Medicare and Medicaid are hemorrhaging money. The biggest reason health care costs are constantly rising is that most of the price pressure is not felt by the consumers in the case of both the judgment-proof poor people who use emergency rooms without paying or the well-insured employed who pay small co-pays.
This situation has persisted for decades ever since benefits of all kinds were used during WWII to get around wage controls and have not been taxed as income ever since. Any restoration of cost controls in health care must bring the costs to the consumer, who are quite capable of economizing in every other area of life whether shoes, food, clothes, or housing when they must bear the lion’s share of the cost. In those areas of health care that are market driven–such as LASIK–costs come down over time and access is expanded. The same progress whereby luxuries become necessities works just fine in health care, so long as markets are allowed to work.
Even in a perfect world, it’s not so obvious why an advanced economy such as ours would not have expanded percentage of the economy spent on health care. As an economy develops, various luxuries like appliances, air conditioning, cars, etc. become more widely diffused as they become more affordable. Once those perceived minimum material requirements are met, why wouldn’t we expect people to spend a lot simply to prolong the time and energy with which they can enjoy those already-bought material goods?
Obama sometime suggests digitizing medical records will reduce medical costs and reduce medical errors. This is probably true, but it has nothing to do with the socializing ideas he wants to impose, such as subsidized insurance. What makes no sense with Obama’s plan is the notion that expanding the entitlement to insurance is somehow supposed to reduce costs. Insured people consume more health care. They particularly use more late in life when they bear no cost at all under Medicare, and the marginal utility of these public monies at their death is, for them, zero.
Reducing costs while expanding insurance will be impossible without severe rationing. Such rationing might make sense, but unlike a market regime, consumers may have little opportunity to spend their own dollars directly on health care outside the system, as is the case in such locales as Belgium or Canada. This is un-American and will occasion much grumbling, as too will the prospect of government bureaucrats prolonging wait times, cutting off access to “luxury” and lifestyle medicines and procedures, and other measures imposed to control costs.
Politically, however, this likely is a net advantage for Democrats and that’s why they’ve pushed it for so long. Wealthier people are healthier people, but they’ll spend much more than the actuarial tables dictate in order to finance the loose-living and more physically dangerous lifestyles of the poor (something they and all other insured do now) without the corresponding benefit of higher quality care. At the same time, with a significant government role in health care, every election will be a debate about generosity for the middle class. Republicans can’t win that game, and, as with Medicare and Medicaid, this will be one more nail in the coffin of fiscal responsibility, the spirit of independence among the middle class, and the prospect of constitutionally limited government.