Squeezing the Providers, Part I
The political left in the United States, and for that matter, throughout the world, only knows two ways to try to control health care costs: (1) squeeze the providers and (2) deny patients care. Since they don’t believe in markets or economic incentives or entrepreneurship (the way costs are controlled in other markets), all that’s left is to take it out on doctors and patients.
Today I will address the doctors. To help our thinking, consider these four questions:
- Since Medicare pays doctors less than private plans, can we lower the cost of care by enrolling everyone in Medicare?
- If through force of law or power of negotiations, we managed to suppress all provider fees, would that lower the cost of care?
- Since nonprofit entities don’t have to earn a profit, could we lower the cost of care by outlawing the profit motive in health care?
- Have other countries lowered their cost of health care by paying providers less than what we pay?
The answer to all these questions is basically “no.” If you are inclined to answer “yes,” you don’t understand the concept of social cost. But don’t feel too bad. That would put you in the company of some very smart people — who I will charitably decline to name.
In thinking about these questions, the only “cost” that really matters is “social cost.” That is the cost to all of us collectively. I can always lower my private cost of care if I can get you to pay part of the bill. And you can always lower your private cost of care if you can find a way to shift some of your health care costs to me. These observations are both true and trivial.
Social cost is society’s opportunity cost. It is what society as a whole must give up in order to be able to consume something. For example, the social cost of one more doctor is what we must forgo in engineering or architecture or accounting or legal services that we could have had if a bright, talented young doctor entered some field other than medicine.
The same concept applies to other providers. For example, the social cost of a hospital is the value of the forgone uses of the labor and materials that made the hospital possible.
We can divide the aggregate social cost into units. Even though we are still thinking very abstractly, we can talk about the social cost of an hour of a doctor’s time or the social cost of a hospital bed day. But the social cost of a doctor’s hour or of a hospital’s bed day is independent of what anybody happens to pay for it, or even whether anyone pays at all.
To take an extreme example, imagine that we enslave all the doctors — paying them only a subsistence level wage. Let us ignore for a moment the difficulty of forcing a mind and assume they keep right on practicing as before. Would we have lowered the social cost of doctor services? Not by one penny. But we would definitely have changed the incidence of that cost. The private cost to payers would have been lowered by shifting much of that cost to doctors.
Suppose we nationalized a hospital. In the process, we cancel all of its outstanding financial obligations, telling the stockholders and creditors and mortgage holders to take a hike. Similarly, suppose we tell the manufacturers that we plan to keep all the hospital’s CT, MRI and PET scanners without making any more monthly installment payments. Would nationalization of this type lower the social cost of the hospital? Not one whit. Again, what I am describing is a mere shifting of costs from the buyers of care to the people and entities that make that care possible.
Even if these actions don’t lower the social cost of care, why not do them anyway? What’s wrong with screwing the providers if it helps the patients? In general, economists think it’s a good thing for people to pay prices that reflect the social cost of the goods and services they consume. On the buyer side, that means we won’t purchase items unless their value to us is at least as great as the social cost of their production. (Note: As explained elsewhere, ideal insurance contracts help us afford high prices without distorting these incentives.) On the seller side, producers are encouraged to supply services so long as their cost of production is at or below the value people place on them.
By contrast, if the price is way below the social cost of production there will be perverse incentives that lead to three bad outcomes. First, since health care is underpriced, buyers will overconsume it. That means too many doctor visits, too many CT scans, etc. Second, potential producers will withhold valuable services. Returning to my examples, there will be runaway slave doctors, as physicians seek more lucrative opportunities in other markets; future talented people will avoid medicine altogether; and nobody will be building any new hospitals. Third, in absence of prices that reflect social value, care will have to be rationed in some other way — for example, by waiting. But waiting uses up real resources, forces people to delay gratification of needs and in other ways adds to the social cost of care. (More on this in a future Alert.)
In most markets, the principles described here are easily grasped. That’s because in a normal competitive market, price reflects the marginal social cost of real resources used to produce the product.
In health care, things are different. Normal market forces have been so completely suppressed that in health care people rarely face a real price for anything. For the most part there are only reimbursement rates; and for each payer, there can be a different rate. Moreover, these rates almost never reflect the real social cost of the resources used to produce the services we get. For example, charts produced by the International Federation of Health Plans show the following wide range of prices paid in the private sector and in Medicare.
