Economic Realities and Obama Care

1) While the price of any product or service is primarily the result of supply as modified by demand, the cost of producing the product or supplying the service always rises or falls to approach this price.

2) In the absence of price competition and buyer resistance, both price and cost rise to unsustainable levels.

3) When a product or service is primarily paid for, not by the consumer, but by third parties, buyer resistance is rendered ineffective and price competition is severely compromised.

4) When a product or service is perceived as essential to a minimum quality of life, or as an entitlement, and is paid for by third parties, both price competition and buyer resistance are nullified and both price and cost will rise to unsustainable levels.

5) In economics, perception is reality.

6) When a product or service is perceived as essential or an entitlement, is paid for by a third party and the price and cost have risen to an unsustainable level, it is difficult or impossible to significantly reduce the price and cost without severe disruptions to the availability of the product or service. Therefore, if more funds and taxes are applied to Health Care, they will be quickly absorbed by increased costs; stability will not be achieved by increased funding.

Just understand, I am not supporting Obamacare for several reasons. It is far too large and invasive for any government bureaucracy to implement and manage. Like most governments programs, it tries to do too much too quickly. Like all governments programs, it starts with good intentions, then over manages with detailed regulations. It was intentionally misrepresented to the voting public, and to many members of congress in order to gain support.

Having said that, I think The Affordable Care Act attempts to address the two most critical problems that are causing the cost of Health Care in America to spiral out of control. These problems are: lack of pricing competition, and lack of buyer resistance. Price can be effectively controlled only by price competition and/or buyer resistance, and cost can only be controlled by controlling price.

Obamacare attempts to address pricing competition in several ways. By including all medical services in all insurance plans, eliminating prior condition considerations, and keeping only co-pays and deductibles as variables, insurance providers are more directly competitive so that premiums will be based more on the size and health of the population they can attract as subscribers, and the prices they can negotiate with medical providers (doctors, hospitals, laboratories, and drug providers). This gives insurance providers more incentive to pressure hospitals to find ways to reduce prices, and to price premiums to attract as wide a cohort of subscribers as possible. Obamacare also mandates a larger population of subscribers making it feasible to lower prices.

Buyer Resistance is almost completely eliminated in the present system because most people have insurance paid for by their employers and with minimum deductions and co- payments. The Affordable Care Act discourages minimum deductions and co-payments, and encourages subscribers to lower premium payments by accepting higher out of pocket costs. This reduces risk and costs to insurance providers, and more importantly, it provides incentive to subscribers to shop for lower costs (lower out of pocket outlays), and to avoid unnecessary medical procedures and doctor visits. This last could, by itself, reduce overall Health Care Costs to a very substantial degree Some will argue that these policies will be detrimental to the health of some people, but I reply that any lack of health care will be self imposed. I submit that people desperately need to become more self reliant and less dependent on government. In any case, something has to change. Health insurance is now mostly unaffordable and it is rapidly getting more so.