Remember President Obama’s assurances that Obamacare would make medical care less expensive, saving the average family $2,500 a year. He either lied or was wrong, and the former is the betting favorite. From Daniel Mitchell at the Foundation for Economic Education, fee.org:
Way back in 2009, some folks on the left shared a chart showing that national expenditures on healthcare compared to life expectancy.
This comparison was not favorable to the United States, which easily spent the most money but didn’t have concomitantly impressive life expectancy.
At the very least, people looking at the chart were supposed to conclude that other nations had better healthcare systems.
And since the chart circulated while Obamacare was being debated, supporters of that initiative clearly wanted people to believe that the U.S. somehow could get better results at lower cost if the government played a bigger role in the healthcare sector.
There were all sorts of reasons to think that chart was misleading (higher average incomes in the United States, more obesity in the United States, different demographics in the United States, etc), but my main gripe was that the chart was being used to advance the cause of bigger government when it actually showed – at least in part – the consequences of government intervention.
The real problem, I argued, was third-party payer. Thanks to programs such as Medicare and Medicaid, government already was paying for nearly 50 percent of all heath spending in the United States (indeed, the U.S. has more government spending for health programs than some nations with single-payer systems!).
But that’s just part of the story. Thanks to a loophole in the tax code for fringe benefits (a.k.a., the healthcare exclusion), there’s a huge incentive for both employers and employees to provide compensation in the form of very generous health insurance policies. And this means a big chunk of health spending is paid by insurance companies.
The combination of these direct and indirect government policies is that consumers pay very little for their healthcare. Or, to be more precise, they may pay a lot in terms of taxes and foregone cash compensation, but their direct out-of-pocket expenditures are relatively modest.
And this is why I said the national health spending vs life expectancy chart was far less important than a chart I put together showing the relentless expansion of third-party payer. And the reason this chart is so important is that it helps to explain why healthcare costs are so high and why there’s so much inefficiency in the health sector.
Simply stated, doctors, hospitals, and other providers have very little market-based incentive to control costs and be efficient because they know that the overwhelming majority of consumers won’t care because they are buying care with other people’s money.
To get this point across, I sometimes ask audiences how their behavior would change if I told them I would pay 89 percent of their dinner bill on Friday night. Would they be more likely to eat at McDonald’s or a fancy steakhouse? The answer is obvious (or should be obvious) since they are in box 2 of Milton Friedman’s matrix.
To continue reading: Another Grim Reminder that Obamacare Has Made Healthcare More Expensive