Source: International Federation of Health Plans
So let’s now answer the first three questions:
- Neither Medicare nor private insurers typically pay the real social cost of care. The different fees paid often reflect the results of shifting of costs. An NCPA study by Andrew Rettenmaier and Thomas R. Saving suggests that when Medicare spending is low, private sector spending tends to be high and vice versa — with hospitals at the end of the day managing to cover their outlays.
- Although it is possible to suppress provider fees across the board, doing so only shifts costs. It does not lower the true social cost of care.
- The cost of capital (including the cost of risk-taking) also cannot be avoided. Just because it does not show up on the books of nonprofit and government entities does not mean it goes away. Either taxpayers or some other entity is always bearing this cost.
The Single-Payer People (Physicians for a National Health Plan) have admitted that monopsony buying power (i.e. the ability to squeeze the providers) is an important way Single-Payer plans contain costs.
An another excellent post. What we are failing time and again to do is deal with the real cost of the products and services. Creating the right environment and incentives to reduce the cost of care over time as every other industry has done. The most recent industry example is the personal computer industry. http://www.healthexpertease.org
You’re wasting your time – people don’t know what the concept “Microeconomics” is – too bad for all of us
John:
As usual, you are right, but how does one inform the public about this? I was speaking to “sophisticated” Democratic lawyer the other day about health reform, and he said, “Everytime Medicare lowers its rates, doctors simply raise there’s.” He was unaware Medicare and other third parties set doctor’s rates.
This is an excellent post, John. If single payer passes, the majority of Americans will be using the violent power of government to commandeer the careers of the current generation of doctors. Some might continue direct patient care. Patients will then have no choice but to see the type of doctor who enjoys 9 to 5 bureaucratic medicine or those who resent being coerced…neither is the type I want to see.
Many doctors will choose not to make their skills available to the public and will pursue other ways to support themselves. The exodus of physicians from the profession will result in a massive social cost or opportunity cost incurred by society as a whole. While the individual physician suffers more having invested a substantial portion of his time and money obtaining his/her skill, society will also suffer from this tremendous and perhaps irreplaceable loss (who will want to replace the skilled heart surgeon considering the personal costs far exceed the costs of other opportunities within the economy?).
Anyway, it reminds me of the simple observation Peter Drucker once made…”There are only costs.”
And the many astute observations Frederic Bastiat made…”Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”
“There are only two ways of obtaining the means essential to the preservation, the adornment, and the improvement of life: production and plunder.”
“When plunder has become a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”
“Plunder not only redistributes wealth; it always, at the same time, destroys part of it.”
“The true and just rule for mankind is the voluntary exchange of service for service. Plunder consists in prohibiting, by force or fraud, freedom of exchange, in order to receive service without returning one in return.”
Why can’t you, with your insightful intelligence on
the ‘health care’ debate, be in a position of power?
You must infiltrate the liberal left. Google, Apple,
Microsoft, etc.
Please dispel the notion that government health care is a moral issue. Government health care is a
control issue.
We are a country of 300 million, not a country of
90 million or even 120 million. The left compares us
to other countries that have government health care to make us feel guilty.
This is the lefts tool…feelings NOT facts.
Enjoy reading your blog,
Cheryl
Great post. Very clear. Very persuasive.
In my humble opinion this is a terrific post. Looking forward to the others.
If US docs take a walk, foreign docs will be hired who will be happy to get the benefits of dual US citizenship even with such low salaries.
It’s hard to have sympathy with the doctors–they are such fools where their own interest is concerned until it’s too late.
Robert Berry wrote this quote:
“The true and just rule for mankind is the voluntary exchange of service for service. Plunder consists in prohibiting, by force or fraud, freedom of exchange in order to receive service without returning one in return.”
This philosophy is directly opposed to how the federal government views contributions for Social Security and Medicare.
While Roosevelt envisioned Social Security as an earned right, in which general revenues would not be used, here is the current view of the FASAB, the accounting advisor for the federal government: “Social insurance benefits are not part of an exchange but rather are a welfare program and/or an annual general fund program like Medicaid and defense – which are as likely as social insurance but for which early accrual (a contractual liability) is not proposed.”
see http://www.fasab.gov/pdffiles/socialins_exposurefinal.pdf on page 35.
