The post previous to this one presented two links. The first was to an article that detailed the upcoming financial failure of Medicare. The second was to an article that outlined Senator Bernie Sanders plan to provide Medicare for all. The unstated implication was that if we couldn’t pay for the Medicare we have putting the whole country on the program would, to state things gently, be fiscally impossible. A regular reader posted the comment below. I believe this comment deserves some detailed discussion.

I offer no explication or defense for Bernie Sanders’ policy proposals. But I spent my entire adult life, until 2012, trying to cobble together private, individual health insurance. More often than not, I’ve lived with all the stress and risk of not having it at all. (This was based on family history, by the way…I myself have been fortunate to be very healthy all my life.)
Why are you so dead set against taking the profit motive out of health insurance? Why are you so dead set against exploring ways to expand coverage to more people? I understand that the current system has worked pretty well for providers. But if one takes the stance that basic health care is a human right, it’s time to find a system that works well for everybody.

There’s a lot to unpack from the above. I’ll start with the notion “that basic health is a human right.” First, a ‘right’ requires definition. Anything that demands one person be forced to pay for goods or services for another is clearly not a right. Especially, when failure to pay for another’s ‘right’ runs the risk of prison or loss of property. Rights are free. Here are four examples.

Thomas Jefferson argued the we have unalienable rights among which are life, liberty, and the pursuit of happiness. Note happiness is not a right, but the search for it is. All of these do not require payment by someone else.

Next is the Bill of Rights – the first 10 amendments to the US Constitution.  They all detail limitations on the federal government. They forbid the government from a host of activities which impinge on individual liberty. They require no one to pay for these liberties.

John Stuart Mill’s most well known work is On Liberty. In it he depicts the rights which an individual possess in his dealings with society and the government. Basically, Mill argues a person his free to engage in any behavior, even those harmful to himself, as long as they do not palpably interfere with the liberty and/or property of another person. Giving offense to another’s sensibilities or feelings is not held sufficient to prevent such behavior. Again, note that there is no cost to this protection of liberty.

Last is Isaiah Berlin. In his lecture and subsequent essay Two Concepts of Liberty he discusses negative liberty. “[L]iberty in the negative sense involves an answer to the question: “What is the area within which the subject—a person or group of persons—is or should be left to do or be what he is able to do or be, without interference by other persons.” Regardless of how negative liberty is defined, it never goes to the point where being left alone restrains the liberty or rights of another and it does not involve someone else paying for it.

Thus, it is clear (at least to me) that any degree of healthcare is not a right. The government may offer it as an entitlement, but it not a right. It’s not even a first order good. It is possible to live to 100 without ever seeing a doctor. Indeed, it wasn’t until about 100 years ago that a patient was more likely than not to benefit from his encounter with a physician. Without food and water you will surely soon die. They are first order goods. Without medical care you may or may not die before the end of a normal lifespan – hence its secondary rank.

Now to taking the profit motive out of health insurance; why stop there. Take it out of the all business transactions. The idea that there’s something wrong with making a profit from the provision of any service indicates a faulty understanding of how goods and services are provided. They are all rationed. Always! Without exception! There are three ways that goods and service are rationed. The first, and far and away the best way, is by price. No one, at least so far, has proposed food stamps for all. Food is rationed by price. If you want caviar you must pay more for it than for tuna fish. Food is inexpensive because there’s a free market for it; the attendant competition keeps prices low. Hence food is affordable. The two other ways that goods and services are rationed are delay and denial. Government provided medical care uses both techniques. Insurance companies typically rely on denial.

Now comes the real issue – cost. Everybody worries about medical care because it’s so expensive. Thus, the real question is why is it so expensive? Almost no one asks this question. Without it being asked and answered our problem with medical costs can never be solved. Don’t expect an accurate answer from a politician because it’s an unpleasant one.

The cost of a car, adjusted for inflation, is the same today as it was 60 years ago. And today’s car is safer, runs better, is more comfortable, and has many more features than the automobile of six decades past. The kind of car you buy is rationed by price. If you want a Mercedes you’ll pay more. If you can’t afford one, a Kia will meet your transportation needs just as well.

Medical care, on the other hand, has gone up eight times over the past 60 years, after adjustment for inflation. Not even a useless college education comes close to this increase in real cost. A common explanation for this increase is modern technology. But technology has made every other component of 21st century life less expensive. As you can see below, the price and power of personal computers have plummeted while the cost of medicine has exploded.

The reason for this disconnect is actually simple once you stop and look at the cost of medical care with your political glasses on the counter. Separating the provision of a service from its payment always results in an increase in cost. When you go to the doctor neither physician nor patient knows the price or true cost of the service. The doctor fills out a billing sheet which goes to a billing clerk who tries to figure out the ICD code (there are more than 140,000 of them) that will result in the highest reimbursement. The only incentive is to raise the billed price as eventually the insurance company or Medicare will increase its payment to the provider. There is no incentive lo lower charges.

This situation is relatively new. When I was a child our family doctor made a house call for $2 which typically included a shot of something that conceivably may have done some good. When I was an intern the chief of GI made $7500/year. The assistant chief made $5000. What happened? Medical insurance and Medicare. Patients no longer paid for medical care at the time of service, they came to expect someone else to pay for it and hence did not notice that this process was gradually raising the cost of medical care to levels that no one, not even the government could afford. Would anyone pay $10,000 for a CT scan out of his own pocket? Almost no one would and the scan would hence cost about $100 which is what it’s really worth.

If you think the insurance companies are goniffs and that a government run system would do better look at the following. Medicare’s cost are rising faster than those of the insurance companies. The data are from Medicare.

Now look at how the VA is doing. Forget about the quality of care provided by the VA; look at its costs. They go up strikingly as the number of veterans alive goes down. And keep in mind that only one in three veterans uses the VA for medical care.

So what’s the solution? There is none that’s likely to pass political muster. The late economist Mancur Olson succinctly described what will happen with medical costs (and likely social security, as well). Big systems can only be reformed after they collapse. And dear reader I’m sorry, but you do not have a right to basic medical care. You may be given an entitlement that pays for it until it no longer does.