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Home | Blog | Repeal and Replace Needn't Be Complicated

Repeal and Replace Needn't Be Complicated

  • repeal obamacare
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Tags Big GovernmentHealth

03/09/2017

The Republicans have a problem. Healthcare prices are so swollen by government imposed monopolies that most people cannot possibly afford to pay the crazy bills without subsidies. What to do?

Example: my son recently went to an out-of-state emergency room for food poisoning. The bill came in at over $8,000. And how is this for fairness: our insurance company knocked it down to about $4,000. An uninsured person would have been liable for the full amount. Might even have faced bankruptcy for failure to pay it.

I personally lobbied for a provision in Obamacare preventing hospitals for charging the uninsured more than the insured. Obama said no. Why? Because the idea upset the hospitals. They wanted to be able to continue to exploit the uninsured. Whew. What does that tell us about Obama?

Under these circumstances, average people cannot possibly pay their medical bills unassisted. Yet if you repeal Obamacare by imposing new price controls and subsidies, in other words, pour old, spoiled wine into new bottles, you just perpetuate the problem. So what to do?

Prices can never be reduced by price controls, much less by price controls on government imposed monopoly prices. Most people do not realize that the government, through Medicare, has fixed medical prices for half a century and the results speak for themselves. At the same time, government has fed price increases by protecting monopolies set up by the drug companies and the American Medical Association. This is what government always does, and it wrecks any sector of the economy where this crony capitalist system is applied.

The only way to get prices down is to get supply up. That automatically does the job. The only way to get supply up is to free prices and markets so that suppliers have an incentive to provide more supply, improved supply, and above all, innovative forms of supply. The opportunity to compete for profit in a genuine market will in short order start to bring more and better supply with lower prices.

This market system, well known by now, is how automobiles, which were once a luxury item for the rich, became affordable for the masses, or at least affordable until recently, when crony capitalism again began to push them out of the reach of even the middle class. In a similar way, the market system brought computers from down from costing millions in today’s money to something that most households can still afford. The key is to create a system in which sellers have to compete with one another for the dollar of the consumer. To make this work, the consumer must be in charge, not the insurance companies and other agents of government. Only a consumer controlled market can do this.

What to do in the meantime? Isn’t it obvious that millions of people will be stranded without medical coverage while this transition is taking place? There are three ways to handle this. One is to pull the subsidies decisively. That would cause a great deal of suffering, but it would not take long for the market to correct the problem. The pain would be intense but short. On the other side of it, healthcare would be affordable without subsidies for most, and charity would have to fill in when needed. The second way would be to keep existing subsidies, but cut them every single year by at least 10%. Legislate their extinction by the end of the period. A third, and utterly self-defeating approach would be to create a new set of subsidy entitlements and controls to replace the old ones.

Let’s be clear. A phase out is not a statutory cliff, a fantasy that politicians love to create. A cliff is created when subsidies do not decline gradually by statute year by year, but instead suddenly disappear all at once at the end of some imaginary period. Everyone knows what that means. It means the government will eventually blink and reinstate the subsidies, which will just set off more price increases that will quickly consume the subsidies, leading to calls for ever more of them. It is a vicious circle with which we are all too familiar, not only in healthcare, but in education and elsewhere. Of course the principal defect of a phase out is that other politicians can stop it at any time in the future anyway. A phase out would represent the triumph of hope over experience.

Let’s hope Congress has the sense to get government out of control of healthcare. Only a consumer controlled market with freedom for provider to compete can work this magic. Together providers and consumers will drive prices down so low that today’s subsidies will in retrospect seem unimaginable.

So far what we have seen from Paul Ryan in the House is not encouraging. He not only keeps a government mandate on what must be covered in an insurance policy ( the kitchen sink), which will make policies unaffordable for most. He even maintains federal subsidies for insurance companies. And he introduces a brand new price fixing scheme.  Ryan has certainly revealed himself to be a foe of free markets and a fan of crony arrangements, notwithstanding his rhetoric to the contrary.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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