Pay for Health Care NOT with Taxes but by Engendering Competition

by Odysseas Papadimitriou on December 4, 2009

TaxesThe latest version of the health care reform bill, sponsored by congressional Democrats, offers a mixture of both productive and counterproductive methods of gaining the necessary revenue to make affordable national health care a possibility. However, by-in-large, the bill ignores the fact that we operate in a free market capitalist society, in which competition exists in order to keep costs down. Instead, the bill proposes a funding solution that will cause a trickle-down effect, with the costs of reform being passed back to the consumer at the end of the day.

The bill does have a few provisions that would encourage competition and thereby drive down costs. For instance, it includes a provision that would allow the government to negotiate prescription drug prices for beneficiaries. However, in large part it targets the medical industry as a funding source for the suggested overhaul, by levying fees and taxes on medical device manufacturers and drug companies, among others.

If pharmaceutical companies are attempting to operate achieving a ten percent profit margin and the federal government expects them to contribute $80 billion to health care reform, why wouldn’t they just raise their prices so as sustain their profits? The belief that companies that provide medical products and services will pay for the very reform that is designed to shrink their profit margins is misguided—the truth is the costs will end up getting transferred back to all of us.

We’ve suggested before a necessary component for achieving and maintaining cost effective health care is increased patient responsibility. If, for instance, we operated in a health care model wherein the government paid a given patient $500 for a given procedure, with the understanding that anything over that amount would be paid out of pocket by the patient, the result would be a competitive market where the least expensive doctor providing the best service would thrive.

But, instead of asking patients to shop around and encouraging competition, leading Democrats are asking the health care industry for the money to pay for its own reform. Unfortunately, there’s no reason why the companies affected wouldn’t pass these new costs back onto patients. Ultimately, the problem with simply levying fees or taxes on the health care industry is that it doesn’t particularly invite competition, and its competition that will end up keeping the costs of national health care manageable in the long run.

Further, by employing the consumer and his/her concerns, Congress and the administration have a real chance to shape a new health care industry that self-regulates its cost structure by way of competition. If we simply leave the health care industry holding the bill for reform, we can rest assured that it will be taxpayers who end up paying once all is said and done.

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