Healthcare Prices

In his lengthy cover article for Time magazine, Steven Brill argues that the first question in the healthcare policy debate should be “why are the bills so high,” rather than blowing past that issue to ask who should pay. Most of his article is an appeal to the readers’ emotions as he reports on the cost of healthcare, but can be objectively summarized:  the healthcare industry is very, very lucrative. According to Brill, Americans overpay for healthcare to the tune of $750 billion a year, based on comparisons with Europe.

Okay, we pay more for healthcare than the Europeans. Assuming that’s a bad thing, what should we do? Amazingly enough, Brill has exactly the right answer:  tighten the antitrust laws to keep hospitals from becoming too dominant in healthcare markets. Not only does Brill seem to favor a market-based approach, but he’s wary of heavy handed action by the central government. He understands that the deficit cannot be cut by lowering the price that Medicare and Medicaid pay hospitals because providers would simply offset such price cuts by charging private insurers more. This would in turn bring the deficit back up due to the increase in subsidies required under Obamacare.

Brill doesn’t explain how the antitrust laws should be tightened, but the ongoing consolidation in the industry would surely require the FTC or DOJ to do more than block an occasional merger in some obscure market. In other words, it would be necessary for the government to affirmatively go after and break up the big hospitals and other big actors in the industry, which would move America back toward functioning healthcare markets and freedom. The government could hardly do better than adopt such a policy.

So far so good. But wait, although Brill correctly identifies antitrust as the answer to high healthcare prices, he also makes suggestions that would mostly destroy markets. For example, he wants to impose a 75% tax on hospital profits and a tax surcharge on nondoctor salaries that exceed $750,000. Brill also favors revising the patent laws to limit profitability as well as limitations on what Medicare pays for CT and MRI tests. So it seems that Brill apparently doesn’t really believe in markets and competition after all.

Although Brill questions the effectiveness of Medicare price cuts, he oddly enough wants to give Medicare the power to negotiate lower prices with drug companies, which the law presently does not allow. But again, the price cuts resulting from such negotiations would only be offset with higher prices to private insurers. Brill also believes that Medicare is more efficient than the private sector and wants to lower the eligibility age to cover more people. In truth, Medicare is not more efficient than private health plans, but may seem so simply because the government arbitrarily fixes the prices it pays providers.

Brill’s remedies to control healthcare prices are contradictory and incoherent. The suggestions for more Medicare amount mostly to a call for more government imposed price controls and movement toward a single-payer system. Centrally controlled economies never work as well as market-based ones, and it’s quite disheartening to see Brill and others so misguided.

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