoke to the billing office, explained that she did not have that kind of money and got a settlement of $27,000 and a payment plan for 5 years.


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Old 05-08-2017, 07:22 AM   #18
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As for the if we don't spend the money to give the freeloaders that same thing producers have, people will die! argument. Tell that to my buddy whose stepdaughter came up on a visitors visa, pregnant with complications.
She had the baby some 3 months early, requiring an extended stay in the NICU. She had complications to deal with and the bill of almost $400,000 was absorbed by Medicaid. The mother still had a bill of almost $200,000.
They went in, spoke to the billing office, explained that she did not have that kind of money and got a settlement of $27,000 and a payment plan for 5 years.


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You mean, they didn't just let her and her baby die? Think of the money that could have been saved!

Seriously, not sure what you're arguing here:

That folks all folks should be covered? If so, wouldn't it make more sense and economic efficiency to do so as part of an organized health care system than on an ad hoc basis where the costs get dumped on the provider (though everyone else ends up paying, more, through higher premiums and costs anyway).

That folks shouldn't be covered and that mother and child should have been left to die?

Some option C?
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Old 05-08-2017, 07:51 AM   #19
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There is a finite amount of health care, as it is both a good and a service. You cannot simply say "health care for all!" and open up a all-you-can-eat buffet for 300,000,000 people without it causing shortages. You might be ok with everyone getting worse care so long as everyone gets an equal serving of poor medical care, but I am not.

You have a country where around 50% of people do not contribute at the end of the day. You cannot screw over the 50% that do, the system will collapse.
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Old 05-08-2017, 08:34 AM   #20
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To sh!tlibs, healthcare is as abstract as the spaghetti monster....they don't realize there is a finite amount of people involved in the industry, of which there is ALREADY a massive shortage, lol, what a goober.
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