Monday, March 17, 2014

We should demand that our Congresspeople act like adults!

I was just listening to David Wessel, author of Red Ink: Inside the High-Stakes Politics of the Federal Budget.

He pointed out that a large portion of the U.S. federal budget goes to health care. The Congress has been expanding coverage of health care for a long time -- Medicare, Medicaid, drug coverage, the Affordable Care Act.

The United States has a historically unique system of financing health care costs, since a large portion is financed by health insurance paid for or at least subsidized by employers. As is usually the case, providers tend to decide how much health service a patient needs, and to charge for each service. Employers see the insurance costs as part of the cost of doing business (and do not pay taxes on those costs). Employees do not pay taxes on the employer subsidy for their health insurance. Thus the government subsidizes expensive health insurance.

As people get older, they have more chronic illness, and use more health services. The average age of the population is increasing, and the number of people qualifying for Medicare is increasing rapidly. Other government programs also tend to increase the demand for health services.

The supply of health service professionals is limited as the number of medical and nursing schools is kept low, and as the construction of medical facilities is limited.

If demand increases and supply does not increase, and there is no rationing of care, the cost of services goes up. Other countries deal with the problem by having a single payer health care system which limits the rate of increase of cost of service.

Of course, as medical technology advances, new services become possible, adding to the demand for service. Often the new technology is expensive, so the increase in cost comes both from the intrinsic costs of the new technology and the fundamental economics of supply and demand.

Now comes the weird part!

The costs of health services are increasingly shifted to the government.

The Congress refuses to increase taxes to pay the increased costs to the government of health services.

The Congress refuses to give the government price control authority to limit inflation of health care costs.

So health care costs are being funded by borrowing, increasingly from abroad, and are squeezing every other element of the federal budget.

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