What would be a valid compromise on health care policy?
An excellent question.
A question that begs the question: how are you doing today?
If you and your family are comfortable with the level of care you’re receiving today, you have no reason to support Obamacare.
Therefore, if you support Obamacare, you must not be comfortable with the level of care you’re receiving today.
Health care is the largest, fastest growing component of GDP (gross domestic product.)
In an earlier post, I explained why. Think about the quality of care either you or your parents knew forty years ago.
If you were alive and aware of Dr. Christian Barnard in 1967, what he did was stunning. And started a stampede.
“Take two aspirin and call me in the morning” was replaced by “yeah, we can fix that.” A huge transition occurred in medicine and pharmacology, with advances in treatments and procedures that have come to market in blindingly fast development, creating a huge upsurge in the quantity and quality of health care alternatives that have become available as new techniques in order to ameliorate medical and health care concerns.
Forty years ago, health care consisted of attempting healing when possible, removing that which could not be healed, and relieving pain when possible. Within the past few weeks I’ve one friend who had a valve of his heart replaced with that of a cow, and another friend undergoing chemo-therapy in order to eliminate a malignant tumor.
What would you expect would happen as new therapies and treatments come to the market? A decline in demand for these new therapies and treatments? Or an increase in demand for these new therapies and treatments?
If I was going to model a demand curve for “medicine” the equation would look something like this:
Demand f(D) = ∑ Qn x Cn or, (Quantity (Q)1 x Cost ( C) 1 + Q2 x C2 + Q3 x C3…+ Qn x Cn).
I attempt to point out why this was a necessary outcome. The key to increased costs for health care are two-fold: one, we are better able today to spend more money on health care, rather than on non-discretionary purchases, than we’ve ever before been able; and two, the choices of health care purchases are occurring at an increasing rate.
Some folks don’t know what discretionary and non-discretionary purchases are. Some folks don’t know that a health care purchase is based upon improved diagnosis, treatment and palliative care.
Let’s start out with discretionary versus non-discretionary purchases.
Economists view certain types of consumer spending as being either necessary (non-discretionary), or not necessary (discretionary) as in you can live without it.
What are the types of things you can live without (discretionary spending)?
There are a ton of things you can live without. Xbox. Television. A second car.
These are the types of things that you can live without.
What are the things that you can’t live without? (Non-discretionary spending.)
Food. Shelter. Clothing.
Face it. If you live in the Northwest, living without food is impossible. Living without shelter might be possible, but in terms of sheer survival, if you don’t have shelter, you’re going to die. Clothing? Given social norms and the lack of universal central heating, chances are if you are going to provide yourself with the first two necessities, you’re going to need clothes. Nude is cool, sure. But if you’re golfing on a cold day, you want clothes. Cooking bacon, too.
So, we have a list of non-discretionary expenditures. The rudiments of survival.
Unfortunately, our society has been very good to us. We live, as Americans, in the richest society on the face of this planet. Non-discretionary spending has been replaced with discretionary spending as the largest and fastest growing segment of our society.
Why does this chart make sense?
Before you answer, I’ve been in countries where this chart is absolute nonsense. Survival is not a joke. Getting enough food to eat is a challenge.
That is to say, that getting enough food consumes most of a person’s challenge to survival. More than that which a person makes as a wage is used to purchase and consume food.
This is known as a subsistence economy. Or, really, non-subsistence. People die of hunger in these countries.
Before we travel much farther in this dialogue, we really must ask, what is it about this country that has allowed us to progress beyond mere sufficiency into surplus?
Those of us who believe in America know that this is due to our adherence to a principle known as capitalism.
How can this be? What is it about capitalism that places it head and shoulders above the other forms of market organization?
Think about it like you would if you had a portfolio of assets. Would you want to own only one sort of asset? Would you want to own only one company in your asset portfolio?
I would love to advise you if either or the above question above were answered with a yes. Just give me ten percent of your earnings and I’ll make you rich.
If you are working for a company that provides you with a pension plan, part of what you make each pay period, or month, is deducted from your check and placed into a pension plan pool. The pension plan that you participate in then takes that cash and gambles it in the market.
That’s right.
They take your money and gamble it. They take a risk with your cash.
They invest it.
But, unlike the above theoretical, they don’t take all of your money and invest in either a single industry or a single company. There is a thing they do that involves spreading the risk of their gamble (investment) among several revenue streams that return an additional risk payment to the people who choose to invest in their companies.
This thing they do to spread out the risk is called diversification. This diversification is exemplified by free market capitalism. People freely and independently choosing what goods and services they wish to produce, and people freely and independently choosing that which they wish to consume.
There is no authority in markets. There is no single judge or referee that determines what either you or I make, or what either you or I buy. There is no duress or compulsion. This is natural in markets. There are policy-makers and planners who have for years told you that without policy and planning the world will come falling down around your shoulders. That is, there is in their eyes an increasing need for greater central authority and control.
You might have, at some point, even seen some sense or logic to that argument. But what you gain in terms of reduction of ox goring in pet peeves or interests to you personally will result in less diversification rather than greater diversification. While attempting to reduce the risk in your life, you’re actually increasing the risks associated with that central planning authority…and their ability to “get it right”. And markets that have the greatest central planning and authority experience something that less regulated markets don’t—the flight of capital.
