IBJOpinion

HICKS: Health care experts make poor economists

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Mike Hicks

In almost every place that two or more Americans gather, health care is debated. Because the bills before Congress are inaccessible, the debate has shifted instead to principles such as the role of government and individual freedoms.

I think this a healthy thing. But for advocates of the bills before Congress, it exposes some tough questions.

Despite what you may hear, we have universal health coverage in the United States through a combination of private insurance, public assistance and regulatory restrictions on hospitals. The structure of this explains some of the growth in health care expenditures, but it is not all of the explanation.

Economists have long known that we spend an increasing share of our income on health care as we become wealthier. This is the textbook definition of a luxury good.

In truth, health care is a fairly simple personal service that is complicated by government rules and institutions (like the American Medical Association). Health care financing—which is part, but not all of the issue at hand—is very complex.

Despite the fundamental simplicity of the health care supply chain, advocacy research on the issues is confusing and often quite bad. I think this is because so many in health care also dabble in economic policy. It is as unwise to go to an economist for surgery as it is to visit a physician about economics, though the immediate results are less unpleasant.

My favorite example is the much-touted “health care costs” of smoking, which are said to run into the hundreds of billions of dollars annually. This is true, of course, but only if you would not otherwise die. Most of us will, and often of something more expensive to treat, such as old age.

The truth is we will spend more, not less, on health care as we become richer—and live to be older. We Americans have been doing both for well over 200 years. But, many folks do not like the way health care dollars are spent. We live in a world of scarcity, where everything is rationed. Free markets, not government commissions, will always be better at it. So, I think households are best suited to make these choices.

This brings us to the final folly of the health care debate—cost.

The bills before Congress are touted by their advocates to actually cut the cost of health care through a combination of regulatory changes and a government insurance option. The Congressional Budget Office and everyone with a lick of common sense disagrees.

The real anger, though, is aimed at the government insurance option. There is good reason for this, because any government insurance option can quickly crowd out all other forms of health-care delivery except for the very, very rich.

I am sure there is much good in the bill and, to be sure, health care insurance rules can use some tweaking. But if you like the government-insurance option, you no doubt think Fannie Mae and Freddie Mac were great for housing markets.•
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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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