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From an economic perspective, health care is a dysfunctional industry.

Health care is a unique industry in several respects. The preponderance of costs is concentrated in a small portion of the population – those who are very sick.

When someone suffers a serious illness, the costs of treating a person are typically beyond what that person can afford. Thus, we need to find a way to equitably spread those costs across society.

Our system has many stakeholders besides the patient. We have providers, insurance companies and pharmaceutical companies.

Except for the patient, the other stakeholders seek to entrench their vested interests – which are frequently profit-motivated.

Thirty-five years ago, providers were able to charge high fees and pass them on to insurance companies. The insurance companies passed the costs along in the form of higher premiums.

Since most of the medical insurance premiums were borne by employers, the employers at some point finally balked.

This resulted in a fundamental disruption to the economics of health-care funding, culminating with the passage of the Affordable Care Act (“ACA”) in 2010.

As its name implies, the ACA was intended to make health care more affordable and available to everyone.

Unfortunately, special interests, principally the insurance industry, prevailed and the ACA, to date, has not accomplished its objective of affordability.

Since the ACA’s passage, health care costs have increased faster than wages. The U.S. continues to be the global high-cost-provider of health care, and health care comprised 17.5 percent of our economy in 2015.

We are seeing a consolidation of stakeholders as providers, insurers, pharmacies, etc. seek to be more efficient and profitable through economies of scale.

It seems as though the only stakeholders who are left behind are the patient and the party who is paying for the medical services (which typically is the patient or his employer).

When I was in Holland last month, I had lunch with one of my cousins. He has cancer and has been a major consumer of health-care services.

I had presumed that the Dutch had a single-payer health-care system that is managed by the government. Boy, was I wrong.

Holland revised its health-care system in 2006, adopting an approach that is not too dissimilar from that of the ACA. The Dutch system is like a regulated utility in which the government makes the rules, appropriately balancing the interests of the stakeholders.

The Dutch health-care system is considered one of the best in Europe, yet it comprises only 9 percent of Holland’s economy.

Except for disabled people, every person in Holland over the age of 18 is required to purchase basic health-care insurance from a private insurer at a cost of about $165 per month. Failure to do so results in the imposition of a punitive tax on the individual.

If the person is employed, the employer pays a tax for each employee that is based on the employee’s income. Participants in this arrangement are effectively in an HMO sponsored by their insurance company.

Premiums of the unemployed and children are subsidized by the government. All medical expenses except for dental and physical therapy are covered.

A PPO-type arrangement is available for those who desire it. According to my cousin, this additional coverage costs an additional $100 per month, which typically includes dental, physical therapy and private hospital rooms.

The Dutch government negotiates the price of pharmaceutical products. According to The Free Library analysis of the Dutch health-care system, since the new system was implemented in 2006 the price of many drugs has dropped by as much as 40 percent. Compare this with our Medicare system, where the cost of drugs is MSRP.

In Holland, hospital and practitioner pricing is determined by a formulaic approach based on quality of care metrics. Hospitals have to function efficiently to meet these metrics.

Insurance companies have to accept anyone, irrespective of their age, health, pre-existing conditions, etc. If a particular insurance company has a disproportionately high share of sick people, the government makes actuarially based payments out of the employer taxes collected to compensate for the increased costs.

Clearly, the Dutch have been able to control costs more effectively than we have, but then their laws were not subject to the special-interest lobbying to which the ACA was subjected.

Getting back to my cousin, who lives in The Hague. He is very happy with the medical services he receives but was not happy with his oncologist. He had no trouble finding a leading oncologist in Utrecht (about 25 miles from his house), who now treats him.

Donald Trump and the Republicans have promised to repeal the ACA and replace it with “something better.” It appears that they would do well to consider the Dutch approach.

Jim de Bree is a Valencia resident.

The Free Library analysis of the Dutch health-care system:

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  • Brian Baker

    Jim, I disagree with you on a very fundamental level.

    I think the primary reason our healthcare costs are spiraling is because of public policies that prevent effective cost control. The inability to sell insurance across state lines, limiting competition. The protracted FDA drug approval process. The need to practice “preventive medicine” because of out-of-control litigation and malpractice lawsuits. If those issues are properly addressed we can tame that tiger.

