Friday, March 1, 2013

The Economics of Obamacare

When politicians talk about Controlling Costs of health care - what they really mean is Controlling Prices.   They really can't make real estate cheaper, nor or they likely to reduce the production and R&D costs of medical hardware.  They sure haven't don't anything about reducing the cost of malpractice insurance - so what they really mean is Price Control.

Price controls work just like Rent Controls - When you put an artificially low price on something you will have Shortages.  These shortages arise first because people see something they can get for less than it's true value - and we all like a bargain (yeah - hard to conceive of Bargain and Health Care in the same document let alone the same sentence).  In EVERY documented case of rent control that I've been able to find, buildings have either been maintained by the residents - as the landlord has abdicated that responsibility - which means the building in question is populated by the wealthy - taking advantage of the rent controlled property - (Say Mayor Koch of NY, who during his 12 years in the Gracie mansion also kept his rent controlled apartment - or New York Congressman Charles Rangel who has 4 of them - one used as an office.)*  - If the rent controlled properties are populated by the poor - which was the Intention of Rent Control - then they can't afford to do the upkeep - the landlord can't or won't so the buildings fall apart and are eventually condemned.  In every case - there is a SHORTAGE of available apartments - people who would normally move every few years stay put for decades.  A couple with an empty nest is unlikely to give up their $300 four bedroom apartment to move in to a $2500 two bedroom unit.

Back to ObamaCare - 
So we now have more people going to see the doctor for everything that comes along, I mean it's free right? When you artificially lower the price of something, it get's wasted.  Medical care is an area where you really want a surplus as it allows for the occasional emergency overload.   At the same time, the undervalued resources - in this case that would be Doctors, Nurses, Hospital Real Estate, etc - will be looking for more lucrative places to be. Plan on immediate reduction in capital spending - no new MRI machines, etc.  Followed by much longer waits to see a doctor - the standard greeting will be "The doctor will see you in 3 Months if your still alive" - 4 months if this were England.  You should probably expect to see a shortage of drugs as well - the costs of developing new drugs are substantial and unless the pharmaceutical companies can be sure of a profit then there's no up side to doing the development.   As it stands now at least one company is sacrificing future returns by cannibalizing current research spending to keep the share holders happy - Immediate gains vs Long term - and the trend seems to be toward VERY short term.

In the longer run the Best and Brightest, will loose interest in a field where they are essentially Slaves to the State - who the hell wants that? So what you can expect from our future medical students? Well since Harvard will be desperate for students you can figure all those idealistic young girls and boys with big hears and small minds will be heading that direction since the admissions requirements will be dropping as fast as doctors can flee the system.   Why?  because we still need the doctors - the smart people will have found something else to do or someplace else to do it and that leaves the ones that probably wouldn't have made it into med school in Granada, never mind Harvard, to fill the ranks working for a  Government Paycheck.  You should also expect to see the at first gradual but rapidly increasing unavailability of things like CAT scans, and MRI machines as they break down and no one can afford to replace or fix them. 

Like they say - the Road to Hell is paved with Good Intentions.

* Nevertheless, some unlikely things do get hoarded under price controls. For example, under rent control, people may keep an apartment that they seldom use, as some Hollywood stars have kept rent-controlled apartments in Manhattan where they would stay when visiting New York. Mayor Ed Koch kept his rent-controlled apartment during the entire 12 years when he lived in Gracie Mansion, the official residence of New York’s mayor. In 2008, it was revealed that New York Congressman Charles Rangel had four rent-controlled apartments, one of which he used as an office.

Sowell, Thomas (2010-12-28). Basic Economics: A Common Sense Guide to the Economy, 4th Edition (p. 54). Perseus Books Group. Kindle Edition.

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