Don Levit
The social cost for patients is what they will pay to have services. Many primary care physicians are dropping Medicare and Insurance completely by having a direct financial relationship with their patients (direct practice). It cuts out the middle man.
For a small business, it’s all about the overhead (salaries, rent, supplies).
We also are our patient’s advocate for negotiating cost.
If I can do their bloodwork for $33 and the same labs are >$300 next door. If I can negotiate a price for a lumbar MRI at $400 rather than 3- 4 times the cash price for the same at the hospital, it’s a no brainer for an uninsured patient or someone with a high deductible health plan.
Many Docs know how to run a business and do what they do best…patient care without third party interference.
We aren’t fools..
If only our pre-paid annual physician fees were recognized as “medical care” in the Internal Revenue Code of 1986. Then our patients with HDHP’s can use our service with their HSA’s…..
I lobbied 6 Congressman’s offices in July and my #1 complaint about the various bill’s was there is no provision to provide enough providers. What smart 18 year old kid would go into medicine for 12 more years of school, rack up $300k in loans, to work for a Gov’t dictated fee so low, they could not pay off their loans much less send their kids to college. They’ll become lawyers – and we have too many of them already.
Good post, and a powerful statement.
Chris ewin, MD wrote:
Good point, and one not often made: the idea that primary physicians are in a position to shop for secondary providers on the basis of price. Although I question whether many doctors are going to want to be involved in price negotiations, after having freed themselves from doing the same with insurance companies. But I suppose if that a part of concierge service, who knows.
My only experience has been in the other direction: a doctor recommending a specialist who is not in a PPO, simply because he was believed to be worth the additional cost.
This blog is right on! But you don’t have to be an economics major to understand that our government has created a progressive deterioration of what was once a self-guided and excellent medical care system that has since become economically non-viable and threatening to lose its excellence.
Since when has the government ever considered giving financial perks to physicians, much less family physicians and other primary care doctors? Since the late 1980’s, Medicare has done its best to undercut reasonable remuneration to family doctors. For example, during that time, Medicare kept house call charges limited to around $35 thus terminating the family doctor from making house calls. As a result, the home health nursing industry took off and got away with as much as $300 for a single visit. After getting milked by that industry, the Government put a stop to that largesse. There has never been any financial encouragement to primary care physicians by the government (and thus insurance companies) to ensure that physicians could maintain their traditional care for patients.
What do we see now? Billions and billions of our tax dollars going to Wall Street salesmen and management after they have churned our retirement investments and made profits whether we won or lost in the market plus stood over at least 40% loss in value of our investments. For just a college education and a gift of gab, these people have trumped physicians out of any well earned government subsidy compared to these stockbrokers’ recent undeserved windfall. The investment of money, time, and sacrifice from high school, 4 years of college, 4 years of medical school, 3 to 4 years of residency, plus fellowship programs, etc., all while the “young” physician’s family is made to wait for the “light at the end of the tunnel” (which nowdays usually does not translate into major financial rewards), is on the other hand more deserving of such a subsidy. While we are at it, I also see where investment bankers are still making high salaries thanks to the tax payers subsidy of the banking industry. I see no effort on the part of the Obama administration to foster national tort reform to lessen the burden of malpractice premiums. So, physicians can expect less and less remuneration (particularly with the “public option” effort whereby the government will fix physician reimbursement lower and lower), greater patient loads, and more malpractice insurance premium costs. Let me predict that the young intellectual with brilliance to become a top surgeon, neurosurgeon, superspecialist, etc. will opt out of medicine for other more financially professions, especially out of fear that the medical profession’s oversight by government programs will lead to incrimination, financial constraints, and malpractice losses. This will open the door for less qualified applicants to become our future physicians and over the next 1 or 2 decades should lead to a windfall for malpractice attorneys. This will translate into each patient receiving less quality care than ever before.