    All you have to do is look around at areas of medical practice that don’t fall under the over-regulated umbrella: veterinary practice; cosmetic surgery; optometry; dentistry. Things like that. Because they’re all areas where there’s lively competition and little government interference, costs are kept in check.

    We also have to get away from the idea that everyone is “entitled” to every level of medicine no matter what. Why is that true? People are entitled to food, too, but that doesn’t mean they get to enjoy filet mignon or lobster every night.

    You wrote: “Premiums of the unemployed and children are subsidized by the government.”

    Why should MY tax dollars go to pay someone else’s medical premiums? So, no. I’m dead set against socialized medicine of any kind. Remove the barriers to free market competition, shut down the malpractice lottery, speed up drug approvals, and let’s see what happens.

  • Brian Baker

    Jim, you wrote: “The medical services you cite (e.g., veterinary practice; cosmetic surgery; optometry; dentistry) are not essential services which is why they are not covered by insurance.”
    Which is irrelevant to the point I’m making, which is that those services that AREN’T regulated by the government don’t see the rapid and out-of-control escalation of cost.

  • Ron Bischof

    “From an economic perspective, health care is a dysfunctional industry.”

    Agreed, although I’d take care to avoid conflating health care with health insurance. And yes, I understand that health insurance makes if far more likely a consumer will receive quality health care.

    Is more government regulation the answer? Recollect that employer provided health insurance was introduced as an employee benefit to circumvent compensation limits imposed by wage and price controls during WWII.

    “Since the ACA’s passage, health care costs have increased faster than wages. The U.S. continues to be the global high-cost-provider of health care, and health care comprised 17.5 percent of our economy in 2015.”

    Was this not also the case prior to the passage of PPACA, Jim?

    To my mind, the objective of the repeal/replacement of Obamacare should focus on choice, competition, availability and cost. More government regulation has a high probability of increasing dysfunction.

    • Brian Baker

      Perfect. I absolutely agree.

  • E_woud

    “The costs of treating a person are typically beyond what that person can afford. Thus, we need to find a way to equitably spread those costs across society”. So as has been said, this is the core principle of insurance, which is not a socialist principle at all. I believe that at this point even Paul Ryan understands this.

    In terms of the argument that tax money should not go towards somebody else’s premiums you can make the following point: this is actually an investment because most efficiency is sacrificed due to emergency department treatments for preventable disease.

    One reason that is suggested for increasing healthcare costs in the US is the lack of a properly functioning layer that streamlines primary care and specialist care. Although it is notable that a country like Belgium (next to the Netherlands) does not have this limitation, and still has a lower healthcare cost per capita (which may of course be detrimental to some other quality indicators.)

    Obamacare is designed like the Dutch system, but does lack some regulatory protections. For example, research has found that “Higher prescription drug spending in the United States does not disproportionately privilege domestic innovation, and many countries with drug price regulation were significant contributors to pharmaceutical innovation.”

    If you make the choice that you want to treat as much as people possible with the highest efficiency, then the unregulated free market will not cause this. The reason is that a traditional insurance scheme does not cover pre-existing conditions. Of course you cannot insure a broken car, then demand to have it fixed. Then if you accept pre-existing conditions, you should go all the way to make it work.

    A Dutch M.D.

    • Ron Bischof

      Socialized medicine advocates argue their case from angles both moral and practical. Their moral case, that civilized societies take care of their weak and needy, suffers from two major flaws: it conflates “society,” i.e. you and me and that which we do voluntarily, with government; and it ignores the immorality of forcibly taking from some to give to others. When faced with these challenges, they often change tracks, hopping to a practical case: that society is going to pay for the health care of the uninsured anyway, so “we” are better off if government is managing everything from the outset.

      The concept detailed above is called “bootstrapping” and is an error in logic.

      – An American Citizen and Classical Liberal

      • E_woud

        Thank you for that read. I don’t think that the bootstrapping analogy is very helpful, nor authorative. I know it mainly as a statistical method to assess generalization of an estimate.

        As your reference states the government can perfectly set contractual requirements with income-tailored offers. Also gasoline or unhealthy foods or substances can be taxed. You can still buy anything outside the Health Insurance Marketplace, this is your right. However, the government will ensure that you are insured, because otherwise you are a liability that may cause enormous costs and potential harm. This can be warranted under the goals of the criminal justice system. This is all not very significant in comparison to the 24% of the budget already spent on welfare. I feel that your ideological conflict is with taxation, not with healthcare. I don’t want to argue so far in this direction, except that this is the starting point where government and society converge. In this scheme you can place healthcare as a societal service, together with infrastructure and the protection against hostile nations and groups; all collectively enjoyed benefits.

