Health Care: The Three Legged Stool

A few years ago, Arnold Kling, an economics professor at George Mason University, presented an interesting description of the type of health care system that Congress is planning to impose on all Americans. With Medicare’s unfunded liabilities in the multiple tens of trillions of dollars, it is like the Titanic sailing full speed ahead with icebergs all around. It is ultimately going to sink. There is no avoiding it on the current path. The proposed health system will add many trillions more in unfunded liabilities. It is the equivalent of adding more passengers to the Titanic and more icebergs to the freezing water.

The utopian vision underlying the plan is a world where everybody can have everything without paying the price. Dr. Kling described an “iron trilemma” in healthcare, but I think that it can be modified and generalized for any type of social program. It is like a three legged stool that needs all three legs to stand. The first leg in the modified version is access. The system must be designed so that nobody is excluded. The second leg is the goods. Participants must be able to get the latest, greatest and best quality stuff available. The third leg is cost. The overall financial burden of the system must be minimized.

It is obvious that you cannot have all three legs at one time. If everybody has access to everything, including the most expensive procedures, goods and services, then the cost will be sky high. If everybody has access and the overall costs are minimized, then, necessarily, expensive goods and services must be cut out, no matter how much some individuals desire them. If, instead, the system provides the expensive goods and services, then in order to keep the overall costs low, some people must be excluded from access to those services. Whichever pair is chosen, the stool must fall over. The three legs, universal access, unlimited consumption and low cost, cannot exist together. The claim that the proposed system will increase the number of people covered without decreasing quality and availability of medical goods and services to each and, at the same time, significantly cut the cost of health care in America is absurd. It is an impossibility. Something has to give.

One of the assumptions is that, under the government plan, waste and fraud will be cut out and greedy profiteers will be reined in. An obvious question comes to mind. If the government is able to root out waste and fraud and greed, why has it not done so with Medicare/Medicaid, the government monetary system, the military, banking, the education system, the bailout fiasco, cash for clunkers, and on and on. Politicians have not done so, and will not in the future, because they benefit greatly from fraud, waste and greed. Saying that government cuts waste and corruption is either a blatant attempt to distort the facts or it is an indication that they are totally out of touch with reality. Either one of those characteristics in our leaders does not bode well for the American people.

The overall cost of the present system is very high because of the interaction of the legs of the trilemma. Employer based insurance and government insurance programs cover a significant portion of the population. There is significant access. Government mandates on insurance plans have forced them to cover a host of very expensive treatments for uninsurable events and diseases. New, expensive treatments are being developed all of the time, which participants, insulated from the true cost, strenuously demand. The participants get the goods. Government’s injection of hundreds of billions of dollars into the health system has caused a rapid inflation in the prices of health services, and has distorted the supply and demand for them. The overall costs, the third leg, must be high.

The central planner’s paradigm is the fundamental error in the present health care discussions, the idea that some smart person can and should design a universal system which will fit every person in the country. In reality, health care is merely a market for goods and services. Nobody plans a market. It is made up of the billions of interactions of the participants as they attempt to achieve what they value the most. Since nobody can know what each individual values most, what sacrifices he or she is willing to make for the things desired, what goals they have for themselves and their families and the assumptions they make about the present and future environment, nobody can make decisions for them better than they can make for themselves. Individuals make tradeoffs every day about what they want and the costs they are willing to incur. The cost tradeoff must be on an individual basis. The aggregated cost of the system is absolutely irrelevant. When people make their own decisions, markets work; they attempt to get the most value for what they give. They try to maximize benefits and minimize costs.

