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Saturday, January 2, 2010

Do-Gooders Making Things Worse: Commoditizing Health Care Is Bad Medicine

Several times in 2009 this blog reported that the various mortgage modification plans would not have the desired effect, and in fact would be likely to lead to bigger problems down the road.   In fact, on December 30, 2009 we reported that encouraging more "bad" loans would reduce the banks' ability to lend to other, better, more creditworthy borrowers and would create the perverse effect of having good borrowers unable to get credit because they were already subsidizing the credit and bad loans made to poor credit risks (some of whom qualify as out-and-out deadbeats).    Hence, deadbeat relief ends up costing everyone.

Now the New York Times reports in its Saturday edition that the Obama mortgage modification plan actually seems to be making things worse.

Point One:  Crime, Politics and Policy told you about this much earlier and we were among the first.   (Please, go check our archives on the right column.)

We believe the way to fix the real estate / mortgage / banking / credit messes is to stop all subsidies.   Everyone with a loss has to shoulder it.   Anything else is a form of "loss shifting" and merely moves the pain around from the one who caused it to someone else who was totally blameless.   In addition to being inherently unfair, such a philosophy encourages people to "self-insure" against future government interference as a means merely to be able to sustain future loss shifting.

We need to stop all aid to delinquent homeowners.   We need to let all these houses go into foreclosure.   Yes, this will drop home prices a lot...short term.   However, government interference is only artificially propping up prices.   Savvy investors know this and are still not buying.   The smart money appears to be on the sidelines (as some of it has been since 2003). 

We need to let any and all bad banks fail, and fail quickly.

When you have a bandage and want to pull it off, you can either pull it off very slowly (and extend your pain), or rip it off suddenly and get it over with.   The pain is arguably equal -- ripping it off ends the pain sooner -- and just as arguably, the pain might actually be less when you rip it off.   Let's do the same here.

Point Two:  We predict the same thing will happen with the health "reform" bill, which will simply accomplish everyone getting "health insurance" (and likely paying much more in the process) but not necessarily getting "health care" whether in the quantity or quality they want or need.   In fact, the health "reform" bill just passed will be likely to cause health care rationing by arbitrarily penalizing doctors whose prescriptions for "care" are in the top tenth of all doctors (meaning that 10% of doctors get penalized, regardless of the amount of care).    This is sure to cause a downward spiral (or death spiral) in the amount of health care.   But this is what will happen, when the health care system becomes more concerned about "cost control" and "cost certainty" than it is about actual patient care.

In short, when medicine becomes a pure business, health care will suffer, and people will suffer -- and die -- because they are denied or delayed the appropriate medical care.

Perhaps the final flaw with the so-called health reform is that it mistakenly assumes that the behavior of doctors can be regulated perfectly.   It seems to assume that doctors will continue to exercise the appropriate patient-first care.   However, there are plenty of doctors (as in other regulated industries) who put simple economics first (not that there's anything wrong with this).   They will be saying, "I want to do this procedure, but I can't because I'll be penalized."   The reform bill seems to assume that doctors will voluntarily absorb the financial penalties in order to fulfill their higher calling.  (Gee, who thought that the "death panels" would turn out to be Congress?)

Lesson to government:   If you want service providers (whether it be medicine, or law) to treat their profession like a vocation, do not treat their profession like a business.   Treat it as a vocation, and its practitioners will do likewise.   Treat it as a business to be "cost controlled," and do not expect its practitioners to do anything but look at the financial bottom line first -- and only -- in determining what care to provide, and even whether to continue in business.

These disasters occur when bureaucrats put a premium on trying to look good and show how much they care, instead of actually measuring the likely effects of their policies. 

Eric Dixon is a practicing attorney in New York and New Jersey and engages in select legal, economic and legislative analysis for clients on a professional, fee-for-service basis. Inquiries of Mr. Dixon may be directed to and by phone at 917-696-2442.   

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