        To that I would also say that pro life
        legislation seems to be the worst example of ‘forcible interjection into our lives’, so I assume we can agree at least to that?

        • Ron Bischof

          On the contrary, the essay link I posted directly addresses this segment of your original comment:

          “In terms of the argument that tax money should not go towards somebody else’s premiums you can make the following point: this is actually an investment because most efficiency is sacrificed due to emergency department treatments for preventable disease.”

          I’m a bit surprised you missed the salient point addressing this, i.e., the mandate of treating the uninsured at an ER bootstraps the Federal government requirement for socializing medical costs to avoid the expense government mandated in the first instance.

          My objection isn’t with taxation, rather it is with an involuntary contract mandated by an entity that lacks the Constitutional authority to do so. In the U.S. system, forcing a citizen to engage in commerce for the purposes of the Federal government subsequently regulating it is absurd on its face.

          The services you reference are appropriately addressed at the U.S. state and local level. This would align with other services mutually agreed upon such as policing and fire protection services.

          Regarding conflation of society with government, I recommend Bastiat to clarify the delineation.

          • E_woud

            I see, in an attempt to understand a different language, culture and political system I had not considered the state level. However, I don’t really grasp how state legislation is preferable as it creates heterogeneity, discontinuity, administrative burden and effectively more government. Clearly defense spending cannot be organized on the state level. What is ‘mutually agreed upon’ really?

            As a classical liberal I understand your resentment of a involuntary contract. How would you classify this when healthcare was entirely incorporated in the federal budget? The government would buy healthcare that is subject to free market competition, no problems there right?

            Ultimately the case will have to be made holistically (from angles both moral and practical). What else is there?

          • Ron Bischof

            In the USA, providing for the common defense is a Constitutionally enumerated Federal power and shouldn’t be construed as a “service”, as are the local examples of fire and police protection I provided.

            The city I reside in contracts for those services from Los Angeles County. But we’d be free to create our own within the municipality.

            Constitutionally, that wouldn’t be an option with national defense.

            Imposing a single standard on a nation as large and diverse as the USA is bound to limit choice and liberty. That’s why Obamacare is failing and being repealed/replaced.

            States are best suited to experiment and devise solutions that best fit their populations.

            The help you with this concept, would you desire bureaucrats in Brussels to impose healthcare standards for all members of the EU?

            Also, take care not to conflate healthcare with it’s financing. They are not the same.

          • E_woud

            Of course, healthcare will always be there. Otherwise I will be out of a Job 😉 I was considering the EU parallel, but I don’t think the comparison is useful considering the 2000 years worth of diversity, e.g., you can already find 5 languages spoken in 1 country. EU does put stringent financial requirements to EU members, the requirement for universal healthcare may ultimately be one. I think this is something that EU citizens are proud of and consider an important indicator of the prosperity of a nation.

            I follow the news on ACA and I can’t say it has failed. I think the repeal process is in such a hurry because nobody really belies ‘it will collapse’. States that executed the Medicaid expansion are in a tough spot, because the people love it. The combination of huge income-inequality and democracy makes this outcome entirely plausible. Maybe not now, but surely another time. The necessity for an endless stream of misinformation to downplay Obamacare is already striking. Let’s see what happens. Thanks for discussing!

          • Ron Bischof

            Speaking from the perspective of my European ancestry and American history, a lot of that 2,000 years of diversity and language emigrated to the USA. And we’re still a top destination for legal immigration. 😉

            The Dutch are in heart and history free traders. It will be interesting how they respond to further mandates from Brussels. See: UK

            By the way, I have professional background in the insurance industry and my wife is in the medical field. Obamacare is actuarily unsound and is absolutely experiencing failure of state exchanges and insurer withdrawal from markets.

            Cheers and thanks for the discussion as well.

          • E_woud

            You are quite right, I will be interested to see that! The USA intrigue me a lot, especially the ability to attract international talent in science. Unfortunately friends with PhD positions in the USA were and are again facing trouble in light of recent events. Then I shall sincerely reflect on the points you put forward, take care!