Healthcare and the State

Recently, the Supreme Court interpreted certain provisions of the Affordable Care Act (ACA) as being lawful by ignoring its documented plain language, and by applying consequentialist rationale with respect to what a Congress meant that no longer sits. Be that as it may, this ruling should have come as no surprise as the Court already set so-called “Obamacare” on an ill-conceived path of legitimacy in a previous ruling, and the state has an inherent interest in proliferating dependency and authority over all aspects of its subjects’ lives. This latest ruling simply reflects the long-term trend toward eventual single-payer (i.e., state-run), so-called “universal” healthcare.


Some would surely applaud this trend. There can be little doubt that various entities within the country ultimately want a single-payer form of government healthcare. It is up to the reader to determine for themselves if these actors’ intent is ultimately good or not. However, and regardless of intent, real consequences exist that should be considered and understood as America likely slides closer to this objective.


First and foremost, there is no such thing as so-called “universal” healthcare, practicably or theoretically. Those who refuse to recognize this fact demonstrate a fundamental ignorance of basic economics. Anything that is actually universally accessible to everyone, such as oxygen, possesses no intrinsic value economically due to an absence of the law of scarcity. Clearly, oxygen is valuable to every breathing human being on the planet but because it is not contextually scarce it carries no economic pricing value. It is precisely because healthcare is an inherently scarce resource – both naturally and artificially – that it comes with a price.


Thus, even in government-run healthcare systems relative scarcity is a relevant factor that drives cost. The idea of eliminating costs is an absurd one on its face. What matters is how the scarce resources are allocated (i.e., efficiently or inefficiently), whether the scarcity is natural or artificially created (i.e., a product of the rules of supply and demand or a product of government bureaucracy), and who bears these costs (i.e., the consumers themselves or third-parties).


In a government healthcare system, regardless of its form, these costs are borne either in the form of property confiscation and redistribution (i.e., taxes), inefficiency and bloat, corruption, or rationing (or combinations of all of these).


But first, let us discuss the tangible expenses associated with government healthcare programs. Presently, the United States is sitting on a conservative estimate of unfunded liabilities that total somewhere between $50 and $100 trillion (!) for Medicare alone. This, of course, does not include the real costs of other programs such as Medicaid, Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) subsidies, and now the ACA exchanges and subsidy programs. Obamacare itself is expected increase the overall healthcare cost curve, to the tune of $621 billion over the next 10 years.


Currently, nearly 1/3 of everyone’s tax bill is spent on healthcare in one form or another. This represents a 22% increase from 2012 to 2014 (during the bulk of Obamacare implementation) and only represents the treasury-funded costs. This figure does not reflect direct non-tax costs to the consumers (e.g., through premiums and deductibles) or debt-funded costs (such as the aforementioned unfunded liabilities of Medicaid and Medicare). Add to this the growing realization of individual costs of Obamacare – in the form of shocking premium increases, predictable bureaucratic ineptitude (also, here and here), life-and-death inefficiency, employer and individual tax fees (i.e., the infamous “mandates”), and other policy side effects – and it is easy to see the dangers these ever-increasing costs pose to the nation’s economy.


With respect to the direct consumer costs, these spikes are a generally modern phenomenon owing originally to the advent of third-party payer systems. As third-party payers intervene in the exchange between medical provider and patient, transparency of real costs and subsequent cost-based competition become a thing of the past.


If there were more transparency… then there would be more ground for suppliers of medical services to compete on prices and efficiency. That is, costs would be lowered as a result of competition among service providers (as they once were). In the current system in which the patients are cut out of the pricing system, suppliers of medical services act to the contrary.

The successes of the free market you see all around you are within anybody’s reach as long as there is real competition and not a sanctioned obligatory purchase of a service, for which the supply is then shared between a few large companies.


This effective removal of patients from the price-competition shopping experience, so to speak, that is available in other aspects of normal daily life has the inherent long-term effect of inflating costs through reduced (or outright elimination of) market competition. As Kevin Carson analogously notes, “when your insurer only requires a [relatively] small deductible for each trip to the supermarket, you’ll probably buy a lot more T-bones.”


This original cost inflation is not a unilateral state-derived one, but is nonetheless intrinsically supported by the state through tax policies (e.g., rewarding businesses that offer health insurance programs and punishing individuals who do not participate in them) and regulation (e.g., licensing cartels, drug patenting, etc.). Additionally, the lack of actual economic knowledge among politicians, coupled with the state’s inherent interest in treating but not actually curing real problem(s), further enables this issue in the form of government protectionism and interventionism. “A central problem of all the healthcare reform proposals circulating in Congress is that they focus almost entirely on finance… without addressing the cost of healthcare itself” (emphasis added).


