The topic of health care causes me to feel anxiety on two occasions: when I read about proposed Medicare cuts of half a trillion dollars (though I am too young for Medicare), and when my private insurance company reimburses my doctor at a low level, even though it informs me that I owe nothing.
Both of these events, the first related to a public program, the second to a private one, concern me because of their connection with rationing, the process of allocating goods and services when the demand exceeds the supply. I would like to explain the connection between reduced reimbursements to health care providers and rationing. Since the rationing of services is a bit subtler than the rationing of consumer goods, I’ll start with an example of a consumer good and then consider health care.
Suppose a terrific new type of exercise equipment is introduced, one that guarantees fitness with a minimal investment of time. It is likely that the demand will exceed the supply in the short term, meaning rationing is necessary.
This can be accomplished in a variety of ways: arranging sales on a first-come, first-served basis, favoritism, setting up a lottery, and raising the price.
Doctors will increase the percentage of new patients rejected.
In the longer term, if there is an expectation that people will continue to pay a price sufficient to cover the costs, the required supply can be brought up to the demand by two means: adding more plant capacity, and increasing productivity in the existing plants by upgrading the machinery and training the factory workers to work more efficiently.
These approaches don’t work with medicine. Society doesn’t want to have medical services offered on a first-come, first-served basis or have the system play favorites.
Since cost control is the major stated purpose of health reform, politicians cannot very well tell the public that adequate prices ensure a well functioning medical system. Yet medicine depends heavily on a continued supply of highly trained providers who require decades of training and therefore expect their income to reflect the sacrifices they have made by incurring substantial debts, working long hours, and assuming responsibility for life-and-death decisions.
Their income is largely derived from reimbursements. Reducing these reimbursements effectively creates wage and price controls, whose disastrous results are confirmed by centuries of experience.
Can productivity improvements help to reduce costs? My view is that there is no way to make medicine significantly more productive in the foreseeable future. Here are several of the obstacles:
a) Medicine cannot be automated the way factories can. Each patient requires a minimum amount of time for treatment and will differ in symptoms and ability to benefit from the available treatments.
b) Technologically advanced tests may not reduce costs since most patients test negative, and the savings from early identification of an illness in the few who are sick may therefore not cover these costs.
c) Consultants and professors with doctorates have been working on productivity issues for decades and have already implemented the obvious solutions.
d) The government has long been unable to solve the problem of massive fraud.
e) Additional shortages will be created by adding up to 47 million new people to the medical rolls.
Not surprisingly, the Congressional Budget Office (CBO) and Ezekiel Emmanuel, a major presidential health adviser, have acknowledged that shortages will result from increasing the number of insured.
Therefore, the only remaining approach to reduce costs is to reduce the pay of health professionals by reducing reimbursements. This merely treats the symptom and is analogous to a person turning back his watch because he is late.
Of necessity, surgeons and medical facilities will have to ration tests and procedures since they will be increasingly overloaded with patients. Doctors will increase the percentage of new patients rejected because their insurance reimburses at a low level.
They will also have to rush the patients they are able to treat and will be less able to maintain equipment and invest in new technologies. Increasingly, experienced physicians will retire as their income declines, and fewer young people will choose to enter the profession.
Note that no one needs to change the benefits listed in your contract—there just won’t be an adequate number of medical professionals to implement them. Politicians thereby escape the political blame. However, to use an analogy, if someone removes the oxygen from a room, the result is the same as choking the people who occupy it.
Readers interested in a discussion of the causes of the health care crisis, the faults of proposed legislation, and my solution can read my article “Health Care Realism: Facing the Unpleasant Facts” online (www.theepochtimes.com/n2/content/view/22274/).
Arthur Wiegenfeld is an independent investor in New York City. He has training in economics, finance, physics, and computer simulation. Comments to artw@rcn.com.