Think about it. Our food supply system is incredibly complex, involving hundreds of millions of people with widely varying tastes and budgets, hundreds of thousands of separate farmers, merchants, traders, and restauranteurs, all with their own objectives and needs, and vastly different geographic areas. No central busy-body plans our meals for us, yet Americans get fed every day at a very reasonable price. The overall cost is low because individuals are responsible for their own expenses and decisions. The same could happen with health care if all of the government induced distortions were removed, including pretax employer based insurance plans that get dropped when changing employers, mandated coverage for all insurance plans, which eliminates low cost alternatives to consumers, anti-competitive and monopolistic government programs, and the use of hundreds of billions of dollars of tax money, which inflates prices and distorts the true markets beyond recognition.

Many people bring up the fact that there are families who are so poor that they cannot afford health care, and conclude that the health care system should make special provision for them. They are appropriate targets for the charity of individuals and charitable organizations, and through the centuries, those charitable people and organizations have cared for poor, the disabled, the destitute. Charity is most certainly important, and it is right and good for individuals and organizations to help the poor. Health care and charity, however, are vastly different entities. Mixing them confuses the issues of both and hurts the poor more than it helps.

Our three legged stool in health care is tipping over because it cannot possibly stand over time. If health care in America is to stand strong again, we must throw out the stool and the socialist ideals that support it. We must let Americans stand on their own two feet and take individual responsibility to pay for whatever level of health services and/or insurance that they desire and can afford.

6 comments to Health Care: The Three Legged Stool

  • Al

    Your example of food supply highlights how out of touch you are with the poor of this country. Many people eat each day only because of food stamps, welfare, and free school lunches. Many working poor eat very unhealthy food due to budget, education, and availability; this leads to health issues down the road.

    Wake up, my friend. For a society to be great, the population must be secure, educated, and healthy. We do a good job securing our people. We do a mediocre job educating our people. We do an abysmal, unacceptable job keeping our people healthy.

    Healthcare is not an inalienable right for every person, but if we love America and want to see it succeed, we should treat it as such. Private industry cannot solve this problem.

  • Al, you left out the most important part of a great society, which is freedom. I’m not surprised, given that most people who are in favor of universal health care are in favor of reducing individual rights to supposedly increase the overall well being of the society.

    Everyone should be free to make their own choices, and free to live with the consequences of those actions. Socialized medicine not only restricts the freedom of those forced to pay for it with higher taxes, it will lead to the government inserting itself into decisions made by all Americans every day that impact their health.

    I agree that the health care system is broken, but I don’t think adding yet another entitlement program that will be paid for by a small segment of society (that will actually be negatively impacted by the implementation of the program in the short term) is the right answer.

  • Hi Al,

    With all of the trillions of dollars spent on the war on poverty, there is no less poverty, only an incredibly vast bureacracy that thrives on keeping people dependent. Yes, some people need help. That is a very appropriate thing for charitable organizations to do, someting that Americans had done very well with before government decided to “do something.”

    More to the point, however, even with government providing help for the poor, the poor still go to the store and buy their own groceries and cook their own meals. A program to interfere in the food system the way that they interfere in the medical system would bring about a rapid decline in the welfare of all citizens, with the obvious exception of the political elite, those who are “more equal” than others, as George Orwell so eloquently stated.

    The lack of government interference in market doesn’t make them disintegrate. The opposite happens. Markets and people thrive with economic freedom. The standard of living of poor people is much higher in countries with economic freedom than in those that are unfree.

    Education is good, health care is good, food is good, and housing is good. It is very naive, however, to think that people can’t provide these things without government. The more involvement of the government, the less innovation, the higher the prices and the worse off people will be in general.

  • Jamila Popik

    The United States Gov. is killin’ me. Doesn’t everybody see that this health care reform absolutely will raise taxes for everyone and even invent brand new ones for all of us?

  • Scott Robinson MD

    Folks like Al who wish the world were not as it is, and that enough coercion can make it the way he likes it, will just never get Dan’s completely logical and crystal clear explanation. And even if they do really get it secretly, for some reason they just can’t bring themselves to accept the reality.

  • Thanks Scott. I take it that you are a physician. You are among those who realize that the health care legislation has little to do with health and medicine. Its purpose is to extend government control and expand the bureaucratic state.

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