Centrally imposed rules and regulations create non-market barriers to innovation, creation and production. This is particularly true about health insurance. Smart and important people have been passing laws about health care and health care insurance providers for almost 80 years. All law passing was done in order to do good. And all of this good imposed externalities on the insurance industry that required and requires increasing costs for administration and the breadth of services such insurance must provide.
All done for the good. All increasing costs while removing our ability as consumers to pick and choose among a competing basket of health market goods to fit our desires for health market consumption. All the while decreasing the diversification of products available to sell on the market, defeating the natural market incentives to create further diversity.
Decrease diversity and you increase risk.
Earlier we talked about non-discretionary spending versus discretionary spending.
Investing in companies that provide non-discretionary products means that even when markets go down—like the Dow Industrial Averages—that demand for the companies’ products will tend to remain flat; that is, they will dip in terms of demand, but being a necessary product to survival (food, shelter, clothing) the demand might dip, but not disappear.
These are companies that are known as having low betas (β). Having a low beta is a good thing. That means the risk associated with the investment is closer to zero than being one.
But why do companies require investors?
And why are certain companies able to provide investors with lower risks (β) and other companies only able to provide investors with higher risks (β)?
Why aren’t all investments equal?
The answer to the first question is, all companies require investors. One of the most successful companies in the history of commerce is Windows, or Microsoft. When they were a start-up company, they had their mom and dad’s garage and a great idea.
But without investor capital, that idea could have died on the vine. Their first capital? Mom and dad’s garage.
Beginning with a good idea isn’t enough. To make a product viable, it requires an investment. To obtain the degree of capitalization necessary to be successful requires an investment capable of producing a product at a reasonable cost, in sufficient quantities to reach the greatest number of consumers as is possible, in the shortest time period possible. With the lowest possible marginal costs.
This is the nexus between innovation and the market. This is not the rule, the desire or the focus of the planner and policy-maker.
Take a look at this chart again. What is it that you see in this chart?
There are parts of what you buy in order to provide for yourself indicated in each of these lines. Housing, food, transportation, household, recreation, personal business and health care. If you notice, recreation is increasing. Yet, we don’t hear about a crisis in personal recreation costs.
Why does health care increase faster than the other costs?
You don’t need to be a Nobel laureate to figure this one out.
Driving a quad is cool.
Having cancer sucks.
You’re more likely to spend your money on a cure than a quad.
Within the last six weeks, I’ve two friends who have faced medical challenges: one has had a cow’s valve replace his heart’s valve; the other has started chemo.
Take a look at the chart.
In 1986, the cost of sufficiency was at its lowest point. Then, medical science, especially biological science, began producing a product in breakthroughs in chemistry and DNA research that increased the demand for healthcare. There were actual products; medicines, procedures and treatments, that could obviate, treat or cure diseases that had theretofore been untreatable.
Amazing.
And somehow, this increase in the efficacy of suffusion, treatment or cure resulted in an increase in demand for these new products.
Unbelievable.
Imagine, waking up some morning and finding out that your lifetime of shingles could be treated with Zovirax. Would you spend the money? Come on, you know it’s going to drive the cost of health care up.
Sure you would.
Imagine, having a heart attack, and finding out that having a stint put in will allow you to regain the blood supply to your heart. Would you want it? It’s going to drive the cost of health care up.
Sure you would.
The whole idea of driving the cost of health care down is chimeric.
It’s like asking McDonalds to quit increasing the cost of their food products when they improve the quality of their food.
If you can’t afford it, you go to Wendy’s.
Or, White Castle. Or learn to cook and grow a garden.
Under the government’s new proposal for health care, in order to keep health care costs down, we’ll all be eating at White Castle.
To somehow believe that this is an improvement in care requires a blithe spirit.
Unfortunately, the blithe spirit was a ghost. And then again, Governor Palin was accused of bringing in death panels. Blithe spirit. Death panels.
It all fits. You can’t control the cost of your health care if the quality and quantity of your health care is determined through central planning or central control.
I know there exist naysayers, those who believe that Obama is going to give them money and Obama is going to give them healthcare.
But it won’t be the money and the healthcare you wish for. It will be ersatz money and ersatz healthcare. The driving force behind innovation and creativity will be removed with the introduction of centrally planned and authorized health care. Without the market incentives, no one will know what products to produce and what price to bring those new products to market.
It’s clear that demand for the health care products—treatments and therapies—that exist today will go up. People who had never dreamed of seeing a doctor for a cold or a cut will go see a doctor about a cold or a cut. Increasing the demand for physician time, without a market incentive for us to produce more doctors.
Brilliant.
Obama says he is going to reduce the amount of money that we as a nation spend on health care.
True or false?
Then what is it that must be reduced to reduce this cost?
Demand f(D) = ∑ Qn x Cn or, (Quantity (Q)1 x Cost ( C) 1 + Q2 x C2 + Q3 x C3…+ Qn x Cn).
It’s either got to be the treatment, the quantity of treatment, or the cost of treatment. There aren’t any other variables.
Note: for those of you who made it this far, there is a raucous treatment of the fundamentals in this article. (.pdf)
This guy was hilarious. Literally. Don’t believe me? Here’s a link from England, from Max.
