One of the big drivers of health care costs, we are told, is the extraordinary effort the system puts into extending the lives of people with late-term cancers and other terminal illnesses. Look around and you will find plenty of stories about this or that person receiving a million dollars or more in health care in order to have his life extended by a few months. And, yes, these extraordinary outlays do contribute to higher premiums – the money does have to come from somewhere.
Health care is, in economic terms, a scarce resource. As such, there will inevitably be a mechanism that rations it. Scarce resources in a free market are rationed by the laws of supply and demand and the information signal that links the two i.e. price. It’s a very easy mechanism to see in action with certain products, like fresh produce. It’s a bit harder to observe when the products are more elaborate, but it’s still there. But, when government gets involved, the free market mechanism stops working properly, and rationing must occur via a different mechanism. What we’ve seen in nations with socialized medicine is that the expensive stuff tends to get rationed by time i.e. it takes longer to get certain services once it’s recognized that they’re needed or wanted.
What happens next is what leads people’s thoughts astray. Waiting times or other perceived “inefficiencies,” things that are normally managed and equilibrated by market forces, inspire consumers to squawk. Without a free market available for suppliers to quickly respond to consumer wants, the squawking goes unresolved long enough for politicians to notice. And, when voters squawk, politicians see opportunity. They declare the state of things to be “unacceptable,” failing to recognize the irony that their previous meddlings helped bring forth that state of things. They declare that something must be done, and they do it. Whether that something actually fixes things isn’t their concern, because they are rewarded by voters for acting rather than accomplishing.
Of course, just as you cannot dam a river forever (water will always find its way downhill), you cannot make market forces disappear. The rationing mechanism will manifest itself in some other fashion. But now, with market forces disabled by the skewing effects of government intervention, the passive self-correction that is the hallmark of the free market doesn’t occur or bring things to an equilibrium that satisfies both consumers and producers sufficiently in the aggregate. Intervention destabilizes, prompting calls for further intervention from those who don’t recognize the what and the why.
The dialogue changes, and people grow accustomed to the false notion that a particular good or service isn’t properly served by market forces. As the quality and accessibility of that good or service deteriorates in the eyes of the consumers and producers, the noise level increases, and those who insist that government involvement is the solution rather than the problem cast about for “culprits” to take the blame.
Enter “end-of-life” costs as one of the bad guys. We hear that health insurance is so expensive because a small fraction of consumers receive a grossly disproportionate percentage of benefits. This, as a statement of fact, is true. But, it is a basic truism of insurance in general. If your house never catches fire, never suffers from a broken washing machine hose, never gets hailed on, etc, you will see zero “benefit” from the homeowner’s insurance premiums you’ve paid over the years. But, that’s not why you paid them. That’s not the product you received in exchange for those premiums.
The product received from insurance is not the service provided when events occur that trigger insurance payouts. The product is the reduction of risk and uncertainty that the insurance provides. Premiums are not investments, there is no expected return in return for a years-long stream of payments. If one manages to go through a long life without a major illness and die peacefully in one’s sleep, then the premiums paid for insurance over the decades produced no return. If, on the other hand, one does end up with some form of cancer or other disease, then the premiums paid produce a benefit. The patient is entitled to that benefit, he has purchased that benefit from a supplier of goods and services (i.e. the insurer). Third parties have no standing to challenge that benefit or declare that it is undeserved or that it burdens the not-sick unfairly, because the patient and insurer entered into a mutually voluntary agreement. Jane Q doesn’t get to complain that her premiums are being disproportionately used to extend the life of John Q by a few months.
Here, though, is where statists and even some pseudo-small-government folks will complain that the system requires the poor and uninsured be cared for. They insist that society has an obligation to tend to the needs of the indigent sick. And, in so insisting, they then claim the right to have a say in the relationship between John Q and his insurer when it comes to end-of-life care.
Justice Anthony Kennedy asked “Can you create commerce in order to regulate it?” This is a question that goes to the heart of health care, health insurance and statism in general. If government chooses to intervene in an economic relationship without the consent of the other actors, does that choice now empower government to set the terms of that economic relationship? Are the people who are forced to live and transact under government framework now under some moral obligation to that government?
If you decide to buy a box of pencils from Bill, and John at no request from either of you comes along and says “In order to protect the pencil users of the nation from shortages and price fluctuations, and because there are some who either cannot afford pencils or choose not to buy them, I’m going to decide the quantity and specifications of the pencils Bill is allowed to sell to you. And, because I have done so, you are obligated to use those pencils in a fashion that I dictate to you, and are also obligated to only use as many pencils as I decide you shall,” would you meekly agree? Would you then tell everyone else that they, too, are obligated to obey John’s diktats? Or would you tell John to get his nose out of your business?
Of course, health care and health insurance are not pencils. Many will argue that a civilized society has an obligation to take care of its poor, its weak, and its less capable. Many of these will then falsely conflate society with government and insist that government take from those who they believe can “afford” to have some of what they earned taken from them in order to help those they deem in need of help. It’s a cheap and reprehensible dodge, theft in the name of charity and caring, because it allows them to claim they are doing good without having to voluntarily reach into their own pockets. Must one concede that the government has the moral authority to intervene should someone face extraordinarily high end-of-life health care costs simply because government has intervened in the economic relationship between the purchaser and the seller of health insurance? Can Big Government morally and legitimately give itself a say in how much treatment you receive, simply because it has snaked its tentacles into the system?
Suppose you own an old house. It’s not particularly energy efficient, the mechanicals are obsolete, but it has fantastic old woodwork and ornate moldings and is chock-full of expensive antiques. And, most importantly, you have a good insurance policy on it. A big hunk of something falls out of the sky and puts a hole right through the center of the house, causing enormous damage. Your insurer says “well, that’s a bummer, but you’re insured, we’ll fix everything up for you and make good on your losses.” Would you be OK with a government regulator coming along and saying “your house isn’t worth fixing up, the insurer’s out-of-pocket is too high and it’ll affect others’ premiums. So, in the name of the public good, we’re going to condemn your house.” It may very well be the case that this loss is going to tweak the insurer’s bottom line, which means his rates might have to change, but are you, the insured, obligated to forego the repairs on your house because some bureaucrat doesn’t like the math?
When someone declares that the enormous health care costs associated with late-stage diseases are a significant driver of health insurance costs, the correct answer is, “yes, and?” There is nothing in a free society that grants moral authority over voluntary economic transactions to the government. The government has practical authority, obviously, but the mere fact of its involvement does not mean it then has the right to tell a terminally ill patient “you’re costing society too much, I’m going to stop your insurer from paying out more than what I think is reasonable.” If the insurer made a contract with the insured, the contract should be fulfilled, and no do-gooder can with any justness or rectitude demand it not be.
Why they feel they must is rooted in the failure of their past do-gooding. They broke things, but rather than undo the actions they took, they seek to lay the burden for correcting things on those who didn’t ask for their “help” in the first place. There is no moral case, if we have any respect whatsoever for individual liberty, to declare that there should be a government-imposed limit on how much health care one should be allowed to receive. Those who claim otherwise are walking in the footsteps of the worst tyrants of the past century.
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