Government Price Fixing and Health Care

Thoughts on a Free Market Economy…
“Government Price Fixing and Health Care”
By Phyllis Hunsinger
July 1, 2017

The cost of health care has been in the news for a number of years, but despite all the Congressional debates, the pontificating by the media, and the opinions of those using/working within the health care system, the cost of health care continues to rise.

Perhaps a review of how the United States, inarguably home to the best health care in the world, is now faced with such an imbalance between value and cost. Rarely does anyone dare to place the blame on Medicare, which was enacted in July 1965, under the leadership of President Lyndon Johnson. Congress enacted Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history.

Now, on the surface that piece of legislation seemed like a positive for older Americans. But, as Henry Hazlitt often points out in his book, Economics in One Lesson, most of the economic policies that are working such dreadful harm in the world today are “the result of ignoring one or both of these fallacies: (1) that of looking only at the immediate consequences of an act or proposal; and, (2) that of looking at the consequences only for a particular group to the neglect of other groups.”

When Medicare has an established amount of money that will be reimbursed for a certain procedure, the unintended consequence is that procedure now has a base price. Regardless of how unrealistic the charge, the price will never go down, in fact it generally goes up. Medicare has effectively driven up the price of medical procedures, because as technology has improved the speed and efficiency in which a procedure is completed, the price remains the same or higher, just because Medicare has set a base price it will reimburse.

Fast-forward fifty years and the U.S. health costs are spiraling out of the reach of ordinary citizens and senior citizens, the very people who were to benefit from the 1965 legislation. This is the direct result of governmental efforts to fix the prices above the levels to which free markets would have otherwise carried them. What would have happened if sixty years ago the government had set the base price for TV’s? Probably only the top-earning individuals would own TV’s today. But because of new technology, innovation, and competition, there is a TV in almost every home in America regardless of income levels.

Every single government intervention results in unintended consequences, while free markets work whenever they are tried. “We the People” need to quit asking the government to solve problems best left to a free market economy.

Phyllis Hunsinger © 2013 All Rights Reserved

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