Health Care Essay no.1

I must preface the following by saying health care is not a right guaranteed by the Constitution. It is mandated in subsequent law that no one can be denied emergency health care service based on inability to pay. The problem, as described below, is not that health care providers and insurance companies are collectively trying to gouge customers. Rather, they have a colossal cost burden that has very little to do with providing that service.

Almost everyone accepts as fact that, “Health care is very expensive.” The Bama administration is trying to confuse Americans by not differentiating “health care costs” from “insurance costs” or "cost of doing business", and is saying things like, “Everyone has a right to health care,” which is different from the real argument, “Not all Americans have health insurance,” or, “The industry’s cost of providing quality health care is too high.” Obviously Bama is a source of the political problem, and the source cannot also be the solution.

But it’s true that, insurance aside, health care can be relatively expensive. For example, a hospital will charge a customer (patient) between $2500 and $5000 for an MRI. The average person might think, “Why does that cost so much? They already have the machine, and the doctor was going to be there anyway. I’m just filling a time slot that would otherwise be empty on a machine that would otherwise go unused. They shouldn’t charge me nothin’!”

That person is probably someone who voted for Bama and clearly has no understanding about how the world works.

The real problem is government. Specifically, the progressive taxation of every single input that leads to the customer being able to receive health care service.

Hospitals are private businesses, competing with one another for customers. They are in business to make money, period. If a hospital is not making money it can fail like any other business. Profit is the prime motivator, helping people is the vehicle to profit, and it is not the people’s right to be helped at the hospital’s expense without the hospital expecting a reasonable rate of return on services rendered. Hence, a hospital, like any other business, will charge what the market will bare or at a minimum attempt to realize total revenues greater than total costs.

A hospital cannot sustain operations by taking less money in than the sum of its costs. There are many costs, but I’ll focus primarily on those which are necessary or beyond the hospital’s control and are compounded by government taxation.

At the most basic level you have a set of finite resources in raw natural materials and people. You must have a building, and there is a tax on the purchase of construction services. The contractors who build the buildings are taxed on their profits. The contractors must hire workers, and they are taxed on those wages, forcing the contractors to increase pay to provide a competitive wage and keep skilled workers. Contractors must buy machinery to build the building, and they are taxed on the purchase and operation – through consumption of fuel and maintenance – of those vehicles, as well as incur environmental fees and other licenses to perform work, essentially another tax. The building materials must all be purchased, and are taxed. The refinery that created those building materials is taxed on the profits of the sale, and also incurs environmental and handling fees. Those same refineries must also purchase equipment and be taxed on those purchases. The refineries must purchase the raw materials, and are taxed on the purchase, and the mining/foresting/etc. companies which harvest the raw materials are taxed on the profits from that sale, and they must also buy machinery and pay workers – more taxes. It doesn’t end there, because a different set of companies builds all the machinery used throughout the process, which also requires raw materials and manpower to mine/harvest and build – even more taxes. And all along the way there are shipping companies with several more layers of taxes and fees.

So now that all this stuff is lined up to build the hospital the land must be purchased, another taxed transaction, and all of this purchasing requires investment. The bank and/or private investors expect a reasonable return on investment (ROI), which is of course taxed at a very high level since we’re generally talking tens of thousands or even millions of dollars. So the business plan has to account for that when appealing to potential investors. The banks gauge the risk and offer an interest rate, which has as its base the interest rate banks – and the Fed – charge each other when lending money. Because only the principle of the loan is backed by existing dollars, the interest has to be created and as a result the value of every dollar is diminished slightly – inflation. So in the long term true cost always increases even when all inputs are stable.

At this point, the hospital has been built, and we’ll assume it has been painted, equipped with working elevators and HVAC and parking and electrical and plumbing and polished floors and nice counter space and toilets and well-thought out signage - all inputs which are taxed to the same extent as described above. Then the hospital must buy curtains and tables and chairs and computers and MRI machines and sonic lasers and stethoscopes and centrifuges and everything else that goes inside a hospital, much of which is specialized equipment that only hospitals use, which causes the cost of those items to go up, because suppliers have a finite market for something like a hospital bed, and all the costs incurred by the supplier are passed on to the customer (hospital). Don’t forget that hospitals are also held to the highest standards for waste disposal and storage of bio hazards and then there’s the potential for outbreak of disease, and they must be audited and must pay regulatory fees (taxes) on a hundred different things.

