Home > Economics, Health > >Explaining the problems with socialised healthcare to your nitwit friends

>Explaining the problems with socialised healthcare to your nitwit friends

>The healthcare debate currently raging in the United States has produced some terrific comments not least of which was when one wag asked why President Obama was trying to slam healthcare reform through Congress in 3 weeks when he took 6 months to choose a dog for his kids.

On one side of the argument are those who understand that the US provides the highest level of healthcare in the world but accept there are issues that need to be addressed.

On the other are those who think that the moral high ground is achieved through a government provided scheme, which requires tearing down the existing structure and starting again.

Organisations such as the United Nations and The Economist don’t help the argument by coming up with world rankings on healthcare that show the US a long way down the list.

How can this be when it’s the US that all world leaders choose to fly to when they’re ill? The country that has John Hopkins, Mayo Clinic etc etc?

The answer is that these rankings heavily weight whether the healthcare is ‘free’, insofar as anything is when provided by the government. When health outcomes are analysed, how long people live when diagnosed with cancer, diabetes, heart disease etc the US far exceeds the rest of the world.


Time and again we are asked by proponents of Obamacare, and its predecessors, whether it is fair that only the wealthy can afford the best healthcare.

For some reason, the questioners fail to appreciate the truism that wealth means health. One only needs to compare the outcomes in Africa to any halfway advanced country to find the proof.

Here’s another question. Is it fair that only the wealthy can buy $100,000 Mercedes?

If the government provided cars to everyone then do you think everyone would get a Mercedes or, perhaps, something of much, much lower quality?

If there were no wealthy people then there would be no $100,000 Mercedes.

Equally, no wealthy people means no high cost medical procedures.

The fact is that the advancement in the quality of healthcare that has come about due to the remarkable achievements of the pharmaceutical companies in the US – which are responsible for two-thirds of the world’s medicines – can only occur because of the free market system that allows them to spend billions of dollars developing a single drug and getting it to market. Even the large European drug companies can only develop the solutions they do because of the sales they achieve in the US.

Make no mistake about it. Without US drug companies the world will have lower quality medical solutions going foward.

Comparisons with the rest of the world fail to take into account that the rest of the world is sponging off the US health dollar by being able to buy treatments that it couldn’t afford to produce itself.

Do proponents of the government plan think that these drugs will still be developed when it’s the government deciding how much will be spent?

Rationing lowers quality. It increases the length of time to receive treatment including for serious conditions.

Is it fair that people die who otherwise wouldn’t simply because they can afford better healthcare but can’t get access to it?

If the public option was so great then Congress wouldn’t exempt itself from it.

Public kills Private

Most non-Americans don’t understand how the US health insurance system works.

Here in Australia we take out insurance with our preferred insurer and to the level we desire/can afford, pay the premiums for the rest of our lives and receive an OK level of service. With our low population and large area it’s not possible to make a proper comparison with other countries, as we have issue unique to Australia, as do all countries.

Most insurance in the US is provided by a person’s employer. You can look up the history of how that came about but it dates back to World War II and companies’ attempts to attract workers in a low unemployment environment in which salaries were fixed by the government due to the war effort.

A major issue in the US is that when someone leaves a job then they have no health insurance until they start their new job. These people who are between jobs need to take out temporary insurance until they start their new job. Bizarrely, the ten or so million of them are included in the statistics that add up to the “47 million Americans without healthcare”, as do more than that many illegals. The question asked in the health insurance survey is ‘Have you at any time through the year been without health insurance?’ Obviously, if you’ve left your job and haven’t taken out temporary cover, or can’t afford to, then the answer is yes in spite of the fact that it might only be for a week or two.

After taking into account the fact that young people choose not to take out health insurance when they can afford to – preferring to spend their money on clothes, a car or a now upside down home mortgage – there are only 15 or so million who are in genuine need.

Better tear down the system to address the 5% of the population with a problem, then.

So how does the public option kill private health insurance?

Let’s leave aside the fact that Congress has a bottomless pit of money to play with and is not going to be inclined to see it fail thus guaranteeing even further increases in spending into the future.

Consider two companies:

Acme Corporation has 1000 employees involved in the production of a very popular widget. It’s a publicly listed company that turns over $150 million and makes an after tax profit of $3 million.

Acme’s major competitor is Blue Sky Enterprises that, coincidentally, has 1000 employees, makes a competing product to the Acme widget, turns over $150 million and produces a profit of $3 million.

Both companies provide the same health insurance cover to their employees, sourced from the same insurance company. The insurance costs them $5,000 per person.

Now, let’s say that Obamacare enters the market offering $3,000 health cover. It’s not quite the same level as the $5,000 cover but people think it’ll generally be OK unless you get really sick.

The management team at Acme decide to shift all of their employees from the private option to the public option. Blue Sky chooses not to.

So what happens?

After one year with this new health insurance in place, Acme has turned over the same $150 million but due to lower insurance cost has increased its profit to $5 million from $3 million (1000 employees x $2000 saving = $2 million).

Meanwhile, Blue Sky has also had a solid year, posting $150 million in sales and at the expected profit of $3 million.

See the problem?


If you’re an investor then which company are you going to invest in?

Obviously, Acme Corporation.