So, why is the govenment willing to mortgage our posterity’s financial future for the interest of stockbrokers and bankers and yet insure that their health care worsens? The answer is because the average stockbroker gives $4000 a man to lobby Congress. Attorneys give about $1800 each to lobby Congress to forget about tort reform. Physicians supposedly only give about $78 each on their behalf. Why should this be? Relatively few wealthy physicians live in plush upscale neighborhoods compared to these successful businessmen in investments and banking and attorneys. If patients think their doctors are “rich”, I guess the Congress must think the same thing. But Congress is in a position to destroy the world’s best medical profession because of their priorities. If you can handle billions of our tax dollars going to stockbrokers and bankers, why can’t you accept the fact that your health care providers are not going to provide the very best if they are relegated to 2nd class status? I am right. You young folks WILL SEE!
(The least the govt can do is allow physicians to write off their income the amount of unremunerated care that is given! This is the least concession the government could give to reestablish the self-esteem and respect that physicians’ once received before they became enslaved to the government and insurance companies.)
Chazz Neilson
Hey Patrick – solution: A government mandate that a certain number of people become doctors! Then a mandate on what kind of doctors they become and another one on where they must live and practice. It’s really pretty simple.
John, Best post yet. What you state are absolute truths and beyond debate. There will be huge consequences for ignoring them. What has transpired in D.C. is a decision by the left that we have too much health care and that innovation has gone far enough. We need more outrage at what is being perpetrated!
Well said. I have not seen this discussed in any health care debate.
Earlier this year, the Trustees of the Medicare Trust Funds reported that those funds are badly deficient and will run out, even according to current modeling, by 2017. What they did not say, and what no government official or single payer proponent will be caught dead admitting, is that this is actually the “good” news. The bad news is that if Medicare weren’t such an essentially, if unintentionally, fraudulent program in terms of what it has purported to cost, the situation would be a lot worse.
Medicare pays providers significantly (18-30%) less than what those providers actually need to see a reasonable return on capital above their actual cost to provide the services (at least that seems to be the range measured by most independent studies on the subject). Now, this hasn’t always been the case, and certainly wasn’t in the first decade or so after Medicare was created, but the mechanism that caused the situation to change slowly and steadily became a tool allowing Congress to insidiously claim they are “controlling health care costs” when they are effectively fixing prices in the health care services arena. This they do by ratcheting down the payment schedule (which does not control for quality at all and is a “one size fits all” system for participating providers for all intents and purposes) in order to control the one thing they can without incurring the wrath of taxpayers or voters.
The fact is that Medicare in its current form and impact on the health care financing system as it exists operates as an essential fraud – providing health insurance to the subject population (this part is not the fraud) while at the same time claiming that this somehow controls health care costs, and in the process essentially lying about what the real cost to provide those benefits has been (this is the fraud). When you throw in the impact of Medicaid programs, the resulting cost shifting creates critical distortion and discontinuity within the health insurance financing market place. How?
Medicare and Medicaid have created a gigantic pool of “revenue addicts” in the form of the providers. The government plays the part of the “pusher” in this analogy. It started when providers discovered the joy of having a steady and reliable revenue stream being provided in the early days of Medicare, when reimbursement was essentially at a fee for service level, and it was like the pleasure of the first heroin hit compared to how difficult it was for them to be reimbursed for services for old people prior to that. As the population of senior citizens covered by Medicare grew, and state Medicaid programs came into being and expanded, this stream of revenue became an important part of providers’ income, too important to ever turn down.
However, the impact on the Federal budget became too abundantly clear to the actuaries within the government agencies in charge, and that provided the impetus for a change in the reimbursement methodology from fee for service to something else, something that would allow for more control on the part of the payer, being the government. In other words, they needed a way to “cut” the strength of the drug with which they had intoxicated the providers, that revenue stream. The result, after the initial implementation phase when the goal was largely one of revenue neutrality in order to “set the hook,” was a mechanism that provided exactly what the doctor, uh, Congressperson ordered – a way to control the outflow, and therefore the budget impact of Medicare financing, and in a manner that made it look like it was totally legitimate, even though it was hiding the true cost of the program.
