It Starts...

For months, I've been trying to explain to everyone I know that the health care "reform" bill recently passed by Congress operates under a severely flawed premise by conflating insurance with actual health care.

One of the consequences of this is that instead of dealing with the supply of health care resources - including services provided by trained professionals like doctors & nurses - economically illiterate politicians have focused their efforts only on adding to the demand for those resources through expanded government funding and mandated insurance. One thing that economics teaches us is that if there is a good that commands a comparatively high price (like medical care), then there is significantly lower supply of that good than there is demand for it.

As much as people like to pretend that health care doesn't fit economic principles, reality says otherwise.

Consequently, it has long been obvious to me that this will all be catastrophic. The main problem here, as always, is the centralized control over the market for all aspects of health care.  For instance, the government-granted - and entirely monopolistic - control the American Medical Association has over medical licensing is a huge problem.  Of course, even if the AMA didn't do such an abysmal job predicting future demand for doctors - and thus miscalculating on medical licensing allowances - the incentives for even becoming a doctor are quickly disappearing in the United States anymore.  So when articles like this one from the Wall Street Journal come out, I am not surprised...

As I've discussed on this blog before, the United States was already looking forward to a serious shortage of doctors thanks to centrally planned medical licensing - but with the drastic increase in demand for the remaining service providers, that shortage is going to turn into a full-blown disaster.  According to the WSJ:

"Experts warn there won't be enough doctors to treat the millions of people newly insured under the law. At current graduation and training rates, the nation could face a shortage of as many as 150,000 doctors in the next 15 years, according to the Association of American Medical Colleges...

A shortage of primary-care and other physicians could mean more-limited access to health care and longer wait times for patients."

This is not only a result of medical licensing controlled by the American Medical Association, but also a result of Congress being the primary funding source for medical residencies.  Even though a handful of new medical schools have opened recently, the number of new doctors in training is will only increase by a paltry 340 per year.  More significantly, the Wall Street Journal reports that:

"...medical colleges and hospitals warn that these efforts will hit a big bottleneck: There is a shortage of medical resident positions. The residency is the minimum three-year period when medical-school graduates train in hospitals and clinics.

There are about 110,000 resident positions in the U.S., according to the AAMC. Teaching hospitals rely heavily on Medicare funding to pay for these slots. In 1997, Congress imposed a cap on funding for medical residencies, which hospitals say has increasingly hurt their ability to expand the number of positions."

Go figure.

This is fundamentally the problem with having bureaucrats & politicians, and their buddies in government-backed licensing agencies control the supply of resources.

But the nightmare hardly ends there...  The L.A. Times today provides us with a remarkably biased and mostly idiotic story highlighting the reporter's shock that even after the health care reform bill has passed, insurance companies will still be able to raise premiums.  I'm not sure what the reporter expected to happen, since - yet again - we now have an immense number of new people chasing after a decreasing supply of resources. That necessarily means prices are going to rise as goods become more and more scarce.

Perhaps more significantly, the L.A. Times article references customers of insurance companies as "ratepayers", highlighting the truth of the situation we have now.  The insurance companies are no longer private entities in the sense that matters.  Now, health insurance is run the same way as licensed public utilities.

Depressingly, the "solution" proposed by the article is a tried and completely false reliance on mandates & price controls:

"Although Democrats promised greater consumer protection, the overhaul does not give the federal government broad regulatory power to prevent increases.

Many state governments -- which traditionally had responsibility for regulating insurance companies -- also do not have such authority. And several that do are now being sued by insurance companies.

"It is a very big loophole in health reform," Sen. Dianne Feinstein (D-Calif.) said. Feinstein and Rep. Jan Schakowsky (D-Ill.) are pushing legislation to expand federal and state authority to prevent insurance companies from boosting rates excessively."

Naturally, leave it up to one of my own idiot senators from California to come up with the worst possible response to a problem of this nature.

So here's the thing... We've set up a public utility-like cartel among insurance providers with extremely limited competition and removed any incentive and ability for competitors to enter the market, and then we've handed them - according to supporters of the bill - 32,000,000 new customers who will be subject to legal action if they don't pay up and we've prevented insurers from doing anything actuarially sound like denying people .  At the same time, we've limited the number of medical residencies and imposed huge fines and new taxes on the providers of health care products such as drugs and medical technology - thereby making doctors, hospitals, drugs & everything else more and more scarce.

Price controls only make this situation worse as insurance companies who are already earning under 3% profit margins will be making <0% for their trouble. So as those companies go out of business (or get taken over by the government - which cynically speaking, may very well have been the plan all along), access to real health care and even money available to pay for that care will dry up.

This means that in reality, what we're looking forward to is not enough doctors, not enough hospitals, not enough drugs, MRI machines or flu shots - and significantly reduced incentives for anyone to make more of any of those things, much less to innovate new products... And thanks to government subsidies and mandates, there will be far too many people demanding whatever resources & professional services remain available.

Carefully consider all this... For the last 50+ years, we've been steadily destroying health care through mandates, subsidies, controls, & cartels - all of which have detached prices from consumers & producers, and eliminated competition in the marketplace.  This is really not a good thing.

So I can't see how the inevitable future will be a surprise to anyone, but I suspect that I will be reminding far more people than I'd like of exactly what I said over the last couple years for the next decade or more.