The economics of health care

Now that the health care reform bill has been signed, it will face legal challenges in courtrooms. However, the judges in these cases do not possess the authority needed to render a final verdict on health care reform. The success or failure of health care reform ultimately depends upon whether or not it conforms to economic laws.

Americans will be required to have health insurance, and employers will be pressured to provide it. Congress is funding health care through explicit taxes and new mandates that amount to implicit taxation. These explicit and implicit taxes amount to a de-facto single payer. Since health care is headed toward political control, we must ask if this will result in a more efficient or more just outcome.

Health care reform will be a permanent work in progress. The fact that health care reform will be revised casts doubt upon the Congressional Budget Office forecast of financial savings. The CBO also predicted that Social Security would generate surpluses until 2016, but this system recently went into deficit. The costs of public programs tend to rise over time, but why?

Ideally, legislators pursue what some term "social justice" through redistribution. Everyone favors "justice," but people have different opinions as to what constitutes a fair distribution of wealth.

The reality of politics is that interest groups compete for influence. Competition often controls costs, but not in politics. Political competition favors narrow and concentrated interest groups. Individual citizens cannot appreciably affect politics. Anyone who believes that health care regulation will, as President Obama has put it, serve the American people, does not understand the economics of politics.

We can see the failure of politics in Medicare, which has problems with waste and is underfunded. The underfunding of Medicare is not an honest mistake. Politicians knew about the costs of baby boomer retirement decades ago, and they failed to set aside funds to cover these costs. They took the politically popular--and financially unsound--path of profligate spending and low taxes.

Americans who want to move in the direction of publicly financing health care have the best intentions. However, there is no way of realizing dreams of social justice or improved efficiency through politics. The term "social justice" lacks any real meaning. Economic laws and history indicate that public programs result in wasteful transfers to special interests. Health care does need reform. We should consider using the only system that really controls costs: competitive free enterprise.

Dr. D.W. MacKenzie is an adjunct fellow at the Independent Institute in Oakland, Calif., and a professor of economics at the U.S. Coast Guard Academy. This article does not constitute the official view of the U.S. Coast Guard.