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Who is Responsible for the High Cost of Medicine?

March 15, 2011
by James Holly
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Republicans and Democrats both have it wrong

Let’s summarize what this writer thinks about the current healthcare debate. First, both Republicans and Democrats have it wrong. Republicans blame lawyers and particularly trial lawyers for the escalating cost of healthcare. That is a political judgment, not a rational one. Doctors, who have felt victimized by frivolous lawsuits and who have paid escalating malpractice premiums, were delighted to accept this explanation of healthcare cost because it distracted everyone’s attention from the subtle but dramatic changes which were taking place in how healthcare was being delivered and with how provider and patients responded to one another. Defensive medicine became a popular explanation for healthcare costs; but, was it?

Democrats, wanting to change healthcare, needed a straw man in order to motivate people to support radical change in healthcare. Not wanting to fail as others had, the President chose to demonize the insurance companies. The problem is that while he chose an unpopular and easy target, he chose a target that has little to do directly with the rising cost of healthcare. Republicans, not analytical or thoughtful enough, failed to point this out to the President and to the American people.

To blame insurance companies for increasing healthcare cost is like blaming the police for increasing crime rates. Police can indirectly allow an increase in crime but they do not cause crime or crime rate increases. Insurance companies’ premium rates reflect the rising cost and utilization of healthcare; they did not directly produce the increased cost.

Indirectly, by the nature of their industry, they unwittingly contributed to the cost of care by insulating policy holders from the shock of the true cost of their care. They tried to address this with deductibles, co-pays and prior authorizations, but these steps only made them look greedier and greedier. Managed care was supposed to address the trajectory of healthcare costs but also actually only aggravated the problem. Why? Read on. What was not obvious to the President, the Democrats or the Republicans, is that controlling insurance premium rates will do NOTHING to control the cost of healthcare. In fact, a number of the elements of the healthcare reform bill will only further aggravate the escalating cost of healthcare; ultimately requiring the government to “take over” insurance companies which cannot print money, or spend more than they make as the government can.

Insurance companies did not create entrepreneurship in medicine; Medicare did. Insurance companies did not create expensive technology in medicine; progress did. Insurance company rates do not create the expensive of healthcare; those rates only response to the cost. This author believes that there have been and that there are excesses in the health insurance industry, but the limiting of the growth of insurance premium rates will do absolutely nothing to reduce or control the cost of healthcare. Neither tort reform nor insurance regulations will solve the problem of healthcare cost.

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