Medicare patients simply made up too big a chunk of their “business” flow for providers to escape the trap. They had become fully addicted to the steady, if now “lower strength” flow of funds from the government programs. In order to feed their “habit” of continuing to receive that “fix,” they had to make up the revenue loss that it represented by getting enough money from somewhere else to cover the “deficit” created by the too-low payment rates of the government traffic. Addicts go “steal” stuff from the neighborhood in order to pawn it to get the extra cash they need, don’t they? What do providers do? Well, for decades now they have “cost shifted” to any other payers for services they can in order to make up for what they aren’t getting from Medicare (and add Medicaid to the mix if you want).
This has produced the terrific upward spiral in “billed charges” by providers, now a concept that has almost no basis in realistic relationship to actual cost. Unfortunately, the big health plans, which today are really nothing more than “money flow” managers, decided to play the same game as Medicare with providers, at least so far as they could, and this created a second round of “me too” discount fixing with the providers. This left any other poor soul who didn’t have a special deal paying the “full charge,” which amount was essentially a useless but expensive measure when compared with the “average” fee that the provider was actually accepting across his/her entire block of business. These out-of-luck parties are the small insurance players and anyone who is simply paying cash – like the uninsured and the underinsured (of which there are quite a few).
This cost shift is a tax without true authorization, legitimization, or representation (or, at least no one who will admit responsibility). If the government programs were paying a “fair” rate of reimbursement to providers (leaving aside the issue of value for different quality of services), then why can’t the rest of society pay something similar? If they are not paying a fair rate, then why do we let the government get away with it?
Why aren’t the providers yelling and screaming? Probably because they are in a false sense of security from the “high” of their addiction – the steady drip – drip – drip of the revenue they receive, even though it keeps getting more and more diluted each time Congress ratchets down payment schedules. And what will happen when a public plan paying a similar price fixing schedule to providers suddenly appears on the scene to enroll most of the rest of the population not already covered by Medicare? It will be too late for the providers to free themselves from their addiction, and there will be nobody left from whom they can make up the difference. It will be the worst nightmare possible for them, just like an addict from whom a “full” fix is withheld constantly, forever.
“Revenue Addicts” …. I love the analogy…
Docs call it the “Mother Teresa Syndrome”
I like Dr. Goodman’solution to the Medicare problem: free the doctors. Let them propose any change they like in reimbursemnet (repackaging and repricing their services) so long as the cost to the government does not go up and the quality of care for the patient does not go down.
The fix is in for physicians. The medical policy makers within our government and academic institutions have nothing but contempt for physicians and they intend to cut them down to size with this healthcare reform. They detest individual and small private practice and intend to erode the sovereignty of all physicians over time. These policy makers believe physicians should be public servants with more allegiance to “the common good” than to individual patients and they intend to use the power of government to force that mindset onto the medical community.
HD:
I agree with much of what you wrote about addictions.
I would add one more item to the fraud classification: the idea that Medicare is real health insurance.
Real health insurance means that people voluntarily pay premiums to an insurance company, and the insurer is contractually bound to pay legitimate claims.
Here is the present view of Medicare: “Social insurance programs comprise two separarte nonexchange transactions – the compulsory payment of taxes during an individual’s working life and the Government’s payment of benefits after the individual has satisfied all eligibility criteria.”
In other words, the payment of taxes (premiums) has no relation to the payment of benefits – they are two separate transactions.
While taxes (premiums) are compulsory, payment of benefits is discretionary.
In fact, “benefits beyond the due and payable amount are not present obligations of the Government and should not be recorded as liabilities.”
See page 31 of http://www.fasab.gov/pdffiles/socialins_exposurefinal.pdf.
Don Levit
The following concerns other government factors, besides Medicare & Medicaid that contribute to the fine mess that exists in the medical profession. For example, EMTALA (emergency medical treatment and active labor act, a federal law also known as the “anti-dumping act”) was enacted because many indigent patients (when I was an intern) were transferred to public hospital districts, like Ben Taub Hospital, from private hospitals simply because there was no chance of getting paid to care for these patients. And why not? These patients were being sent to hospitals that at least were public funded. Since EMTALA has been enacted, ALL private hospitals, have been forced to evaluate and treat indigent, uninsured, and illegal aliens. Since the wait at public-funded hospitals can be 12 to 24 hours in the ER, these patients simply choose to go to private and not-for-profit hospitals where the wait is no more than 2 hours. But they use the ER for primary care (colds, request pregnancy testing, etc. etc.) and overburden the ER with overwhelming numbers such that real emergencies are met by a frazzled staff. To add insult to injury, there has been no significant increase in salaries for the doctors and nurses commensurate with this added burden over the past two decades.
