Daily Archives: 17 January 2012

Government Intervention Gone Awry

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Peter Suderman, writing for Reason, suggests that Obamacare, far from being the cost saver the Progressives insist it to be, actually is a cost increaser.  It seems that Obamacare is inflating health benefit costs at a sharply more rapid pace than was the rate of increase before Obamacare’s ram-through.  According to a series of Kaiser Foundation annual surveys of employee health benefits, in 2008, the cost increase for employer-provided family health benefits was 5%.  In 2009, the cost increase was 5% again, and in 2010—the year Obamacare was passed before anyone was allowed to know what was in it—the cost increase was only 3%.  But in 2011, that cost increase was 9%.  And it’s going to get worse.

This is reminiscent of another government intervention into our health care system: the creation of Medicare.  Under the Johnson administration, Medicare (and Medicaid) were established as interventions in the market for medical services because government Knew Better then, too, how markets should work.  Far from reducing costs, though, these programs also made the situation worse.  In the year before Medicare was passed, the cost of a hospital bed was rising at 5% per year—three percentage points above the overall rate of inflation for that year.  By the fifth year following Medicare’s enactment, the cost of that same hospital bed was rising at 8% per year, a 60% increase in the rate of inflation for that bed, against a baseline, still, of just 4% overall inflation—the relative cost of a bed had doubled.  Further, the combined “advantage” of Medicare and Medicaid, through 2001, accounted for fully 25% of the inflation in the overall cost of medical care.  The tax exempt status of employer-provided medical coverage (another “boon” for the individual), accounted for another 33% of the inflation in total medical services cost: these two government interventions were responsible for nearly 60% of the inflation in the cost of medical care.

Medicare premiums themselves have risen rapidly since the inception of the program.  1965’s $3 per month premium had risen to $94.60 in 2011.  If the premiums had only risen with general inflation, they would be in the $14-$15 per month range today.  Additionally, the doctor and hospital reimbursement rates—those Medicare-approved amounts—are too low to allow the doctors and hospitals involved to recover their costs.  As a result, these health service providers are driven increasingly to refuse Medicare patients altogether.  Despite this, Medicare participation is mandatory: Americans must purchase Medicare, whether they want it or not, even in the face of this dwindling service, and this artificially elevated demand for a decreasing supply also contributes heavily to cost increases.

Mandatory participation in Medicare has not achieved the goal claimed for it: an overall reduction in the cost of health services.  It is, though, succeeding in reducing the availability of medical services generally.

And so it is with Obamacare.  New mandates—the Individual Mandate, requirements that insurance companies cover people’s health condition, regardless of risk and at government mandated price ranges—increase demand.  Although there are those price controls, the regulations will drive insurers increasingly out of an increasingly unprofitable market, and this will drive costs upward in the form of inaccessibility of health services and long waits.  Further, Obamacare’s tax hikes will be passed on to consumers.  There are those price controls, but as we saw with the Nixon price controls, ways will be found around them.

Rest assured, also, the quality of care will fall through the floor, too.  There’s another Obamacare regulation: medical loss ratios, whose values are mandated under Obamacare, require insurers to spend a high percentage of their premium revenue on federally defined clinical services (Government-mandated, not market-driven, and so not necessarily wanted by us), and this is at the direct expense of R&D.  And of course health insurers are interested in research—not only in how to better provide insurance products to customers (there are profits to be made in offering better products and doing so more efficiently, and without those profits, the search for more and better won’t occur), but also in medicine itself.  Medical research is part of that search for profit: more, and more efficiently provided, medical services also are profitable, as is a long-lived, healthy customer base.  Only now there’ll be less money available for that research.

Once again, we’re stuck with an artificially elevated demand for dwindling supplies, and this time supplies of decreasing quality as well as quantity.

Made in Germany

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The EU is at it again, still trying to manage economies, and this time they’re taking on the German powerhouse whose piggy bank they want to raid directly to bail out the rest of Continental Europe.

Spiegel International Online reports

Whether it’s attached to a car, a dish washer or a pepper grinder, the “Made in Germany” label is key to selling products made in the country. But if the European Union has its way, goods carrying the tag will soon have to comply with higher standards….

EU Commissioner Algirdas Semeta plans to restrict the sought-after “Made in Germany” label to products where at least 45 percent of the value content comes from Germany. Until now, EU rules defined the country of origin as the place where “the last substantial, economically justified processing” took place.

Spiegel reports further that a part of the beef is that, under the current regulatory régime,  products could be produced almost entirely outside of Germany (for instance), and only the finishing touches applied in the domestic factory.  This is an exaggeration, or it would be in a truly open, information-flowing free market—something that’s been anathema to the Europeans for decades, and which lack underlies the current European economic malaise.

In the modern globally integrated economy, “Made in Germany/France/United States/etc” has been a bit of a misnomer for a long time: “Assembled in…” would be more accurate.  German—and American—automobiles, for instance, are built up from parts made in a number of foreign locations where labor is cheaper and necessary supplies, especially commodity supplies (iron, plastics, and so on), are nearer by and so cheaper to obtain.  Then the parts are shipped for final assembly in Germany or the US.  To do the whole thing overseas, only applying the last coat of paint in the domestic factory, and claiming that to be domestically made would, at best, irritate an informed market’s public, and it would eliminate the value of any “Made in” claim.  Businessmen aren’t smarter than their customers, nor need they be better informed.

Moreover, in the near term, and in perpetuity, bureaucratic imperatives involved in the record keeping needed at all “production stages to establish where most of the value of the product was created,” assuming “most of the value” could be defined adequately, will only increase production costs—and so costs to the consumer who’s being “protected” by this foolishness.

EU leadership is both exposing its jealousy of German success and demonstrating once again how the euro zone is too fractionated to support a common currency and how the EU itself is too fractionated to support the tighter integration that many want and that the Brits have correctly eschewed.  And the European political class is demonstrating once again its contempt for the intelligence and wisdom of the common man whom it purports to represent.