Sunday, September 20, 2009

The 307,471,666 Payer System: The Fallacy of the Single Payer system

The government proposes that the best way to combat rising costs and the rising rates of uninsured in the healthcare system is to use a single payer system. This means that the government will be the sole supplier of healthcare to the masses. Now this alone can cause one's stomach to turn for the implications of a government run healthcare system are anything short of good (that would mean, bad, horrible, disastrous, hell on earth), But what strikes me as odd is the fact that the name alone, not to mention the policies, is a flat out lie.

Healthcare costs in America used to be reasonable, and in many ways they still are—people pay substantial sums of money yet get the best care in the world. If you expect Cadillac like care, expect to pay Cadillac like prices. But over the last half century, Americans and those around the world, have seen healthcare costs rise substantially. Now, great things have come from this rise in cost. There has also been a huge rise in quality. If one were to compare the rise in costs to the rise in quality he/she would see that the rise in quality far outweighs the rise in cost. It wasn't that long ago that people were dying every day from diseases that are now not even considered a threat.

  • In 1909, Paul Ehrlich in a pursuit to cure sleeping sickness, found the cure to a deadly disease known as syphilis.

  • In 1922, two men, Canadian surgeon Frederick Banting and his assistant Charles Best, discovered insulin which made diabetes treatable.

  • In 1928, Alexander Fleming discovered Penicillin which is responsible for saving millions of lives from what are today, minor infections.

  • In 1954, the first successful Kidney transplant was conducted between identical twins and with addition of advanced immunosuppressants, such as cyclosporine, in the 1980's transplants have become routine surgery, instead of the thing of myths. (

    • In 1986 alone, for example, nearly 9,000 kidney transplants were performed in the United States, with a greater than 85 percent survival rate for the first year.” (

These new treatments did not just spring up out of mid air, they took time, money, and ingenuity to create. 30 years ago almost any diagnosis of cancer was a death sentence, nowadays most people have a fighting chance and many survive. Back in the early 1900's Polio was a deadly disease that wreaked havoc on the population, even bringing down a US president. Now polio is a relic of times past.

These advancements in science and medicine have not only prolonged the average life span of everyone, rich and poor, but it has elevated the standard of living for all.

  • More than 4/5ths of Americans have central heating and air in their house in the 1990's as opposed to 1/3rd in 1970.

  • Only 38% of households owned a color TV in 1970, but by the 1990's 98% of American households had at least one.

  • In 1950, the male median retirement age was 66.9 years, while the life expectancy for males was 65.5 years. This equals no years of retirement on average. In 2005, the male median retirement age was 61.7 yeas with a life expectancy of 75.2 years. That is an average of 13.5 years in retirement.(Economist Thomas Sowell)

    • Not only are people working for less time, and retiring for longer periods, but they are wealthier and healthier throughout the process.

Thanks to the capitalist system and free enterprise, Americans have enjoyed the largest, wealthiest and healthiest middle class ever in recorded history, and our medical advancements have played no small part in that.

Now onto the fallacy of the single payer system. Back when most people did not have health insurance they had to pay for all healthcare out of pocket (yes, healthcare did exist without insurance), and it was cheaper and more obtainable by most. The reason for this is because when someone has to pay out of pocket, full price, they are a lot more careful with their money than if they are paying only some, or using someone else's money. Consumers are more likely to shop around and find the best bang for their buck (price). The downfall comes when a third party steps in. Price and cost are closely related. Price reflects cost, but price is subject to change via fiat, costs are not.

If I own a lemonade stand and it costs me 10 cents to make a glass of lemonade I can sell it for 10 cents plus 1 cent and turn a profit—albeit a very small one, certainly not enough to survive off, and definitely not enough to prosper from. If I charge more, than I earn more and that is how businesses are able to afford hiring more people and paying better wages, thus increasing the standard of living for everyone. But if I charge 2 dollars for my glass of lemonade and the kid a block down charges 50 cents, then the consumer, using his/her own money, will go to the kid down the block. I will be forced to lower my price or go out of business. The price is set based on what a consumer is willing to pay, and the amount and quality of competition (if the kid down the street made bad lemonade then I could still charge 2 dollars for mine and have customers i.e. Starbucks).

Now even though the price has changed for this product, the cost has remained the same, 10 cents, and that cost is based off of the price of my supplies such as lemons, sugar, water, and other various items, and the cost of those is tied to the price of their supplies, so that at every step a consumer has to make a decision on what is the best quality product for the least amount of money.

