Beware the Hidden Costs

Supporters of government-run medical care frequently point to the “affordability” of this type of system, but such terms are inherently misleading. What pundits really mean by slogans about “bringing down the cost of healthcare” often involve programs or policies that lower the price paid out-of-pocket by the patient. This is not to be confused with the actual lowering of the total cost of medical treatment.

Thomas Sowell explains it best in his recently revised book, Applied Economics (2009 edition):

“Since governments get their resources used for medical care by taking those resources from the general population through taxation, there is no net reduction in the cost of maintaining health or curing sicknesses simply because the money is routed through…government bureaucracies, rather than being paid by patients and doctors.”

In fact, it’s bureaucracy—either a government bureaucracy or a private insurance company bureaucracy—that raises the cost of medical care.

Nevertheless, the popularity of a government-run medical care program remains high. For example, in a recent New York Times poll 72% favored a government administered health insurance plan while only 20% opposed. Sowell attributes this popularity to an expectation by many people for a net benefit. The net benefit that they expect is the “affordability” of a government-financed system. In the same New York Times poll part of this illusionary net benefit is exposed: when asked whether or not they were concerned that a government-run medical care may limit access to their own treatment 68% respondents said that they were very or somewhat concerned. It is important to note the poll’s respondents were only 24% Republican and 69% Democrats or moderates—the latter usually favors a government-run system.

Sowell warns consumers to beware the hidden costs: In order to create the image of affordability “governments impose price controls… to try to keep the costs of medical care from absorbing so much of their budgets as to seriously restrict other government functions…One of the reasons for the political popularity of price controls in general is that part of their costs are concealed… price controls are therefore particularly appealing to those who do not think beyond stage one— which can easily be a majority of voters.”

What are the hidden costs of price controls? According to Sowell (and basic economics), “Artificially lower prices, created by government order rather than supply and demand, encourage more use of goods or services, while discouraging the production of those same goods and services. Increased consumption and reduced production mean a shortage. The consequences are both quantitative and qualitative.”

“Quality declines because the incentives to maintaining quality are lessened by price control. Sellers in general maintain the quality of their products or services for fear of losing customers otherwise. But, when price controls create a situation where the amount demanded is greater than supplied—a shortage—fear of losing customers is no longer an incentive…Nowhere has quality deterioration been more apparent—or more dangerous—than with price controls on medical care,” argues Sowell.

The quality of government-run medical care was exemplified in the 2007 incident in which 90 patients died in southeast England due to infections picked up in a single hospital. However, cleanliness is not the only issue. More significant, is the reduced amount of time that a patient spends with a doctor. “In general,” continues Sowell, “where the doctor is paid per visit, then a series of treatments that might have taken five visits…can now take ten shorter visits—or more. Therefore political leaders can proclaim that price controls have succeeded because cost per visit is now lower than it was in the free market, even though the costs of treating a given illness have not declined and—typically—have risen.”

The indirect quantitative consequences of a shortage include “fewer people enter[ing] medical school after the rewards are reduced,” “lost income while unable to work for medical reasons,” and “other uncounted costs of long waiting times for treatment—notably pain, debilitation, and death while waiting…People can die from conditions that were initially not very serious, but which grow progressively worse while they are on waiting lists to receive medical care,” he contends.

A celebrated example that Sowell mentions involved a British woman whose surgery was postponed four times until her cancer became inoperable. “To call this quality deterioration is, if anything, an understatement,” he concludes.

Most would agree that our medical care system is imperfect and that reforms need to be made, but before we jump into an “affordable” government-run system it is important to beware the hidden costs.

Evan Sumortin is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.