Day 1 the incoming Republican Administration says it’s going to end Obamacare and replace it with something else. It’s not clear what that something else is right now. But if Paul Ryan implements his 37-page plan, Tryancare, it will be doomed from the get-go.
The problem with the healthcare system in the United States has nothing to do with forcing people to buy insurance (Obama/Rommey/McCaincare) nor creating a “free market” by setting up Health Savings Accounts (Ryan/GeorgeWcare). The problem with the healthcare system in America is monopoly pricing.
I know that highfalutin concepts like monopoly pricing power are out of vague, but sometimes you got to call a “rose a rose”.
The healthcare sector represents about 17.5% of GDP while employing about 13.3% of the nation’s workforce. That means that people working in health care earn 30% more per capita, on average, than employees in other sectors. It is simple math (17.5/13.3 = 1.315). Now a home health aide may chuckle at the thought of being well paid, but, on average, people in the healthcare sector are doing better than the rest of us.
In order to earn a disproportionate share of GDP, the healthcare sector must have pricing power. Economics teaches us that pricing power can only come from one of two sources: monopoly pricing power or scarcity. I think scarcity can be ruled out because hospitals are constantly consolidating and doctors are competing for patients.
If you are not convinced that the healthcare sector has pricing power, consider the recent experience of my 97-year-old father-in-law. He got pneumonia as the weather turned cold in September. He was rushed to the emergency room and then admitted to the hospital for 16 days. Once at the hospital, they found some other issues that needed attention. The bill sent to Medicare was for $85,772.02 for sixteen days. The private room rate was $4,169.50 per day. Emergency room was $1,405.58. CT scan $2,210.57. Radiology $177.45. Laboratory $7,536.42. Pathology $400.70. Nuclear medicine $996.82. Electrocardiogram $387.82. Physical therapy $2,179.87. Blood processing $882.00. Speech pathology $478.05. Drugs $2,103.69. Holy shit! The bill didn’t even include the ambulance or doctors.
Medicare paid for all but $300 of the bill, so my extended family didn’t care what crazy numbers were written on the hospital invoice. But I got to thinking. How much income would the average American have to earn to pay for my father-in-law’s 16-day hospital stay. The Medicare tax rate is 2.9% of gross income, so the answer is $2,957,655.86. Based on the US median household income of $51,939 (2013) – the average American has work 57 years to pay for the 16 day hospital visit of my 97-year-old father-in-law. Clearly the math can’t work. Healthcare costs are out-of-control. Medicare is going bankrupt.
The monopoly pricing power of the healthcare system starts at the moment of panic when an emergency occurs. In my case, grandpa is unconscious and having trouble breathing. 911 is called. The first responders arrive. The old man is stretcher into the ambulance. As the ambulance doors closed, he is locked into the system and get back out. He is expected to pay whatever price the system demands. There is no time to evaluate options. There is no free market. The closest emergency room and its associated hospital has a natural monopoly.
To my mind, the only solution to the healthcare problem in America is government control of the system, capacity and pricing. Monopolies should not be handed over to corporations who must maximize profits or “not-for-profits” that pay their layers and layers of administrators and fundraisers millions of dollars per year. Mark my words, the Republican Party is going to fail if it tries to pretend that the healthcare sector can be a free market, when, in actuality, it is a natural monopoly just like a road, bridge, tunnel, telephone pole, sewer, water main or airport. Perhaps in 2016 when the alt-left controls all branches of government, clearer heads will prevail.
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