A day hasn’t gone by in the past two weeks, and likely won’t for several weeks to come, where the President or some other proponent of “health care reform” speaks to constituents about their plan. While the specific arguments for reform that are highlighted may vary from group to group, an argument included in each presentation that by implementing health care reform, health care costs will be reduced.
In economic terms a “cost” is:
Valuation in terms of money of (1) effort, (2) material, (3) resources, (4) time and utilities consumed, (5) risks incurred, and (6) opportunity forgone in production and delivery of a good or service.
in other words, a “cost” is something that goes into making a product or service. By definition, because a “cost” is a component of a product or service, the only entity that can make a determination as to what “costs” to include in a particular product or service is an entity that has control over the production of that product or service.
If you think about it for just a minute, the fact that you can only control costs if you control the production of the particular product or service is common sense. If I want to buy a boat I can negotiate with the seller about the price I will pay for the boat. However, no matter how hard I negotiate, I can’t impact the amount that it cost to produce that boat. If I want to hire an accountant I can negotiate the price I am willing to pay for their service but I can’t impact what that person paid for their education or the opportunity value of their specialized knowledge.
Just as it is true that you must have control over the production of a product or service in order to impact its cost, it is also generally true that the greater control you have over an item the greater ability you have to control the final cost of that item. If you make a component for the boat we discussed earlier you have an ability to impact the cost of the boat by making your component less expensive. However, no matter how large or small the component you make you will never have as much control over the cost of the boat as the company who does the final assembly of the boat.
Again, if we think for a moment, the reason the final assembler of the boat has the greatest amount of control over the cost of the boat is common sense. If one of the component makers adjusts the price of their component to a point where the boat assembler believes the price to be uneconomic, the boat assembler can choose from several options including finding another component maker, developing the ability to make the component themselves or even eliminate the component from the boat. Each of these options has the ability to change the cost of the boat and in each case the assembler has final veto power over which of the options will be chose and its impact on the final cost of the boat.
Along with reducing costs, there is another argument that gets made in an effort to sell the health care reform program; the government won’t get between you and your doctor.
Let’s think about that for a minute.
Earlier we determined that you can’t impact or reduce the price of something unless you have some control over it. We also know that the ability to control the cost of something is relational to the amount of control you have over that something. How is it then that the government will reduce health care costs but not have control over health care?
It’s not possible.
The only way for the government to “bend the curve” on health care costs is to exert control over health care. There is no way for the “reformers” to reduce costs without control. Oh, they may not employ doctors and nurses directly but they don’t have to. The government can control health care by controlling how, how much and for what, health care providers get paid. Worse, with an additional 10% – 15% being added to total expenditures, “bending the curve” will not get the job done. In order to have a meaningful change there will have to be significant reductions in costs. The only way to make significant changes on costs is to have significant control.
Two arguments; reduce costs and not control. The two can’t happen together. Whether it’s specified in the current bill or not, which of the two do you think will give? I have my choice!
