The NCG - LComment Health Care Debate: Argument One, Cost

Wednesday, August 19, 2009

Despite all the leftist spin about how US health care is poorly performing against the socialize systems of the world, there is only one category in the WHO report that the US scored the worst out of all nations and that category was cost per capita. Cost is a serious concern regarding heath care, perhaps the most important concern we face today. This is why Obama keeps stating that we are headed for a “health care cost crisis” and today’s level of spending is “unsustainable.” Cost is an excellent argument for reform and I only have one problem with the argument in relation to HR3200, the current health care legislation does nothing to stifle the increasing cost of health care (see my post regarding the cost curve).

Now we need to keep something straight when talking about cost before we broach the subject and that is the difference between deficit neutral and the cost curve. Deficit neutral talks about whether or not the government will generate enough cuts or revenue in the federal budget to pay for the total costs of a program over ten years. The cost curve refers to the fact that health care costs are expected to inflate faster than GDP for decades to come. These concepts are independent of each other. The 2007 CBO graph estimating health care cost increases to GDP is below.

Here is an illustration. An example of the cost curve would be that today your health care expenses take up 15% of your yearly income and in 30 years, despite bonuses and raises your health care costs will take up 95% of your yearly income. An example of deficit neutral would be that today health care costs take up 33% of the budget, but despite increasing total revenues because of GDP growth, in 30 years it will consume 150% of the budget, but good news, by increasing taxes and taking everyone’s money away we can pay for it! The devil is not in how we pay for it, although it is very important. No, it’s in how we keep costs from ballooning in the future.

Now we have promises from Obama time and time again that his health care plan will reign in skyrocketing health care costs. When asked directly at a recent town hall meeting how he planned to do this without health care rationing he said he would accomplish it through fundamental cuts to Medicare to eliminate waste and create savings. The problem? The question was about how to bend the cost curve and the president answered with deficit neutral talk. The sheer fact that Obama couldn’t understand or articulate the difference is disturbing as is the legislation creating a government structure that Obama hopes to run.

Well, it turns out that not only is Obama’s ignorance scary when it comes to bending the cost curve, HR3200 is also a terror of its own when it comes to cost cutting. Any economist will tell you that flooding the emergency rooms with 47 million new insured is not a recipe for cost savings. The reason why is because supply and demand are directly related to price. When demand goes up and supply is constant, price goes up. Furthermore, when supply is held constant the cost to each additional person is exponential. Cost is directly associated to access and you will not see cost magically flatten as you try to increase access. Especially when there is a shortage of doctors. There are things that must be done to hold costs down. Things like, rationing. It’s a principle seen time and time again. We see is in MA and we’ve seen it in TN, both have public options (by the way, the public option in MA negatively impacted the poorest the most). I don't know how many times we have to try this before we learn our lesson. This is why the director of the nonpartisan CBO said in congressional hearing that the bill lacked the fundamental changes necessary to bend the cost curve. In fact, it will make it worse. He also has serious doubts regarding proposed health care savings Obama has touted.

The idea that the bill currently is not deficit neutral only highlights the danger of the legislation. If we pass a bill that has no provision for bending the cost curve and that bill doesn’t even cover the costs over ten years when they are at levels lower than they will be in twenty, then we are sending ourselves over a cliff for a ten year health care binge. One in which we will wake $1 trillion poorer, trapped in a health care system bleeding our federal budget and a larger majority of American’s depending on that dying system for quality care.

Oh yeah...I almost forgot, cost is also important, because we have no money. Below is my favorite little graph showing Obama policy costs versus Obama policy revenue.

Follow the debate below:

C Gen's Opening Remarks

The Law's Opening Remarks

1 comment

A simple economic truth - When you subsidize something, you get more of it. To cut costs in our system we actually need to curtail government involvement. We need to apply a supply/demand balance that actually is aware of pricing of all medical services. We need to study the Lasik approach - a service paid out of pocket that once cost tens of thousand of dollars, now costs a fraction of that because of competition and initiative, a direct correlation of pricing to the service.

August 25, 2009 at 11:33 AM

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