How Obama Health Reform Will Hurt Americans
It has become the campaign banner for Republican candidate in elections nationwide, and this week the United States Supreme Court has finally determined it will hear the case concerning the Patient Protection and Affordable Care Act. The Supreme Court reviewed the case on Nov. 10 and decided to take the case because of the division among the circuit courts on the ruling. This means that sometime next year we will have the long awaited decision on whether the Affordable Care Act, which has come to be known across the country as Obamacare, is or is not in fact constitutional. At the core of the argument is whether or not the federal government can legally mandate that every American purchase health insurance. Other mandates of the law, such as a child staying on their parents’ insurance plan until age 26, are not being challenged in their constitutionality.
Some supporters of the law have argued that if law can require drivers to have auto insurance, they can also legally require citizens to have health insurance. This argument is not well thought through. The government does not require all people to have auto insurance; they only require auto insurance to use the car on public roads. If you do not drive the car, or do not use it on public roads, the government cannot fine you for not possessing insurance. If the government set up public health care facilities, and left them free to operate the way roads are, they could certainly fine any who used the facilities without health insurance. Because this is not the case, the government cannot require health insurance on the same premise it requires auto insurance; however, this is not to say mandating health insurance is unconstitutional altogether, it just does not stand up to the auto insurance argument. A more valid argument to be made would be that mandating health insurance is needed for the public health, safety, and welfare. The public health, safety, and welfare argument has long held up in court concerning release of contracts. The argument can be made that if an entity can be dissolved from responsibility of a contract on the basis the contract raises concerns for public health, safety, and welfare, the government can mandate regulation for the public health, safety, and welfare, as the EPA has done for example. However, the EPA holds its regulation power largely under the interstate commerce clause the constitution, not the public health, safety, and welfare ruling. The interstate commerce clause was designed to keep states from taxing trade with other states, but has been used to fulfill measures such as segregation issues. It all depends on how strict your definition of interstate commerce is. Could the government mandate insurance on the grounds of interstate commerce? Possibly, but it is hard to give them that power seeing that insurance cannot currently be bought across state lines. However, an insurance organization in one state which holds agencies and sells policies to those in another could be regulated in theory, it just has not happened yet. All this considered, it is still not certain the government could mandate health insurance under interstate commerce because nothing has ever been mandated by the government as part of commerce before. If this precedent is set, an Apple executive could theoretically be elected to office and mandate all Americans own an iPod, surely not a constitutional practice.
So the question then becomes whether or not it is constitutional to mandate health insurance under the public health, safety, and welfare. To answer this we must examine the problems which led to the creation of the Affordable Care Act. President Obama campaigned on two problems which he said created a need for the act; high health care costs, and 51 million Americans without insurance. At this point we cannot see any example of the government successfully managing anything, so how could they manage health care for the public benefit? Yet, an observation will not hold up in the court of law; therefore, we must examine more solid arguments. The United States of America has the highest healthcare costs in the world; many Americans feel this is a result what is called the medical industrial complex. The medical industrial complex, in its simplest form is a perpetual money triangle between the medical practitioners, the pharmaceutical and drug companies, and the medical insurance companies. To the most cynical of observers, blame is placed on this triangle for the high costs of healthcare. Many see that the doctors and drug companies are not paid by the patients directly, so they can then charge as much money as they want, making the insurance companies the antagonists when they are forced to raise their premiums because of this. This does not make dollars and cents. When looked at from an entirely un-cynical, economic point of view we can understand that charging the highest price possible does not always amount to the highest revenue. For the standard medical company, in any of the three areas, they are not experiencing perfect competition, therefore, any economist will tell you that to maximize revenue they operate within the output where their marginal costs (the average cost to the firm for any certain procedure) equals their marginal revenue (the money made by that procedure as compared to their cost). You then find the demand and use that to evaluate the price at the place where marginal cost equals marginal revenue. To interpret all this economics jargon, if any of the three medical entities raise their prices the quantity of their good the public demands will fall, even with the price hike, the amount of people dropping their service will also drop their bottom line. We cannot fault these companies for charging the rate which will maximize revenue; no matter how you want to look at it, any business which does not run at the profit maximization level will run the risk of operating at a loss. If a firm standardizes their prices for service at a rate below the marginal cost equals marginal revenue level, the demand on them will be higher because of the lower prices. To meet demand they must increase output of services, which in turn will raise their marginal costs. The more of a good or service they provide the higher their costs will be. In any given month, their revenue may not cover their costs because of this. Also, we must ask ourselves, would any of us operate at any level other than the profit maximizing level? Highly unlikely, the most efficient firm is the firm that stays in business, and that is the profit maximizing firm. The only way a firm cuts prices is to cut their costs. We can place the blame for why this has not happened directly on… ourselves.
