Are Republican Attempts to Thwart Health Care Reform Misguided?

This November 3rd, 2010 New York Times editorial written by former budget director for Obama, Peter Orszag, thinks so.  His premise is based on public comments from key Republican leaders, who vow to change or diminish the effects of certain provisions of health care reform.  There is certainly a divide between liberals, who are concerned with extending coverage to more Americans, and conservatives, who are more interested in maintaining quality and lowering cost.

While Orszag asserts that Republicans are ironically focusing on initiatives aimed at lowering health care costs, it should be pointed out that there are other cost-saving measures that they favor implementing.  Orszag does infer on one of those measures when he talks about malpractice reform.  Republicans believe that premium costs are rising because doctors must purchase expensive malpractice insurance and engage in defensive medical practices that drive up costs.  They also want to allow people to purchase insurance across state lines with the thinking that more choices for consumers will drive overall prices down.

However, Orszag does bring up potentially valid points on health care reform measures that should not be blocked.  For instance, hospitals will see their reimbursement rates fall if patients have to be readmitted, so this will create an incentive to make the correct diagnosis and prescriptive service on the initial visit.  In theory, that would lower overall medical costs.  He also mentions Medicare payment cuts to providers, though it should be noted that it is not a certainty that Congress will continue to agree to those cuts.  This is because providers can simply not accept Medicare patients, so they can use that threat in order to prevent those cuts from occurring.

One other part of the bill that I am sure that will try to be reversed is the health care mandate.  The health care mandate means all adults must purchase health care or risk paying a penalty.  We actually have until 2014 before any penalties will be assessed, but there are some who believe that this is unconstitutional.  However, this will be an effective way to lower health care costs because private insurance companies will see their pool insurance recipients rise as a result.  By receiving more premiums, insurance companies will be able to lower premiums because they no longer face the problem of adverse selection.  Adverse selection refers to high-risk individuals (older individuals) will purchase health insurance whereas low-risk individuals (young people) do not.  This is a problem for insurers because the payout for health care costs are greater. 

Administrating health care through markets is a challenging issue due to the concept of scarcity.  We learn in economics that the more scarce a resource is then the cost of that resource will rise.  In America, our population is aging where we will soon have more retirees than we will have workers.  Retirees are more likely to use health care services than younger workers, so that is one of the main reasons why many expect health care costs to rise.  Currently, government has tried using a series of price controls to keep prices down, but that leads to complex distortions to the market place that can ultimately lead to shortages.