Therefore, Blue Sky Enterprises is forced to take up the public option, as well. Otherwise its competitor gains a huge advantage.

While this is all happening, private insurance companies are having to raise costs to maintain the same health cover level or reduce the level of cover to compete with the government option.

Thus, private health insurance slowly withers on the vine as more and more companies are forced into the government plan.

Who wins?

Not anybody who gets sick, that’s for sure.

Medicare and Medicaid

No pro-Obamacare proponent has yet explained how the public option will not end up the financial black hole that is Medicare and Medicaid.

The following graph highlights the coming crisis, and when I use the term crisis I use it accurately:

Simple improvements are there for the taking

All Congress needs to do to make a huge improvement is the following:

  • Allow healthcare to be portable between health companies and across state lines. This also deals with the situation in which people develop a condition that would inhibit their ability to obtain health insurance if they changed jobs.
  • Implement tort reform. This is the biggest single cost in the medical system. Loser pays will stop people bringing frivilous lawsuits. Trial lawyers are the Democrat Party’s second largest donor behind labour unions so don’t look for this any time soon.

These two steps would allow many more Americans to afford health insurance cover.

President Obama

From President Obama the other day:

“We’ve got some work to do. I don’t mind, by the way, being responsible. I expect to be held responsible for these issues because I’m the president,” Obama said. “But I don’t want the folks that created the mess — I don’t want the folks who created the mess to do a lot of talking. I want them just to get out of the way so we can clean up the mess.

“I don’t mind cleaning up after them, but don’t do a lot of talking,” Obama said.

I wonder whether the President also includes the architects of the current financial crisis – Barney Frank, Chris Dodd, Alan Greenspan, Larry Summer and Ben Bernanke – in the list of those who should shut up and get out of the way?

(Nothing Follows)

Categories: Economics, Health
  1. August 17, 2009 at 4:21 pm

    >Hi Jack, I'm glad you're back with your witty posts. I'll try to understand LGF but maybe I'm too old to understand.~~Marilyn

  2. August 18, 2009 at 8:17 pm

    >One thing you mentioned needs clarifying. Something like 90% of insurance is through employers here in the States. The whole argument about being denied coverage due to pre-existing conditions is mostly bogus. There is already a law that says when you change from one group plan to another, the new plan has to take you regardless of any conditions you may have. So, we have already mostly addressed that problem. Now it is true that it is very hard for people with chronic illnesses to get private coverage. My nephews have hemophilia and can not get insurance through any provider due to the extremely high cost of the factor they need when they have a bleed. They are covered by a special State run health plan and this may be the best solution for people like them. It can not be a Federal program though as it is unconstitutional for the Federal government to provide anyone with health care (that includes Medicare and Medicaid as well!).The real problem is that patients have been disconnected from the costs of going to the doctor as all the payments now go through the insurance company. I think we should encourage high deductible policies that do not cover basic services, those would be paid with cash and tax deductible. Then you would have a good excuse to argue with your doctor over his charges!

  3. March 3, 2010 at 2:39 pm

    >When did capitalist ideals and profit reign supreme over basic human rights? I'd rather see more people receive good treatment and have a chance at life than only the rich receive the highest cutting edge treatment only to squander their life after recovery.Republicans suggest that the American health system should be a consumer market where prices are driven by demand. Claims that under-insurance is the problem with the system is a cop-out. Their theory is that when people are insured they don't care about the cost of treatment – WHICH DRIVES PRICES UP!I'm no genius but it would make sense to me to have some level of state control on the prices for drugs and treatment – if not only as a backup to grant equitable access to health care, but to also create a regulated market with fair prices set. The backbone of good preventative treatment and post hospital care is having wide access to drugs through subsidy or price-capping. I get it – drugs take lots of time & money to develop so companies wanna make their money back – but a statute of limitations on a company's ability to recoup these funds would see an initial high cost/government subsidy for a product with eventual lowering of prices.If my wife goes to a private hospital to give birth (in Australia) we must pay for every drug administered and for the use of a bed/nurses/consulting doctors & obstertricians. Sure we can pay a deductable/excess to recoup some costs but this usually only covers a small portion of the overall costs leaving us OUT OF POCKET.We already pay taxes under the universal health care system to Medicare – the national public insurer. The federal government takes this tax money (collected from all citizens based on thier income bracket) and gives it to the State Governments who build hospitals, employ nurses, subsidise medicine and offer programs to everyone.But this is where American ignorance and greed factor into the problems with the US Health System. There are some obvious floors with Romney's mantra that Health should be consumer driven in its ideology. HMOs & Drug Companies lobby (pay-off) politicians in both major parties across Senate and Congress in order to see legislation favouring a continuation of their monopoly triumph over the common good and the rights of citizens to recieve basic levels of care. Where consumers drive a market you see products offered at different price points. A common Conservative argument is "world leaders (eg Canadian Politicians) come to America to receive treatment and undergo operations – this makes our system the greatest in the World". Not only is this arrogance from privaleged white guys but it reflects the concept that if you can afford to pay massive prices, you can afford to be healed. This consumer driven model will ensure that poor people receive poor levels of treatment (and therefore no real chance to recover, receive preventative treatment or to pay their medical bills) whilst the rich have ease of access to the best and brightest simply becuase of their wealth/status.

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