Profits Lower the Cost of Health Care in the Long Run

by | Feb 27, 2007 | Healthcare

Advocates of medical socialism want to reduce the profits of pharmaceutical firms and put health insurance companies out of business completely. But who profits from profits–and exactly who profits when they are destroyed? Critics point to supposedly lower administrative costs of Medicare and Medicaid as compared to those of insurance companies. Note that this claim […]

Advocates of medical socialism want to reduce the profits of pharmaceutical firms and put health insurance companies out of business completely. But who profits from profits–and exactly who profits when they are destroyed?

Critics point to supposedly lower administrative costs of Medicare and Medicaid as compared to those of insurance companies. Note that this claim is always stated as a percentage of higher spending. Medicare administrative cost can be disproportionately low because they do not bother to control expense or even fraud.

Extravagant spending by New York Medicaid has been justified by state legislators on the grounds that every dollar of waste and fraud brings a matching Federal dollar into the state. Such reasoning has been repeated by legislators across the Untied States. That is what passes in government circles for administrative efficiency.

Medicare also pushes administrative expense onto providers by making them contend with 130,000 pages of Medicare regulations. I have seen every page sitting on shelves in a room. No one can understand them. No one can read them. No one can lift them. No provider of health care to Medicare patients can comply with one provision in those 130,000 pages without violating other provisions. Should a physician or hospital miss one of them, the government helpfully imposes financial and criminal penalties–subjecting all health care providers to an expensive bureaucratic nightmare.

Of course, it is precisely because insurance companies need to make a profit that they monitor and control what they pay out. Their only source of funds to pay for services is the premiums paid by their policyholders. Medicare and Medicaid do not need to bother about such things as costs because of an endless source of tax revenue or government debt. That is why so much of the increase in cost that alarms politicians is caused by government health care spending. That is why the government can keep the “administrative cost” of burning money quite low. Who profits from that?

The American pharmaceutical industry has produced a revolution in medical treatment that has greatly improved health and longevity in the United States, with no extra charge to the rest of the world. Sixty billion dollars a year is now spent by the industry on the research and development of new drugs–more than 90% of our new drugs.

Yet the most explicit and outrageous fabrication we hear from industry critics is that most drug research is funded by the government or universities which then just hand the new drugs over to pharmaceutical firms to manufacture and make all the profits. The source of such nonsense is animosity toward free enterprise and all business as such. Businessmen are considered to be “for-profit thieves” who must be exiled from the health care system as unworthy of providing health care, and the financial support of their investors must be denied any return on investment. Better more misery and no new miracle drugs than to allow someone, somewhere to make a profit. This ideology is enormously destructive.

The free market alternative, as demonstrated in the last few years, is competition between insurance companies that bargain for the best prices to attract more policy holders with lower premiums. The drug companies then profit by spreading their development costs across a larger market as more patients have access to their drugs.

But who would replace these greedy businessmen in providing our health care? Evidently there is a class of higher beings who are not only morally superior but vastly more competent administrators. This group includes such role models as politicians, many civil servants, university faculty members, selected journalists and, of course, the heads of public employee service unions. Their profit is political power over our lives. Thomas Jefferson addressed this group in his first inaugural address: “Sometimes it is said that man can not be trusted with the government of himself. Can he then be trusted with the government of others? Or have we found angels in the forms of kings to govern him? Let history answer the question.”

If the baseless assertions about government health care were actually true, why not nationalize all major sectors of the economy so they will also be run like government agencies? How can anyone who looks at the government today–or who noticed the 20th Century as it was going by–claim that government is more efficient than private enterprise? Or that the government has proven its ability to control the cost of anything?

It is precisely because health care is so vitally important to all of us that we must fight to defend profit, individual rights and personal choice as the only proper basis for health care in America.

Richard E. Ralston is Executive Director of Americans for Free Choice in Medicine.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

Related articles

No spam. Unsubscribe anytime.

Pin It on Pinterest