The Sad Cancer Of Third Party Pay Medical Care

As noted in my previous post a couple of days ago, almost all of the commentary about the recent defeat in Congress of the American Health Care Act proposal is about the immediate blow-by-blow of the ongoing political battle.  President Trump has suffered a huge defeat!  Paul Ryan is a loser and must be replaced immediately!  The Republicans can't govern!

Can we look at this with a little perspective?  Here's my perspective:  Third party pay for health care, whether it be government pay (Medicare, Medicaid), or near-universal insurance-company pay for ordinary and routine expenses, or a combination of both, cannot work for the long pull.  Unfortunately, like it or not, scarcity is the essential unavoidable condition of human existence.  No-questions-asked third party pay for healthcare ignores the fundamental grinding reality of scarcity.  We pretend that healthcare can be demanded and consumed in whatever infinite amounts somebody might want, without downside.  It's the usual illusion of socialism, seemingly confined to one small area of the economy; so, really, how much destruction can it wreak?  Unfortunately, the amount of destruction it can wreak is vast, and may only have begun.

Somehow it has become a shibboleth of the Left that third party pay for all or nearly all healthcare expenses is some kind of moral necessity of a decent society.  The official line is that without some form of universal "healthcare," some people will be stuck worrying about whether they can afford a treatment that may be important or even necessary; some people might lose most of their net worth or even be bankrupted by a health crisis; some people might forego necessary treatment.  Some people might even die!  (The part about excess deaths has proved remarkably difficult to demonstrate empirically.

But for these purposes, assume that all of these things are true, or at least somewhat true.  Meanwhile, in pursuit of the mirage of perfect cost-free healthcare for all, health spending has gone from about 7% of the economy in 1965 when Medicare and Medicaid were launched, to almost 18% today.  The incremental amount represents around $2 trillion per year to today's economy -- enough, for example, to cure all defined "poverty" about 6 times over.  The costs are buried all over the place -- some in insurance premiums paid by households, more in insurance premiums paid by employers that therefore never turn up in take-home pay, and still more in taxes at all different levels of government -- so that nobody can ever get a handle on how much they are paying and who gets the money.  And let's not kid ourselves that the "rich" do or can be made to pay all or even most of this mushrooming healthcare spending.  $2 trillion is more than the total income of the top 1% of taxpayers according to the most recent IRS data from the Tax Foundation!  There is no getting around the fact that medical spending has become a tremendous drag on the incomes of the middle class.  If you want to find the one main reason why middle class incomes do not go up, and why middle class families are angry at their inability to get ahead, this is it.

And they are right to be angry.  The moral necessity of universal third party pay healthcare is generally sold by presenting a small number of hardship cases to tug at the emotional heartstrings of the public.  OK, how much of the $2 trillion would actually be needed to take care of the bona fide sympathetic cases, and nothing for the bureaucrats and rent seekers?  5%?  Maybe 10%?  Unfortunately a socialist-model system has no ability to find the real need and spend only on that.  There is no known example of a socialist-model system not being taken over by the unproductive bureaucrats and rent seekers and run for their benefit.    

Among the dozens of articles during the last few days on this subject, I have managed to find just a couple that get past the immediate blow-by-blow and show a little perspective.  First, here is one from, titled "The Truth About Health Care."   It is definitely worth your time to read the whole thing, but I'm going to incorporate some significant quotes:

This is an iron law of economics. All goods and services are rationed. This is true for health care too. There are no exceptions to this law. Thus, the First Truth of Health Care: No health care plan or system can ever be taken seriously unless it addresses, up front, how it will say “No, you cannot have it” to people who want it. At some point, someone has to tell the patient they cannot have whatever it is they want or need. . . .  

Thus, the Second Truth of Health Care: The current insurance model is just a wealth transfer from the middle-class to the health care industry, in order to cover the cost of poor people and the metastasizing layer of people who live off the system. Th[is] is really just a tax. Most people use about 5% of their plan for themselves; the rest is used to pay for poor people and the army of people who work in the system. . . .  

Thus, the Third Truth of Health Care: Health services are a massive skimming operation. Today, the one area of the economy that “grows” is the health care industry. Every year, more and more people pile into that wagon, mostly in administrative roles. The number of nurses and doctors does not grow very much, but the number of bureaucrats grows like a weed.

Then you have the pill makers, machine makers, research people and lawyers. There are always lots and lots of lawyers. The health care industry is massive and government dependent. It’s why rub rooms are now called message therapy centers. They are angling to get it on the racket, by having their service declared an essential health care service. . . .  

Third party pay health care is why the price of lasik surgery for your eyes (not covered by insurance) drops like a stone, while newly approved drugs that come to market (covered by insurance) now get priced at $50,000 or $100,000 for a course of treatment.  Hey, how are the government or insurers going to say no to the price if the drug might save somebody's life?  The government and insurers have infinite deep pockets -- otherwise known as what could and would have been increasing middle class incomes, now diverted to the parasites by the genius of socialism.

Returning from court today on the subway, I came across this ad, representing the dead end into which our healthcare system is headed by the irresistible incentives of third party pay:

You too can now get in on the racket!

A second article today with some sense of perspective on the situation is from Myron Magnet of the Manhattan Institute, appearing in the LA Times, titled "The original mistake that distorted the health insurance system in America."  That original mistake was the establishment, during World War II, of first-dollar or near-first-dollar healthcare "insurance" as a pre-tax employee fringe benefit.  With that foundational error, consumer cost-consciousness was banished from the medical arena, and the cancerous tumor got its start.  Tumor growth has proceeded from there.  Medicare and Medicaid represented the metastatic phase.  We are now well into Stage IV of the terminal disease.

Is there any possible cure at this point?  The only one I can see is a massive return to the states of responsibility for the healthcare issue.  If this occurs, those states brave enough to return to consumers the individual responsibility for low dollar health expenses will see a clear competitive advantage over those states that indulge in the socialist illusion.  Barring such a reform, the (now multiple) tumors continue their growth.  CMS here projects that healthcare expenditures in the U.S. will reach about 20% of GDP in the early 2020s.  I suspect that the growth will be even faster.  Don't count on much real growth of middle class incomes until this issue is addressed.   You will not find any organ of progressive journalism ever discussing this trade-off.