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Wednesday, July 1, 2009

Do We Need State Control of Medical Care?

Government-run health care cannot eliminate scarcity


the-doctor-will-see-you

The notion that the political classes “should never waste a good crisis” has extended not only to the de facto nationalization of domestic auto companies and the financial sector, but also to medical care. It is treated as inevitable that the government will demand to control all the money that comes into the medical sector, thus effectively nationalizing it.

President Barack Obama recently expressed faux surprise that anyone would oppose his latest proposal, a government-run insurance company that will offer coverage in competition with private insurers. The president’s surprise came in the form of asking why people would claim that government cannot operate efficiently, yet simultaneously run an insurance company that would be a lower-cost producer than private firms.

While seemingly clever, President Obama’s point is irrelevant. The question is not about the “efficiency” of insurance plans, but rather the simple fact that government schemes are responsible for driving up the cost of medical care to consumers. From the huge regulatory burdens (with accompanying paperwork) on medical people to the third-party payments, government actions on all fronts have turned medical care into something akin to a Rube Goldberg cartoon.

Talk to any doctor and he or she will tell you that they spend many hours per week doing paperwork, almost all of it required by government and insurers. The government paperwork is especially pernicious because errors or disagreements on billing – even innocent ones – can lead to criminal charges. The legal aspect of medical care has turned into a minefield for the providers, and that has to impact overall costs.

The main issue, however, is quite simple, yet also profound: Medical care is a scarce good and thus is subject to the laws of economics. All too often, we hear that medical care is not like other goods and services and is set apart from economic laws. All we can say in return is, “Not so fast, my friend.”

Application of economic theories does not discriminate between the kinds of goods and services rendered. If something is scarce, the same laws apply whether we speak of brain surgery or pork bellies. Such words are disconcerting to people who believe that medical care should be a right that should be provided to everyone regardless of one’s personal wealth. Unfortunately, all government interventions – all of them –carrying out this “rights” mandate only serve to make medical care less available (and less effective) for everyone.

Think of a simple supply-and-demand example. If anything increases the cost of providing something, the supply curve shifts to the left, making the good less available and higher-priced. There is no exception to that point for anything that is scarce.

So, let us think of the ways that government makes it more difficult to provide medical care. First, and most important, government sets huge barriers in the path of people seeking to engage in medical occupations, especially through licensing and strict regulations. In other words, government purposely limits the supply of medical providers to protect the incomes of doctors.

It is the equivalent of the government’s forcing all of us to purchase a BMW or Cadillac instead of letting us choose between a high-end and lower-end vehicle. If such restrictions existed in the auto industry, we would have demands for “cost containment” in autos.

Second, as previously noted, the legal side of medical care forces doctors and nurses to spend time doing paperwork rather than providing care. Fur


  • Dr. William Anderson is Professor of Economics at Frostburg State University. He holds a Ph.D in Economics from Auburn University. He is a member of the FEE Faculty Network.