With Healthcare for All? Part I

President Obama hopes to succeed where President Clinton failed: securing universal healthcare benefits for all Americans. For most Americans without a basic understanding of basic economics, the lure of universal healthcare is overwhelming. The public is flooded with heartbreaking stories where Americans cannot afford health treatment or medical bills put so-called "working Americans" in massive debt (the Obama administration is especially empathetic about the latter). Now, don't get me wrong; my heart goes out to all hard-working Americans who find it hard to make ends meet when healthcare becomes expensive. But we must understand that the world is not perfect. Unfortunately no government has the power to create a utopia and thus we must always settle for the best possible outcome, which is never the perfect one. We must always ask ourselves what are the hidden consequences of our actions and will it lead to a positive gain or a loss? Few Americans are capable of weighing the various consequences because basic economic knowledge precludes them. Below is a list of reasons why socialized healthcare does not lead to a positive gain.

1. Government can reduce the price of something but never its cost. Part of Obama's pledge is to make healthcare affordable for the average American. Unfortunately, government cannot wave a magic wand and reduce the cost of anything. True government can force healthcare providers to sell their services for a limited amount but this does not mean that the costs required to provide those services will decrease in the slightest. This means that health care companies will start to lose money when a price ceiling is placed on a good or service.

2. Price Gouging is Impossible "But!" the average American will cry, "who cares if the health care companies revenues are less? Aren't they all a bunch of greedy price gougers anyway?" Yet the health care providers are not capable of price gouging. Why? Because health care companies do not set prices. What!? Yes that is right, producers do not set prices. Prices result in the interactions between buyers and sellers. Publilius Syrus once said: "Everything is worth what its purchaser will pay for it." The price of something is maximum price a seller will sell his goods or services considering the minimum amount the buyer is willing to pay for them. A seller may put the price tag for his goods or services extremely high, but all this will do is cause customers to stop buying those goods and services. Patients will choose other health care providers who do set their prices so high and thus the price-gouging health care provider will lose customers and money. Companies have an incentive to sell for the least amount possible rather than the maximum amount.

3. It's about capital. Hight profits are not a bad thing either. People often think its scandalous when companies make huge profits, especially the health care industry which is in the business of people's health. Yet what few people realize is that the profits that businesses make are not horded in a vault somewhere, where the CEO can mimic Scrooge McDuck and go swimming in a sea of money. Few healthcare companies are privately owned, which means that essentially the company is owned by the public and the high profits stay within the company and not in an owner's wallet. Most of the high-ups in large corporation are salaried so high profits do not mean that their personal incomes will increase. Most of the time the CEO is hired and paid by a board of executives so price-gouging by no means will make him any richer. Instead all those profits, which is called capital, are re-invested back into the company to produce a better business, whether by improving the quality of the good or service or hiring better workers. Thus when you restrict the amount of revenue a health care company receives, you are reducing its ability to improve. That meants less money is spent on cancer research, workers won't receive raises, coverage isn't expanded, etc. Socialized healthcare, by restricting the amount of profits, will stagnate the quality of healthcare.

4. It's also about incentives. Socialized healthcare also reduces incentives, both by healthcare providers and American citizens. First, when health care is "free" an artificially high demand is generated. If McDonalds started to hand out free cheeseburgers, imagine how many people would come to McDonalnds to buy cheeseburgers! Most likely the line for burgers would be out the door and around the corner. On the other hand, when cheeseburgers are sold for the regular amount there is no line out the door and around the corner. The reason is that the price of a burger means that only those who really want a cheeseburger will come into McDonalds to get one. When they are free anyone who passes buy will come in and get one and eventually demand will be so high that McDonalds will run out of burgers! The long lines at the registers also means that those who really wanted the cheesburgers, say a kid and his dad who just finished up a soccer game, will have to wait in the same long lines with all those people who may not really want a cheeseburger all that much. The same is true with universal, "free" healthcare. Once healthcare is cheap for anyone, people will start to visit the doctor more than they did when they had to pay at the very least a co-pay. When healthcare actually cost a person for using it, they are more likely to consider whether or not they really need medical attention. It will also means that doctor's offices and hospitals will have large lines as more people use healthcare now that it is free or very cheap than when it cost money. People who truly need medical attention will have to wait in very long lines along with those who show up with the common cold. As demand for healthcare increases it will also mean that the cost of health care (though not the price) will increase and the quality of healthcare will decrease as a company's profits decrease. Workers wage's won't increase and so talented workers will go where they will be paid better. This could create a shortage of doctors and nurses if their wages do not rise with the rest of the workforce. This means less doctors will go to medical school and less nurses will go to nursing school. In this way just as the demand for these jobs increases, their supply decreases because the health care companies can't pay them enough. The would-be doctor will become a lawyer or an engineer instead. When this happens, our health care system's quality will decrease dramatically.

Part II will be up tomorrow.