Patriotslog dares you, count the commercials on your TV tonight. It is a rare night that we do not see close to 1/3 of advertisements selling some kind of prescription or another. This brings joke to mind where a foreigner sits down to watch a football game. At halftime the people with him ask what he has learned about America from football. He responds that Americans are fat, never stop drinking beer, have bodies that crumble at age 40, and that every man has erectile dysfunction. From the commercials on TV, this is exactly the scenario we paint of ourselves. There is a culture in the United States of over-medicalization. We believe that if our body is not functioning in perfect condition we must have something to fix it. The human body is the most remarkable creation in nature, it will heal itself. In the United States, we have largely forgotten that. We do not want any harm coming to our family, and rightfully so; however, when we go to the doctor because we or a child of ours has a cold, cough, or flu we are driving up medical costs. Every doctor knows the best prescription for these common ailments is chicken soup and a nap, the body is human, it breaks down from time to time, but this does not mean we need a drug to fix it. However, we expect that if we take the time and money to visit the doctor they must prescribe something. This drives up costs because the doctor can only see a limited number of patients every day, and therefore must charge the insurance companies higher rates so that the supply of their time will balance out with the demand of the patients. Furthermore, because the doctor is expected to prescribe something, the drug companies must produce more. More production for a firm means they will have higher marginal costs; if we follow the rule for efficient business they will have to raise their prices to where their costs equal their revenue, and thus the cycle continues until we see the health care costs we are now facing.
To illustrate this we can look as recently as five years ago, when the crisis was not healthcare costs, but overcrowding of hospitals. When hospitals are overcrowded there is an excess demand on the supply of the facility and the practitioners, in order for the hospital to give adequate care they cannot be overcrowded because each patient must have the time and attention needed for their recovery. Hospitals will not turn people away for fear of lawsuit and for ethical reasons, so they are left with one option: raise prices. In doing this they make certain only those who are truly in need of urgent care will visit because they know the cost of a visit. Therefore, we see that the root cause of rising health care costs is the growing demand we needlessly place on the medial field. If there were a greater supply of doctors and hospitals we would not see this problem. To increase the supply we must introduce competition, not mandate health insurance. With more competition, such as buying health insurance across state and even national lines, the price is naturally lowered. Rather than spend money on providing health care for all citizens, the government can subsidize the building of hospitals, clinics, and even the med school students’ loans. By increasing the supply, the demand will balance at a normal level, and the price will fall. If doctors can prescribe nothing but chicken soup and a nap, as is often needed, and not have to fear consequences, costs will fall for the prescription companies as well. Parents will also start to see there is often no need for a doctor’s visit, thereby lowering the costs also. By providing insurance for everyone under the current plan there will be more incentive to go to the doctor, and drive up costs even more.
