from Fox News:

The Hard Truth Behind Health Care Crisis

Wednesday, March 22, 2006
By Frank Timmins

It is no secret we have problems with the healthcare system in the U.S. The gravity of these problems varies greatly depending upon the perspective from which they are viewed.

By the same token, the proposed solutions vary greatly depending upon the political or philosophical bent of the problem solver. Nonetheless, there are basic truths that must be recognized before there can be meaningful discussion on this issue.

First, it is important to understand that the United States has the world's finest healthcare professionals, technology and facilities. Our problems involve the issues of access and cost. If we understand that access problems are a function of cost, we can reduce our focus to one primary problem: economics of healthcare.

Secondly, it is then necessary to accept the reality that healthcare services are like any other services in a free economy in that they are subject to the laws of supply and demand. If we don't start with this premise, discussing meaningful solutions would be a fruitless endeavor.

Thirdly, we need to understand that "health care" and "health insurance" are not synonymous. Health insurance is a component of health care, but they are not one in the same. (More on this later.)

The United States has built the world's most powerful economy and highest standard of living primarily by allowing market forces to create the best possible products and services for the lowest possible cost. As long as we desire to live longer and healthier lives, we will depend upon the technology and talents of the best and brightest that our system can produce.

As always, the best is more expensive than something less. This is not a contrived notion hatched in the back rooms of greedy rich people trying to get wealthier. Rather, it is a fact of human nature and a natural order of the exchange of goods and services.

Many argue that healthcare is "too important" to be allowed to be subject to market forces. Unfortunately, they miss the point entirely unless their goal is not to produce the best quality for the least cost. Some believe the goal is to control the costs and let the quality of services seek the level of those costs. As we all know, this is called price controls. Those of us who are not students of history can at least trust in the credibility of most respected economists who tell us that price controls are the ultimate contradiction to the supply and demand fundamentals.

As economist Thomas Sowell related in a November 2005 article in Capitalism Magazine, “… prices are signals that relay underlying realities about relative scarcities and relative costs of production. Those underlying realities are not changed in the slightest by price controls.”

Debating the morality of price controls is not productive in solving our health care crisis. The fact is that price controls do not work — not ever — no matter how you dress them up. In fact, the price-control measures the government has already succeeded in implementing are one of the primary causes of the problems we have today in our healthcare system.

For example, current instability in hospital costs is directly related to the one-sided "negotiated" prices paid to hospitals by Medicare and Medicaid. Hospitals that are forced to supply services at Medicare-dictated prices must make up for lost revenue wherever they can.

Guess where those make-up charges surface? They go right down the line from hospital fees to insurance company premiums to employers to your paycheck. Of course, that assumes that you have health insurance, which is an important element of the health care discussion, but one that should not be used interchangeably with "health care" itself.

If one doesn’t have insurance it is probably because it is too expensive as a result of the above referenced conundrum. This is basic math and irrefutable. So how does insurance figure into the equation?

We need to be clear about the fact that health insurance and health care are not one and the same. Health insurance is merely a tool to finance health care.

The one difference between health care and many other goods and services bought and sold in the marketplace is the element of "risk" associated with catastrophic healthcare costs. Although the great majority of Americans never have a catastrophic health care event, no one knows when or if they will. Consequently, people want to be insured in case such an event occurs.

Unfortunately, many of us do use the insurance definition interchangeably with that of health care, which is completely wrong-headed. Of course, most people incur some amount of health care expenses, but most also never experience what we refer to as catastrophic medical expenses. On a case-to-case basis, health insurance should be used successfully to finance and mitigate only larger expenses. The more insurance one buys, the more expensive it is.

It should not be, as many would have us believe, a convenient credit card to be used to pay all of our health care expenses. There is no better example of inefficiency than insurance plans that collect enough premiums to pay for first-dollar benefits, such as routine doctor office visits and inexpensive prescription drugs. This process is similar to buying supermarket insurance in order to pay for family groceries through an insurance plan.

We should understand that the proper use of insurance is to help us defer "risks" that we cannot afford to take ourselves, not as an expensive convenience to defer the personal responsibility of managing our own health care.

So getting comfortable with the basics of the health care problem is the primer to effective discussion of potential solutions. We must start with three simple facts:

(1) Healthcare is a service and not immune to economic rules of supply & demand.

(2) Price controls are not the answer.

(3) Healthcare is not synonymous with insurance.

If we ignore any of these basics in the process of seeking workable solutions, we are doomed to perpetuate and, in all likelihood, exacerbate the problems we seek to solve. As mentioned earlier, access to care is related to the cost of care.

Yet there are some in our society that cannot access care even at the most cost effective price. This doesn't mean that they must be or should be ignored in the solution. Nothing could be further from reality. There are multiple workable solutions for dealing with the problems of the working poor and indigent while remaining true to the three basic truths.

In fact, the only way all Americans can ever have equal access to the best the health care system has to offer is to bring everyone into the same system using these truths as the foundation for reform.

Doubtless, even though ours is the best health care system the world has ever known, we have problems. We need innovative ideas to encourage Americans to take care of their health and purchase their health care wisely. We need incentives in place that promote the most cost-effective use of our health care dollars by paying heed to established economic knowledge and practices.

We also need to be mindful of insurance company regulation that sometimes is too much and other times not enough.

There are solutions to our problems. Those solutions are out there when people understand what health care is really all about and are willing to explore the possibilities armed with the basic truths and an open mind.