This EMTALA rule has turned hospitals and medical staff into slaves who follow the federal unfunded mandate or risk a $50,000 fine to each person as well as the hospital for not doing so. Imagine you are a young internal medicine doctor or familty doctor, or ear nose throat doctor on call for emergency admissions (as is required for hospital priviliges) and practically every patient you are required to admit from the emergency that week of call is indigent or illegal – and they can sue you for malpractice but they are clearly not going to pay for your services!
Keep in mind that the hospital is having to overcharge only that subset of patients that do not have an insurance company that has contracted for a specific fee for services. If you are paying the hospital out of your savings, without insurance, you will be charged possibly 3-4 times more in some cases. I really believe that no hospital administrator would accept federal funding to double the nursing staff, Xray and other ancillary staff (that operates the ER) as well as doubling the number of ER doctors. Why? Because this would facilitate caring for larger numbers of ER patients. But this would only attract more and more indigent, illegals, uninsured, and draw even more patients who would go to the public-funded hospitals and lead to an even greater amount of unremunerated care and even redder bottom line. There is currently no incentive to take the burden off the backs of the medical staff since their numbers are the rate limiting factor that keeps the flood of non-payers from increasing.
The other factor in the US, less so in Texas, is the failure to bring about tort reform in order to save costs from unnecessary testing as well as encourage more high risk specialists (eg obstetricians, neurosurgeons, etc.) in areas where these doctors avoid practicing. Obama has completely avoided any promotion of tort reform since his has received contributions for the trial lawyers of America and they will indeed enjoy a windfall in profits over the next 2 decades as the quality of medical students takes a tumble. Yes, more and more superb and brilliant minds that would have become our talented surgeons, innovators, and bright medical whizzes will seek investment banking, wall street, business, etc. rather than go into an interesting and stimulating career in which they are slaves to the government dictating their remuneration and especially being subjected to incrimination every day from tomes of minutiae emanating from government regulatory agencies that spew idiotic requirements every two weeks. And if caught not following to a “t”, will lead to expensive defense legal fees, fines, being removed from Medicare (which will remove you from hospital privileges, etc.) How would you feel if you owned a grocery store and the government told you to sell tomatoes to the elderly for half price (which is your cost) and, by the way, you received bimonthly regulations concerning how you must present them, clean them, etc etc., and then find out you did not do something or other that you failed to catch on one of their little routine letters and would be fined $50,000!? You might just quit offering the half-priced tomatoes altogether and tell the elderly to go elsewhere. This is self-preservation, not greed!
So, “public option” will lead to mandatory governmental regulation over all doctors, hospital or officed based and subsequent oppression by bureaucrats thus leading to early retirement and intimidation of would-be brilliant students seeking the medical field. We have already seen office primary care practitioners quitting (like me) or others who stop admitting patients by relinquishing their hospital privileges and leaving your care to the predominantly (more “easily bridled”) foreign-born medical graduates in the new field of “hospitalists”. Those who are on call and have to admit non-paying patients have become hornery and downright mean people and hate the profession. I don’t see patients better off now since the government and insurance companies have stepped in on behalf of patients “to protect them from greedy doctors”. I really have seen greedier insurance companies deny treatments, refuse to enroll patients as they cherry pick only healthy ones. The government has promised to “take care of old people and the indigent” but in reality have twisted the system to deny fair remuneration to those who provide the health care and to devise a system that would incriminate any honest doctor by overwhelming him/her with inordinate regulatory minutiae impossible to follow – thereby blackmailing him into accepting slave wages.