Now if the kid down the street buys great lemons for a price that still keeps his costs at 10 cents a glass, then he can charge his lower price and take my customers. But, if I am able to find comparable quality lemons for cheaper I can lower my overall costs so that a glass of lemonade only costs me 8 cents to make. Now I can undercut the kid down the street and still make the same amount of profit.

This is how the market works. Good stuff stays, bad stuff dies, and competition breeds better quality and lower prices. Now If I throw in a third party to this system, the market becomes skewed.

Imagine the same setting as before, but instead of the customer paying the full price of the lemonade, he only has to pay for a tenth of it. If the consumer only has to pay a tenth of the price then he/she is less concerned about the price. In fact I would say that they are 1/10th as concerned. Meaning the price can rise 10 times higher before they are discouraged from buying the lemonade.

Since this third party has come in and distorted the buyer's view of the price he/she is less likely to discriminate against pricier producers (even though the costs have not changed, the price given to the consumer has been greatly reduced). Once producers realize they can make more money off of the same product without raising the cost to themselves they will, it is essentially free money.

So jumping back to the healthcare issue. When people did not have subsidized healthcare, whether it be from insurance companies or government programs, they were very careful in how they spent their money on that service, and healthcare providers were very careful to not raise the price beyond the limit that most people were willing to pay for their service. The market worked and was stable. Once subsidized insurance entered the market, the price of healthcare soared, for consumers who had insurance were willing to pay more (even though they still paid a small amount out of pocket, the rest was covered by the third party). The result was that those who didn't have insurance, which is a relatively small amount 3-7% of the total population had to pay the same price that was being charged to the third parties. This price, was now severely inflated, for the majority of the market was covered by insurance, and was able to pay (or didn't care about paying) the higher prices, even though many costs stayed the same. The true fallacy comes in when we recognize the function of a third party that allows this to happen.

In a third party system for a service that is not needed constantly by everyone involved (i.e. Healthcare) everyone pays a little all the time but only a small percentage are taking out at any given time. Thus, the insurance company has a hugh surplus of funds from which to pull—not much unlike a ponzi scheme. Each person under the third party system has the supposed buying power of the aggregate, or whole, at any given time. So, the healthcare providers can charge much higher fees and prices for the same service that if in an undistorted market would cost mere pennies on the dollar. Add on top of that the added cost of the third party agent itself and you have an even bigger increase in price.

Insurance companies and government alike have operating costs. They need to pay their employees and cover the overhead costs such as paper, internet, and other items that are necessary to function. So when you pay your monthly premiums to your insurance company you are not only paying for the healthcare service but also the service of the insurer themselves. This could cost anywhere from a small fraction of your premium to up to half. So a portion of your premium is actually going towards nothing in terms of you and your health. Government is the same way, except, government has less of an incentive to lower the cost of its own operating costs since it has a seemingly endless supply of money, from people who can't choose whether or not they want their service (aka – A Monopoly).

Is it little wonder that medical costs for the uninsured are becoming astronomical? They are a very small portion of the population, and some are even very wealthy, but when compared to the sum total of all the insured people's wealth and their combined buying power, even Bill Gates looks like Oliver Twist.

It seems that the problem here isn't that too few people have health insurance, it's that anyone has it at all. And with the prospect of a government run insurance plan, the aggregate of those paying in the distorted market mindset will grow even greater, and costs will not fall, not stay the same, but rise even higher, making it near impossible for anyone who the government denies for care to be able to pay for it themselves.

The single payer solution is really the 307,471,666 payer solution. Although only 136 million filed taxes in 2006 (, the government, unlike private businesses, can and almost always runs a deficit. So even those too young to pay taxes yet will pay for this eventually. Even extrapolating that a little further, the amount of people that will have to pay is really endless since there is no cap on reproduction (yet). So the true number is infinite.

Everyone will pay a little sounds good, but really the price does not go down, it's just been spread out over a large number of people. The price will continue to rise and the government will go more and more into debt. The result will be raising taxes, and trust me the rich will not put up with being the scapegoat forever. The country will eventually and inevitably go broke. And as bad as that sounds just imagine what will happen to you when you are denied care by the government, which they will do to plenty of people who don't obey their rules—smokers, obese, or just those that are too old or sick to justify the extra expense—and that cost which is being covered by millions (and is potentially infinite) at only a fraction of a percent a piece falls on you and your family at 100% of the true price, the undistorted price. The cost of that is far greater than any value we complain about today.

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