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Wednesday, July 22, 2009

The Democrats' "Public Option" Will Result in Long Lines and Rationed Health Care

Reality and the "Public Option"

The H.R. 3200 America’s Affordable Health Choices Act, which is being touted by Democrats in Washington as a "public option" for uninsured Americans, has many provisions aimed at lowering the cost of health care by government decree.

Unfortunately, reality doesn't work that way, and the government cannot simply dictate prices to health and insurance providers without certain consequences. If you want to make a balloon smaller you can't do so by squeezing it. You'll just move the air around into different spaces.

Trying to squeeze the health care market to get more out of it will have the same result; it will only shift things around. Below are some micro-economic analyses of government policies and their effect on the price of health care. If you are unfamiliar with how to read these graphs, I have a short primer here.

The "Public Option" Creates Shortages

As the graph above illustrates, if Congress simply and crudely forces down the price of health care by dictating prices to health care providers from Washington, which is one of the provisions of H.R. 3200, the price will fall to a level at which supply does not meet demand.

There will be more people who want health care at that price than there will be suppliers, which is called a shortage. This is what opponents of the so-called "public option" mean when they say that it will cause long lines and rationed care. There will be lines for health care, there won't be enough to go around, and the government will start to ration it according to decisions and policies made by bureaucrats. Even Obama can't deny that his overhaul will change how Americans receive care.

U.K. / Canadian-Style Socialized Medicine

They will have to decide if your need is great enough, if you have suffered enough pain, if you are old enough, if you are young enough, or if your life is worth living enough to get the care you need. That's the tragic part of all this- the "public option" will actually result in less available care, as you can see from the decreased quantity supplied at the artificially lowered price.

This isn't just abstract theory and lines on a graph. You can see numerous empirical examples of this, among them, the "brain drain" experienced by countries like the U.K. and Canada that implement socialized medicine. Their supply of doctors decreases as those doctors move away to find more lucrative opportunities in non-single-payer countries like the United States.

Competition = More Affordable Care AND More Care

But there is a real solution that will drive down prices without diminishing quantity and creating a shortage. If we opened up the market for health insurance to real competition, it would change the dynamics at work on the supply-side because rival firms would have to keep prices competitive, shifting the supply curve itself.

What does that entail? One of the biggest impediments to a truly free and competitive health insurance market is the government-backed entanglement of employers with the provision of health insurance. In an interview I conducted with entitlements expert, Michael D. Tanner of the Cato Institute, he wrote:

"Employment-based insurance hides much of the true cost of health care to consumers, thereby encouraging over-consumption. It also limits consumer choice, since employers get the final say in what type of insurance a worker will receive."

Another major step toward opening up a free market of competition would be to allow people to buy health insurance across state lines. Quoting again from my interview with Tanner:

"Unfortunately, consumers are more or less held prisoner by their state’s regulatory regime. It is illegal for [a] New Jersey resident to buy the cheaper health insurance in Kentucky. On the other hand, if consumers were free to purchase insurance in other states, they could in effect 'purchase' the regulations of that other state."


Remember, as I noted above and demonstrated on the graph, by allowing true competition to occur, we end up shifting the supply curve itself, which causes the desires of suppliers and consumers to meet at a different price level, a lower price level, creating more affordable health care without creating a shortage and the consequent lines, waiting, and rationing.

This method not only makes health care more affordable, it actually results in more health insurance. It creates more quantity in the market for health insurance, meaning more people are covered and truly have access to health care. And who knows- more competition might just result in better quality too.

But before that can happen we must make sure that enough of our Congressman oppose the "public option" to defeat it like we did in 1994- which means melt those switchboards!

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