You young people will bear an even worse brunt since Congress is hell bent on destroying the medical profession out of their contempt for a mythical monster they see as the “greedy doctor”. Every profession has their percentage of entrepreneurs, gold-chained money seekers, etc. and Congress has succeeded in taking away any incentive for a person with superb intellectual talents to want to be a doctor. I personally have seen the quality of medical students and doctors drop in the past 20 years, but I expect it to worsen. Even those with a “calling” will be weathered down by a crass and slavemaster government and insurance company dominance that will eventually neutralize any desire to keep that doctor’s “halo” bright and shiny. I am sure there are classic “liberals” who will be inclined to dedicate their lives to humanity without fair compensation but we need stouter hearts and minds than those commie pinko nutcakes. The bottom line is still going to be a decline in what was once superb patient care. I have written enough as I have stopped thinking and have begun to FEEL too much at this point.
John,
I think that we could get somewhere if all medical payments were 100% tax deductible and that 100% of the doctor’s earnings were 100% tax deductible. Since they aren’t making any profits they don’t pay taxes.
Since we aren’t getting any medical services we get it with non taxable dollars. So, the only people who should be paying taxes on their medical care are people who get it for free. Since they don’t have any money to pay for their medical care they need to be taxed 100% of the value of the medical care as an incentive to go out and get a job in order to pay for their own medical insurance. They can’t sit around forever expecting to get free medical care and not paying taxes like the others. In order to get the insurance they have to get a job to pay for the insurance in order to be exempt from paying taxes on the insurance since they earned the money in the first place. Now, this makes real sense.
I would like to give an example of a social cost using my insurance-free practice as an example.
In 2005, approximately 200,000 Tennesseans were disenrolled from TennCare. Many newly uninsured patients came to my practice because I was one of the few physicians in the area that would see them and the charges at my clinic are much lower than other physicians because I don’t incur the $200,000 per year cost of billing insurance.
Wven though TN had to drop Medicaid enrollees, there was a $100 million tax surplus in 2006 some of which was given to county health departments to expand their primary care capabilities to take care of the uninsured. I was critical of the governor’s plans – and my oped pieces appeared in both the Nashville and Memphis newspapers during that time.
My county received enough subsidies from the state govt to build a $million expansion and hire three primary care providers. Over the next 3 years, even though my clinic has continued to see new patients, my patient volume dropped about 30% (while my fixed costs remained the same). It should be mentioned that no other nearby county in Northeast TN received subsidies to expand their primary care clinics. They not only provide doctors services at no cost to patients but the medicines and the labs as well. It is very hard to compete against free.
While I was looking to add a physician in 2006 I have had to cut the hours my practice is open and work in area ER’s to make up for the lost income, providing many of the same services at 5 to 10 times what I charge in my clinic.
I have been wanting to find out the true cost per patient visit it takes for the health dept to provide their services so as to compare them with mine. I have asked my state representative about how I could get that info. He said, “Good luck – I’ve asked the same question and was told it was impossible for them to give me an answer.” So, we don’t know the true cost of providing medical services at the health dept. But I can tell you to the penny what my revenue and overhead is per patient visit.
So, when the govt disrupts and distorts markets through subsidies, the total cost to society increases…first by making it more attractive for doctors to work in high cost settings and second by disrupting the natural exchange among citizens of a community. One could calculate the increase in social cost if only one could find out how much it costs the health dept to provide the services that I provide. But, apparently this information cannot be gotten. So, it appears that the govt can remain unaccoutnable about its social costs, while a private practice like mine is accountable to keep its costs low or risk going out business or disrupting the medical market so much that the opportunity cost of starting a practice like mine so far exceeds providing these same services in other, high cost settings that not even the more personal benefits such as autonomy, time with patients, working in freedom, can compensate for the economic loss. I would venture to say that the government option is always more expensive since there lacks the natural mechanisms of accountability.
Just an observation.
[…] paper, suppressing provider incomes makes the spending total look lower. But as explained in a previous Alert, these actions do not lower real social costs. Costs are merely shifted from one group to […]
[…] would have produced had they not gone into medicine. [See the explanation in previous Alerts here and here.] So rationing by waiting doubles the cost: We now pay $200 in real resources (the […]
[…] would have produced had they not gone into medicine. [See the explanation in previous Alerts here and here.] So rationing by waiting doubles the cost: We now pay $200 in real resources (the […]
[…] supply and services are rationed by waiting — just like in Canada. In such an environment, quality improvements do not increase provider income and quality degradation does not decrease it. That’s why so much of the health care system […]