What are those inflationary forces? … [Most] important among them are the incentives in the payment and organization of medical care that cause physicians, hospitals, and other medical care facilities to focus at least as much on income and profit as on meeting the needs of patients… The incentives in such a system reward and stimulate the delivery of more services. That is why medical expenditures in the US are so much higher than in any other country, and are rising more rapidly… Physicians, who supply the services, control most of the decisions to use medical resources…

On one side of the exchange you’ll have one of an artificially limited number of providers, many of them concentrated in those enormous, faceless institutions called hospitals. On the other side, making the purchase, is not a patient but one of those enormous, faceless institutions called insurers. The insurers, some of which are actual arms of the government and some of which merely owe their customers to the government’s tax incentives and shape their coverage to fit the government’s mandates, are expected to pay all or a share of even routine medical expenses. The result is higher costs, less competition, less transparency, and, in general, a system where the consumer gets about as much autonomy and respect as the stethoscope. Radical reform would restore power to the patient. Instead, the issue on the table is whether the behemoths we answer to will be purely public or public-private partnerships (emphasis added).

…before we address the question of finance at all, we must first address the reasons why the present cost of healthcare is so inflated (emphasis in original).

Finance, therefore, is a secondary issue. Healthcare finance is an issue primarily because of the cost of healthcare itself, and increasing insurance premiums are driven mainly by the cost of care: specifically the high cost of drugs, treatments and equipment.

The root of the problem is that the state, through artificial scarcity, makes certain forms of practice artificially lucrative. In other words, it creates a honey pot. Given the existence of that honey pot, physician standards of practice and hospital business models gravitate toward the money the same way water runs downhill (emphasis added).

The system runs on third party payments and cost-plus accounting, which means that those making the decisions regarding healthcare delivery have precious little incentive to economize. It is almost never standard practice, in making healthcare decisions, to be informed of both the costs and benefits of a test or procedure at the time of the decision, or for the patient to be given a choice between higher and lower cost options with the attendant risks explained.

The medical ethic is replaced by a “veterinary ethic, which consists of caring for the sick animal not in accordance with its specific medical needs, but according to the requirements of its master and owner, the person responsible for paying any costs incurred” (emphasis added).

The explicit objective of protecting existing providers from competition, by the way, is indicative of the theoretical incoherence of mainstream liberalism. The people who draft regulatory legislation with the express purpose of preventing the evils of “destructive competition” or “cutthroat competition,” by and large, are the very same people who complain of the evils of monopoly (emphasis added).

And what of the less tangible expenses? Because marginal tax policies tend to act as disincentives to actually working for the affected earnings, some predict that Obamacare alone will directly reduce overall employment by an average of 3%. This would potentially impact 3 to 4 million workers in America, mostly female and younger workers. Additionally, roughly 20 million workers are legally ineligible for tax exchange subsidies due to their status as 40-hour per week, full-time workers. Reducing their work schedule to just 29 hours per week makes them eligible for health exchange subsidies. In some instances, reducing work hours to the point of removing requirements for employer coverage benefits the employers in question (if the lost tax deductions do not exceed the overall costs of the care). If the individual tax subsidies additionally offset the lost revenue that an 11-hour-per-week reduction presents the employee, then it is not difficult to see how such policies incentivize reducing full-time employment and production, for both employees and employers, and increase taxpayer costs.


Then, there are the inevitable tangible costs of bloat, inefficiency, and/or outright corruption that state systems trend toward. For example, the Veterans Affairs (VA) reportedly spent an average of $6 billion annually on wasteful and risky medical care supplies, illegally circumventing federal acquisition laws. We have also seen additions of wholly invented medical “conditions” tof the American Psychiatric Association’s Diagnostic and Statistical Manual, no doubt meant to further justify the previously discussed over-prescription of unnecessary (but well-funded) procedures, services, and drugs. Long waits for millions of patients to see doctors is becoming commonplace in advanced European countries which have implemented single-payer systems. It is becoming quite clear that the ACA was written in such a way to allow organizations with powerful lobbying abilities and ties to obtain exemptions from the law’s regulations, and they are actively pursuing these loopholes. And all this says nothing of the law’s inherent nature – coupled with the way in which the administration has implemented it extra-legally – to protect Big Insurance profits and establish state-sponsored revenue predictability.


And what do we make of the inefficiency and ineptitude that force-backed monopoly, and subsequent consumer choice elimination, created by government healthcare systems present?   In-hospital, preventable deaths due to medical errors reportedly average 195,000 per year (!) in America. The VA itself has made infamous news surrounding the deaths of numerous veterans who were not seen by medical professionals in a timely fashion. In the United Kingdom (UK), which implements a form of state-sponsored single-payer healthcare system, “latest figures show that in December [2014], nearly 39,000 sick patients were forced to wait on trolleys for up to 12 hours after a decision to admit them to hospital – three times as many as [2013].”