In economics elasticity of demand refers to how much a change in price will affect the change in demand. For example, Oreo cookies would be considered fairly elastic, meaning that if the price of Oreo cookies rises one dollar the demand on them will fall substantially. This is because, although delicious, Oreo cookies are not a necessity to our current lifestyle in America, as well as the fact that we can find substitute products for the cookies. On the other hand gasoline would be very much inelastic, meaning that if the price raises one dollar, most Americans will still have a demand for gasoline. We do not have an adequate substitute in most of the nation, such as mass transportation; therefore, though we will not drive as much with the high price of gas, we still have to get to work and school every day, as well as get groceries and do other needed activities. For this reason the rise in price will not affect the demand nearly as much as it would with the cookies. If the government mandates health insurance this means the demand will be unchanging at 100%, no matter the price. When this occurs, the profit maximization rule does not apply because the demand is always constant; therefore, no matter the price the revenue will increase because the demand cannot fall: this is what economists refer to as perfectly inelastic demand. In this scenario, the medical community could theoretically charge whatever price they wish, which would then trickle down to higher insurance costs. Because of the increase in demand mandating health insurance would cause, the overcrowding would most likely lead to a higher price anyway. We have no evidence that social medicine would lower costs either, in fact, quite the opposite. As much as Mitt Romney will hate to admit it, the Massachusetts health care plan is very similar to the Affordable Care Act. Under this plan, healthcare costs in the state of Massachusetts have actually risen.
It is my experience, having lived in Australia under a universal health care plan, that the quality of care falls dramatically under this plan. Doctors cannot devote the time needed for each patient, and do not give the required care for each patient. Moreover, the doctor patient relationship erodes; I rarely felt a doctor cared for my wellbeing the way most doctors in America do. In fact, after an accident which nearly severed two of my fingers, it took almost six hours in the emergency room before anyone examined my wound. Unfortunately, my case was not the exception. If demand is constant at 100% competition for patients decreases, knowing that their clinic will be full anyway. This means care and concern will fall, as well as medical care and advancements. As it stands, the United States is responsible for most of the world’s medical advancements; this is why foreign diplomats often come here for the sole purpose of receiving care. These advancements happen because of the competitive market. If we take that away, we take away the incentive for progress. Though our costs may be highest, there is no debating that we have the best health care on the planet.
The way to lower health care costs is not clear to most Americans. I am neither a medical expert nor an economist, but it seems to me that making the market more competitive would lower prices. The government can provide incentives for Americans to stay away from the doctor for minor illnesses. They could legalize the purchase of healthcare across state lines. Another factor which would help is minimizing law suits for medical malpractice, the costs of which are most often passed onto patients. Also, keeping the stipulation which allows children to stay on their parents’ insurance plans until age 26 will also help lower costs, as would the subsidizing of school loans for medical students by creating a higher incentive to become a doctor. The exact answer for lowering medical costs is unknown, but this much is clear; the Affordable Care Act is not the answer. Studies have shown that many Americans without health insurance can afford it but do not want it; still others qualify for existing government health programs, but do not bother to apply. Moreover, it is estimated that as many as 9 million of the uninsured tally are not citizens of the United States. Also, many are not yet under their company’s insurance plan which will cover them after a certain time at that company. There are those who simply cannot afford insurance, but the vast majority of those qualify for Medicare, passport, or Medicaid; three government insurance programs. Moreover, if the costs of healthcare are driven downward by wise and helpful legislation and regulation, many of those without will also be able to afford health.
Mandating health insurance under the Affordable Care Act would not further public health, safety, and welfare; quite the contrary. Mandating health insurance would raise the cost of healthcare, as it has in Massachusetts, and other nations which have adopted this plan, it would lead again to the overcrowding of clinics and hospitals, and therefore lowering the quality of care because of the strains on a doctors time, it would eliminate the need for competition, and thereby lower the quality of care further, as it has in other nations, it would hinder medical development, and finally it would put all the power of the market in the hands of the medical community, not the consumers. For these reasons the Affordable Care Act would be a detriment to the public health, safety, and welfare; therefore, mandating health insurance should be deemed unconstitutional, or at the very least, any citizen who wishes not to be a part of the legislation ought to be let out of it, the same way we can be let out of a contract which is detrimental to the public health safety and welfare. The American healthcare system needs help, but mandating healthcare is not how that help will come.
13 November, 2011
Posted on November 15, 2011, in Constitutional Law, Patriotslog Articles, Politics and tagged Affordable Care Act, health care, health care costs, health care reform, health insurance, mandate health insurance, Mitt Romney, Obama, Obamacare, public health, reform, safety, supply and demand, supreme court, uninsured americans, welfare. Bookmark the permalink. 8 Comments.