Profit in Health Care

President Obama claims that he wants to see choice, competition and cost reductions in any health care reform bill. Of course, choice and competition lead to reductions in cost. If the free market were allowed to work in the health care sector, we would achieve all three of the President’s stated goals.

In the free market, a business will learn that its prices are too high when it sees a loss of customers to lower cost competitors. This holds business accountable without the intervention of the government. Unfortunately, under the system we have today, choice and competition are not allowed so the free market cannot work.

Americans are not allowed to purchase health insurance across state lines (A friend of mine lives in Wisconsin, but works in Illinois so all of his heath care providers are in Chicago. However, he must buy a Wisconsin health insurance policy even though all of the providers who receive the payments on his behalf are in Illinois.) Also, state governments mandate certain coverages in insurance policies sold within their borders. Recently in our office, we purchased insurance for myself and one my employees. We were the only two covered. I am having no more children and my employee was not of child bearing age. We, therefore, had no need for maternity coverage, but we still were forced to buy it. So much for our choice.

President Obama’s plan does nothing to increase either choice or competition and, therefore, does nothing to reduce costs. Competition is not having numerous companies offering the same thing at the same price. What consumers want only emerges through the free market process. It doesn’t emerge through government intervention and mandates. Politicians and bureaucrats cannot predict what consumers want, much less need.

Under the current health care proposals, government officials would define the available health insurance plans. As such, competition would be forbidden. Consumers who what to buy a high deductible policy would be unable to do so. Those who don’t want maternity coverage or fertility coverage would be out of luck.

On top of that, the so called public option would mean the end of private health insurance coverage. The government would be acting as a supplier and the referee. Since only the government has the power to print money, it would easily undercut private insurance carries to the point where none could enter the market. The cost public option would be underwritten by the government’s power to tax and print money.

Mr. Obama claims that the virtue of the public option is that there is no profit motive. Of course that is true by definition with any government plan. However, what the President fails to understand is that profit is what enables competitors to figure out what consumers want. If there is no profit, how will government bureaucrats allocate resources? How will they determine what consumers want? How will they produce a service without wasting resources? The President needs to learn that profit is the key to competition. Unfortunately, having never worked in the private sector, it is unlikely that he will learn the value of running a profitable enterprises. Without it, all that we are left with is the decaying system of our friendly neighbors to the north.

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