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Perverse Incentives Created By ObamaCare Will Make Costs Rise

Anthony Randazzo
August 26, 2009, 8:31am

Matt Kibbe wrote an excellent column for RealClearMarkets yesterday. His arguement is that given the government's track record with Medicare, it is almost guaranteed that health care costs as a whole will rise with a plan like ObamaCare attacking the system. The incentives are all screwy:

Despite its longstanding ability to fix prices through legislation and market dominance, the government has not and cannot effectively control the rising cost of health care.

We know this because a public option along the lines of what is being proposed in Congress already exists. It is called Medicare and the federal government has failed to rein in its costs for nearly five decades. Even with below market reimbursement rates for doctors and hospitals, between 1997 and 2005 total Medicare spending per enrollee grew almost three percent faster than did spending on patients insured by the private sector. [...]

It is telling that the average insured American and the average uninsured American spend almost the same amount of their own money on health care each year: $654 and $583 respectively. But where other people's money is concerned (whether through the government or private insurance), those numbers differ dramatically; spiking to $3,809 for those with coverage versus $1,103 for those without.

In essence, patients consume far more health care than they might otherwise because they are not forced to consider the full cost of what they purchase. This is the result of various government policies-including tax incentives encouraging comprehensive third-party involvement and direct government payments-that have removed the patient from the center of health care transactions.

(emphasis added)

This is the best point Kibbe makes, and it is not one that can measured by the OMB or CBO's cost predictions. Read the full column here.


Anthony Randazzo is Director of Economic Research


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