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Obama’s Healthcare Reform Will Be a Colossal Failure, Causing Prices to Increase Even Faster: Part 1

By: Steve Johnson

7/20/2009 - 56 Comments

President Obama is pushing his healthcare reform with the notion that something must be done to stop the increase in the cost of healthcare. 

I usually don’t venture off into the healthcare industry, but this proposed bill is perhaps the single largest danger to the economy and therefore I had to address it.

When I started writing this article I didn’t realize how much I had to say about healthcare reform.  Therefore I will be addressing the healthcare reform bill with a series of articles this week.

There is simply no way that Obama understands what this bill will do.  His proposed bill will increase the cost of healthcare on everyone while lowering the quality of service - at a time when the economic is in its weakest condition in decades.

I wish I could blow sunshine at you and tell you that costs will come down, like they should in any industry driven by free market competition, but that is just not the case because we don’t have a free market healthcare industry.  The faulty assumptions in Osama’s plan will result in a colossal failure.  

Obama’s plan is not even a good analysis of the healthcare industry and only scratches the surface of understanding the entire industry. Yet he is selling it like any good sales man would do by using the recession to create a sense of desperation, like a used car sales man would say, ‘you can only get this deal if you buy today’

Everyone can agree with Obama that healthcare costs are increasing at a rate that is not sustainable and the government can no longer afford to pay for the 50 million that are uninsured, but that's the only thing we can agree on.

His faulty reasoning behind the increase in costs result in a solution that will increase the costs even more as service providers and insurance companies increase their prices to account for the new government regulations to socialize losses and hide risks from investors.

The real solution to lower prices is the free market. Government intervention is what distorts the free market and does not allow prices to come down by blocking competition. Who can compete with the government?

Here are Obama’s primary solutions to reduce healthcare costs;

  1. Payments are not equal to quality of care
  2. Knowledge is not shared as much as it could be
  3. Technology is not being upgraded fast enough
  4. Not everyone is insured, increasing the cost to government programs like Medicaid

Here is the true reasons behind these issues and how Obama’s solutions will fail;

1. Payments are not equal to quality of care

The reason that providers are getting paid for services that do not result in a direct increase in quality of care, is because the government has so heavily confused the process of getting paid.  The problem is the man in the middle. 

Obama’s solution is to increase the man in the middle, but that is only going to increase the cost of healthcare as providers have to hire more staff to manage more complex payment regulations. 

The real solution is to remove the man in the middle or reduce the government’s process of payment.  The current payment system does not reflect the prices created by a free market exchange of goods between patients and service providers, customers and producers, like every other well functioning free market industry.

The health care payment system is distorted by the governments regulatory system of reimbursement created at the federal and state levels. 

Gabriel E. Vidal recently wrote an excellent article addressing healthcare reform, here is a quote reinforing my position that the primary problem with the payment system is the government.

“Simply put, Medicare, Medicaid, workers compensation, HMOs and even private health-insurance firms that follow Medicare rates, rely on cost reports submitted by providers. This cost data is then pushed through mathematical models and additional data generated by government, such as inflation and regional-labor-cost modifiers, to unilaterally (or in agreement with lobbyists and industry groups) determine what the prices for services should be.

But it is theoretically and practically impossible for a bureaucrat — no matter how accurate the cost data, how well intentioned and how sophisticated his computer program — to come up with the correct and just price.

The just price of a health service can only be determined by the voluntary exchange of a patient with his hospital, physician, and pharmacist. The relationship between the patient and his private provider has been corrupted by the intrusion of government and its intermediaries (HMOs, for example) to such an extent that we can no longer speak of a relationship that can produce meaningful pricing information.”

Obama's solution to create another layer to the payment system in order to increase the accuracy of calculating prices is an impossible task, because prices will never be able to be accurately set by a pricing system without the free market influence - patient and doctor coming to an agreement.

Tomorrow, I will address the second part of the proposed healthcare reform in part 2 of this article series.

Obama’s Healthcare Reform Will Be a Colossal Failure, Causing Prices to Increase Even Faster: Part 1

Obama’s Healthcare Reform Will Be a Colossal Failure, Causing Prices to Increase Even Faster: Part 2

Obama’s Healthcare Reform Will Be a Colossal Failure, Causing Prices to Increase Even Faster: Part 3

Obama’s Healthcare Reform Will Be a Colossal Failure, Causing Prices to Increase Even Faster: Part 4 

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