Saturday, August 13, 2011

Another Victory for Health Care

The Patient Protection and Affordable Care Act, also know as Obamacare, has been dealt another blow. For the first time a federal appeals court has ruled the health care law as unconstitutional. But the battle is far from over. Since there have been multiple conflicting rulings, these law suits will inevitably make it to the Supreme Court.

Historically the Supreme Court has interpreted the constitution to grant to the federal government what ever power they feel the government should have. While it is clear from reading what the intentions of the founding fathers were about the meaning of the constitution that the federal government has no power to force people to purchase health care, the Supreme Court could easy assume the authority to reinterpret the constitution to give government that power.

Because we effectively have no constitution beyond what the government decides at it own discretion that we have, all arguments against Obamacare should be practical and not constitutional, at least outside the courts.

The health care mandate is effectively a massive wealth redistribution from the middle class to rich insurance companies. Since insurance companies produce no output by themselves, this guarantees that after the mandate takes effect, the rate of growth of wealth in this nation will fall. The middle-class families who now have no insurance or less insurance then the bureaucrats in Washington think they should have will be forced to sacrifice to obtain or increase their insurance.

Since people who have no insurance must pay out of pocket for doctor's visits and other medical expenses, they have an incentive not to over consume. Once they are forced by dictate to have insurance, the marginal cost of medical expenditures reduces to nearly zero. People who once had no incentive to consume medical care, will now have an incentive. As long as the cost in lost time is less then the gain from the medical care they will consume medical care. 

What happens when the demand goes up? The price goes up. Basic law of economics. The government  and insurance companies will respond to these rising prices by putting price caps. If prices are not allowed to rise, the quantity supplied will reflect the current price level. This means we will have excess demand or a shortage of medical care. The response to that will be to ration medical care. Those who are determined to have the most urgent medical need will be placed first in line and anything less serious will be forced to wait.

The problem with this form of rationing is that people who may not seem to need immediate care may be forced to wait too long. Also people who have no serious medical emergency but are only in for a check up may have an undiagnosed condition. Because prices are not allowed to go up, resources that might otherwise be allocated to health care aren't and the shortage will be permanent.

Under the free market, shortages do not exist. If demand spikes, for what ever reason, prices go up to encourage a reduction in demand. This is still a form of rationing just like what would happen in a planned economy. However, the higher prices create incentives to move resources into the health care sector and drive prices back down so that everyone can get the health care they need. With out this pricing mechanism, everyone gets less health care in the end.

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