Everyone agrees that health care costs are too high, but the Left likes to blame it on the supposedly greedy insurance companies price-gouging consumers in order to rake in profits. This line of argumentation may be seductive for those who believe that government can create utopia, but the fact of the matter is that health care costs are high because the government’s tentacles are causing dislocation in the market.
Here are seven reasons why our health care costs are so high.
1. Obamacare. Obamacare is the albatross that’s sinking the health care system. Here’s a summary of the main components of Obamacare and how it’s raising costs from Daniel Horowitz:
Regulations: The foundation of Obamacare are the two dozen or so actuarily insolvent regulations designed to “cover everyone” but that in turn have tripled premiums and are now destroying the entire individual market.
Subsidies: Because the regulations make insurance unaffordable, anyone below a certain income level is subsidized to purchase medical insurance. This, in turn, inflates the cost of insurance even more.
Medicaid expansion: In addition to subsidizing non-Medicaid patients to purchase unaffordable medical insurance (thanks to the regs), Obamacare dramatically expanded both the eligibility and the federal subsidy rate to the states for the program. The cost of covering an individual in the subpar Medicaid program was $3,247 per individual in 2011 before Obamacare was enacted. In 2015, according to data from the Department of Health and Human Services, the cost of enrolling an individual in Medicaid doubled, to $6,366 per individual. And that is only for the second year of implementation.
The funding mechanism of tax increases: In an attempt to make the government spending and the regulated private sector solvent, Obamacare levied over $1 trillion in tax hikes (over 10 years). Also, in order to ensure that younger individuals don’t game out the system by not purchasing insurance but then taking advantage of the new regulations forcing insurers to provide for those who already got sick, Obamacare enacted the individual mandate to force everyone to purchase insurance up front. It also forced all employers of large businesses to provide insurance plans so that more money would flow into the system. However, the regulations have been so insolvent that these mandates proved insufficient to fund the Ponzi scheme.
The most onerous regulations under Obamacare are the mandates for pre-existing conditions and community rating (meaning that insurers have to charge consumers the same premium despite health status, age, gender, etc.), as they are creating a scenario in which people wait until they’re sick to purchase insurance, thus driving up the costs for everyone.
2. Medicare and Medicaid. Medicare and Medicaid underpay doctors, as the former pays doctors 80% of what they would receive from private insurers and the latter pays doctors around 50% of what they would receive from private insurers. The result is that those costs are passed on via increased taxes and premiums.
Medicare in particular distorts the market due to its myriad regulations and the fact that it accounts for over 20% of all health care spending, mostly for routine care. Medicare’s coverage declines the sicker a person becomes; for instance, it doesn’t cover hospital visits that exceed 90 days, meaning that it incentivizes overconsumption for unnecessary care while leaving people out to dry when they need it the most.
3. Medical malpractice lawsuits. The risk of such lawsuits has caused doctors to perform what’s known as “defensive medicine,” where patients receive medically unnecessary treatment or testing so doctors avoid litigation. This is why medical tort reforms could cause premiums to decline by as much as 2.7%.
4. Emergency room visits. By law, hospitals are not allowed to turn away those who show up to the emergency room, resulting in people simply showing up to the emergency room for care and then failing to pay the bills, prompting hospitals to pass on the costs elsewhere.
5. Licensing and limited medical schooling are a barrier toward increasing the supply of doctors. State licensing forces those attempting to enter the medical profession to expend an exorbitant amount of time and resources on unnecessary education and limit the scope of their practice. Additionally, the American Medical Association (AMA) controlled schools reject scores of applicants while being incredibly expensive, due to a lopsided faculty-to-student ratio and exorbitant faculty salaries. Between the two, the supply of doctors necessary to meet the rising demands of health care has been restricted, resulting in higher health care costs.
6. State regulations. One of the more overlooked aspects of the health care debate is that state regulators have a tight grip on the health care market. Obamacare’s mandates for pre-existing conditions and community rating already existed in numerous states prior to the law’s passage, as were the following regulations: (H/T: Heritage Foundation)
1. Mandated benefits regulations require insurers to cover particular treatments. Both service and provider mandates are included in this variable. Service mandates require insurers to offer coverage for particular medical conditions. Provider mandates require insurers to offer coverage for specific health care providers like chiropractors.
2. Health plan liability laws create a cause of action against health plans and their employers for damages for harm done to enrollees under assorted liability theories.
3. Direct-access-to-specialists laws allow subscribers to go directly to a specialist without prior referral from the health care plan primary physician.
4. Provider due process laws interfere with a health plan’s ability to contract selectively with a provider.
Unsurprisingly, states that featured more regulation for health care had higher premiums than those that didn’t. Even if the federal government de-regulates the health care sector, states have to take the initiative to lower health care costs.
7. People can’t purchase insurance across state lines. Allowing people to buy insurance across state lines has long been a proposal of President Trump and the Republicans for health care reform. While it is hardly the only piece of health care reform needed to lower costs, it is a necessary component because it increases competition and helps free insurers from states with strict regulations.