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Health care reform and my expensive education in economics

By Peter Morici
web posted July 13, 2009

America's health care system is broken, but President Obama inspires little confidence with his fix.

Health care absorbs 18 percent of GDP -- about 50 percent more than in other wealthy countries. Prices are too high and are a terrible burden on jobs creation.

Whether Americans continue to pay through private premiums or new taxes, no fix is real without bringing down prices, substantially.

Sadly, Obama's plan will force Americans to pay even more and chase more jobs abroad.

The U.S. system in unsurpassed in responsiveness -- you can see a doctor quickly -- but ranks low, internationally, by many other quality measures -- infant mortality, life expectancy and preventable deaths. It is burdened by exorbitant drugs prices, doctors that earn twice their Canadian counterparts, higher administrative costs, and a torts system from hell.

Family doctors increasingly act like unionized civil servants -- no evening or weekend appointments and closed two hours at lunch. Private insurers and federal agencies encourage doctors to game reimbursement systems, charge well-off patients concierge fees, and send tough decisions to specialists.

Americans subsidize health care globally by paying most of the costs for developing new drugs. Single payers in Canada and elsewhere force drug companies to charge little more than manufacturing and marketing costs, and they must recoup all their development costs by charging Americans oppressive prices.

Unlike U.S. health insurance companies, single payer systems abroad don't pay executives salaries in the millions, impose multiple systems of private rationing second guessed by buccaneering lawyers, and create massive paperwork burdens to justify high rates.

Americans have created a "competitive market" for private insurance that is less efficient than the French bureaucracy -- what a triumph of free enterprise!

The torts system pays lawyers grandly for curing little, and imposes Orwellian decisions on doctors regarding testing, best practices and care for the terminally ill.

Some people can't afford health care but those are hardly all the 46 million uninsured. Many are poor adults and children who should be enrolled in Medicaid, illegal immigrants, and young workers and rich folks who opt out.

Essentially, President Obama would subsidize health care for those who can't pay without addressing the perverse incentives for doctors, executive salaries, drug prices and torts abuses that make health care too expensive in the first place.

My very expensive education in economics tells me, when prices are too high for an essential service, subsidizing purchases for those who can't afford it increases demand and pushes prices up even more.

Americans will be stuck paying both higher health premiums and new taxes.

President Obama promises to lower costs down the road in exchange for new taxes to cover the uninsured today.

Remember Wimpy in Popeye: "I'll gladly pay you Tuesday for a hamburger today."

The children in the theater laughed at the con. Sadly those children are not voting in Congress on Obama Care. ESR

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and the former Chief Economist at the U.S. International Trade Commission.


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