Tuesday, October 6, 2009

Health Care Inflationary Spiral

Health Care Inflationary Spiral

Another article I couldn't sell.

The Health Care Inflationary Spiral

One issue that hasn’t received enough attention is the health care inflationary spiral likely to result from providing regular health care to the 46 million residents of the United States who are not currently insured. Even if you want to see every legal resident of the United States provided with health care (and even those of us skeptical of Obamacare see this as a good goal), you need to be aware and concerned about what that will do to health care costs.

Here’s an iron law of economics: if the supply of a good or service doesn’t change, increasing demand will drive up the price. The government can try and prevent this by fixing the price, but past experience with wage and price controls tells us that this introduces horrible distortions in marketplace, with destructive long-term effects.

The majority of the 46 million uninsured people living in the U.S. are not seeing a doctor until their health problems become severe—and when they do, it is often an emergency room visit. Assuming that most uninsured people aren’t getting enough medical care right now, or that they getting it too late, insuring that 46 million will cause an expansion of demand for medical services. Seeing a doctor before it becomes an emergency will certainly reduce emergency room visits—but does anyone really believe that universal coverage won’t cause at least a 15% increase in demand for services? (The 46 million uninsured are 18% of the 254 million that are insured.)

Now, if many doctors, nurses, radiologists, medical lab technicians, and the rest of the professionals that make up our health care system were only working part-time, then a 15% increase in demand for their services would be welcome—we could rename Obamacare the “Full Employment for Medical Professionals Act.” But in much of the United States, doctors, especially specialists, are not underemployed. On the few occasions when my wife or I have needed to visit a specialist in the last few years, it has taken several weeks to get an appointment. I don’t think that’s because specialists prefer to spend weekdays golfing.

When increased demand drives up the price of a good, manufacturers try to increase the supply. This isn’t because they are concerned about the public good; they see a chance to increase their profits. At least makers of pharmaceuticals and surgical supplies can usually ramp up production in a few months. Increasing the supply of medical professionals isn’t so easy.

Medical schools aren’t factories. You can’t just run the medical school three shifts (or even two shifts). Finding skilled professors is a bit harder than expanding the medical school buildings—and even that isn’t an overnight operation. Residency programs for doctors and nurses are generally associated with major urban hospitals. These programs can’t be expanded overnight.

If the goal is to dramatically expand the amount of health care that we provide in this country, then we have to expand production of medical professionals before we expand the number of insured. If not, one of three things will have to happen: the price of medical care will rise (making the current guesses as to the cost of the program way too low), or the government will have to freeze the cost of services, or medical care will end up with waiting lists—like Canada, or Britain.

Back in the 1970s, I spent way too many hours sitting in gas lines, caused by the government’s attempt to control the price of gasoline. It was exasperating—but no one was likely to die waiting for gasoline. Health care? That will be more serious. The Canadians already have a big problem with waiting lists for urgent medical care. Fortunately, they sit next to a large country with a semi-free market health care system, so at least Canadians prepared to burn a lot of money can keep from going blind.

As I said at the beginning: even if you want governmental universal coverage, this inflationary spiral should concern you. We’re going to be fighting about health care for a number of years. In the meantime, we need to be expanding our medical professional training system—and we need to be starting on that now. Because at some point, I expect that we are going to have universal, or nearly universal coverage—and adding another 18% to the ranks of the insured will be more than the current health care system can handle.

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