Problems with the US health care system

Geoffrey Lawrence

Gilbert Berdine, M.D. and medical professor at Texas Tech University, delivered an excellent diagnosis today. His diagnosis is not of a patient’s particular ailment, however. It is of the ailments afflicting the US health care system in general.

Berdine details how federal and state interventions in the health care industry are directly responsible for runaway costs, less cost-effectiveness and, in some cases, poorer health outcomes.

Berdine traces how the Medicare Part A entitlement has led to a popular misperception of the role of health insurance. As I have written in the past, the major cause of skyrocketing prices for health insurance is that insurance is expected and, in many cases, mandated to cover conditions that are not “insurable.” That is, health insurance is no longer used to insure against unforeseen calamity; it is used to finance the cost of routine care. As Berdine points out, this function does not constitute “insurance,” it is just a socialization of costs. The only way that beneficiaries of a cost-sharing pool can benefit is to force lower-risk and lower-cost individuals into the pool – hence the impetus for a government mandate to participate in the cost-socialization scheme.

Berdine shows that the forced socialization of health expenditures is unaffordable for most households. Using data from the US Department of Health and Human Services and the Bureau of Labor Statistics, he calculates that the “the minimal cost of a fully homogenized national health-insurance policy where everything is covered, everyone is covered, and there are no preexisting conditions” for the average American household of 2.63 individuals is $20,632. The problem is that after that household has covered their taxes and food, clothing and housing costs, only $16,529 remains.

The high costs of health care socialization – a phenomenon that began long before the passage of Obamacare – can only be financed through government borrowing or money-printing. Berdine points out that payroll taxes intended to finance Medicare Part A are completely incapable of meeting the skyrocketing demand for medical services associated with the moral hazard problem of comprehensive health insurance. Forty percent of the financing for Medicare Part A today comes from general revenues while general revenues finance the entirety of Parts B and D. With the most realistic accounting assumptions, Medicare is facing an unfunded future liability of more than $100 trillion. These deficits are financed through government borrowing or money-printing, leading Berdine to conclude that the US health care system is in a credit-induced bubble.

Berdine ultimately recommends four steps to fixing the broken US health care system. The linchpin, however, is in the first recommendation:

1.Limit insurance to insurable conditions and eliminate all regulatory barriers to the provision of health insurance;

2.Eliminate the barriers to the production and delivery of healthcare, including licensing restrictions;

3.Eliminate the barriers to the production and delivery of medicines and medical technology, including patents; and

4.Eliminate the socialization of healthcare costs and the subsidies for being sick.

Great advice from someone who actually understands both medicine and economics.

Those in Washington and Carson City should be paying attention, because they have repeatedly demonstrated a failure to understand both disciplines.

Geoffrey Lawrence

Geoffrey Lawrence

Director of Research

Geoffrey Lawrence is director of research at Nevada Policy.

Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association.

From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation.

Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.