Ultimately, all government healthcare systems must come to terms with the inevitable issue of rationing care as a cost-absorbing measure. Again in the UK – long lauded for its single-payer “universal” healthcare system – “more than 300 patients a day are having operations cancelled as the National Health Service [NHS] runs out of beds, official figure show” and “more than a third of NHS trusts are considering rationing some types of surgery and other treatments” “to save money.” Some predict that medical discrimination against patients over 70 years of age will be necessary to meet “‘highly unethical’ [United Nations] health targets which seek to reduce premature deaths in younger people.” And “Britain’s highest court has ruled in favor of a hospital that withheld treatment from a terminally ill man despite the family’s opposition.” “The judges concluded that where treatment is futile, ‘it would be in the best interests of the patient to withdraw or withhold life-sustaining treatment,’ even if this resulted in the patient’s death” (emphasis added). Does anyone really want an agent of the state – even a judge – deciding medical issues and valuating the worth of a medical procedure and/or a patient’s life, particularly over the wishes of the patient’s family?


And the UK is not the only example we can look to for some form of care rationing. In Belgium, “thousands of elderly people have been killed by their own [general practitioners] without ever asking to die under Belgium’s euthanasia laws.” Sweden, another European nation that employs a monolithic government healthcare system, has seen “doctors [being] told [by the state] to prioritize patients based on their value as future taxpayers (emphasis added), clearly leading to similar discrimination of elderly patients. And “because free systems become more expensive with time and it is impossible to compensate by constantly raising taxes, every year more conditions are classified as non-life-threatening, and are therefore no longer covered.”


The simple, unavoidable fact is that all of these costs have to be borne by someone. There truly is no such thing as a free lunch. Future generations will have to pay these costs through direct (e.g., income or sales taxes) or indirect (e.g., wealth-destroying inflation) taxes; current generations will have to pay them through wealth confiscations and subsequent transfers from young (those who have had the least amount of time and opportunity to accumulate it) to old (those who have had the most time and opportunity to do so); all, or a discriminated minority, will pay these costs through a “shared sacrifice” of bureaucratically-controlled care rationing; and/or everyone will pay costs through the “universal” consequence of economic collapse via debt default and consequent monetary devaluation. Regardless, “we cannot and will not continue to pay all promised future Medicare benefits,” let alone additional, ever-expanding and abused, and increasingly inefficient government healthcare programs.


The way to reduce costs is through efficiency, innovation, and competition – all concepts that are utterly foreign to the state and thoroughly hampered by third-party payer schemes. Despite the World Health Organization’s unfair and self-interested bias against free markets, the United States ranks “no. 1 in the world in the areas of responsiveness to patients’ needs in choice of provider, dignity, autonomy, confidentiality, and the very important area of timely care” relative to other nations with far more entrenched government-socialized healthcare programs. This is because, relative to those nations, America has long operated on a free market basis – but that reality is quickly fading. The free market is the solution, not the problem, and fortunately at least some people are starting to realize and recognize this. Vermont recently abandoned plans for a single-payer system due to the fact “that the single-payer system won’t save money as Vermont officials had planned.” Additionally, Swiss citizens last year roundly rejected a referendum to introduce state health insurance at a nearly 2/3 margin. Some in the UK are starting to realize the perils associated with so-called “universal” healthcare: “The NHS is ‘not fit for the future’ and unless it undergoes radical change it may be forced to abandon free healthcare for all.”


In the end, the government is simply not very effective at solving complex problems. Indeed, there is considerable reason to believe it simply has no incentive to do so – or worse, that it is incentivized precisely not to solve such problems and to instead perpetuate them. In either case, the state tends to make matters much worse when we concede more and more power over our lives to it.

Illich described it as an “attempt to solve a crisis by escalation.” It’s what Einstein referred to as trying to solve problems “at the same level of thinking we were at when we created them.” Or as E. F. Schumacher says of intellectuals, technocrats “always tend to try and cure a disease by intensifying its causes.”

The healthcare question, like so many others, again boils down to a fundamental question: what do we reasonably expect the state to do in order to fix this problem? I think the following best summarizes the demonstrable inefficacy that the state conveys toward solving any problem it purports to:

In our carefully nourished innocence, we believe that institutions exist for the purposes they have taught us, namely, to provide us with goods and services, protection, security, and order. But in fact, institutions exist for no other purpose than their self-perpetuation, an objective requiring a continuing demand for their services…. If institutions are to sustain themselves and grow, they require an escalation of the problems that will cause us to turn to them for solutions (emphasis added).

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