We finally arrive to the most important thing in a hospital – people! Almost everyone at a hospital works for a wage, which is taxed, so again the hospital needs to account for this when offering a salary to be competitive when trying to attract talent in a highly specialized industry. For doctors and top-level administrators, the level of taxation is very high, and the cost of competitive salaries increases accordingly. All of these people have advanced degrees, which cost a lot of money, and most had to take out loans to finance their education, which goes back to the cost of interest and its inflationary effect. Most of the staff either have college degrees, technical degrees, or are working toward one or the other, so the same situation applies for them. Doctors have the added cost of malpractice insurance, because the courts in this country will award millions of dollars to anyone with a sad story. The hospitals also must carry an inordinate amount of insurance for a number of potential disasters of scale.

Lastly, the day-to-day inputs, such as new syringes, laundry service, food service, snow removal, electricity and water, etc. must all be paid for and are all taxed from the ultimate point of service all the way back to their base component inputs. And don’t forget that hospitals are in competition with one another, and must continuously upgrade technology and build new buildings and hire more doctors and staff, so the process is perpetual!

It’s obvious that in addition to the base cost of everything that goes into building and operating a hospital, there is a heavy burden of taxes, or costs inflicted by the government that are beyond the control of the hospital. There are literally hundreds of points along the way where tax is accrued, cascading and accumulating along the entire process like an avalanche of taxation, all of which is cost that is passed on and on until it ultimately reaches the consumer – you and me!

Every single penny of cost is passed on to the hospital’s customers (patients)! Government tax on every input in the process is ultimately paid by us!! This is why raising taxes on anything always negatively impacts everyone! Again, the source of the problem cannot also be the solution!

Now it’s also true that a hospital will charge someone who does not have insurance less than another person who does for the same procedure. That does not mean the actual cost for that procedure is less than the lesser amount billed to the patient without insurance. What it does mean is that the costs for the uninsured patient who cannot afford to pay are being spread out among the insured patients who can.

Part of the basis for Bara Bama’s cost savings is that once hospitals store records electronically administrative costs will drop substantially. This is a big lie! Administrative costs represent just one almost insignificant cost when we consider all the costs hospitals accrue. Bama is clearly being disingenuous when he claims to be able to lower costs by introducing electronic filing. And I’ve got news for him – most big hospitals already file documents electronically and can access on demand via an Intranet, so there is little to no administrative cost to reduce so long as each hospital can manage data separately.

Furthermore, anyone who has ever been part of a team to implement a new data management system knows what a nightmare it is. There are always cost overruns due to bugs and revisions and unforeseen network or server requirements, etc. Now consider organizing the health records of 300 million Americans into a single national health care database. That’s just about as close to an unworkable solution as can be. You’ll end up with a permanent administrative entity with the sole responsibility of managing all that data. What in our nation’s history gives us any faith that such an endeavor would possibly succeed? All it takes is one intern to hit ‘delete’ instead of ‘copy’ and you’ve got a serious mess. I’d call that a recipe for disaster and a black hole of wasteful spending. Administrative costs using a national system will skyrocket, because in addition to the new national database, individual hospitals will still keep records as backup to protect themselves and their patients from errant government action.

The bottom line:

Federalized health care can only add administrative and bureaucratic layers to the existing structure. Costs can only go up as a result, and the quality of care can only go down!

So here’s a solution:

Reduce the tax burden on industry. All industries. Allow the private sector to remain private and return freedom to free markets. Specialization allows for reduced costs of inputs, but is currently penalized by greater transactional taxation. Remove those barriers and the result will be health care and insurance that it is affordable for everyone. Adding a new federal bureaucracy will only increase the cost of doing everything. The U.S. is in real danger of spiraling into a situation where the weight of government spending will collapse the entire economy. I know the solution is not easy, but it is the only practical solution that can work. Unfortunately, all the wrong people are running the show right now. I’ll be shocked if as a country we are financially solvent in 50 years – we’ve got virtually no chance for an economic turnaround under the current prevailing mindset and our capital will run out, and sooner than anyone realizes.