guthealthcare.com

So is this just a “fairness” argument?

It is unfair to ask future generations to bear the debt we accumulate when we consume healthcare for our own benefit.  But, you may be saying, so what? Lots of things are unfair, and who said life was supposed to be fair, anyway? 

Whether one has sympathy for the stoicism, or disdain for the callousness, inherent in such sentiments, the ethics of how we finance healthcare is indeed important.  However, its importance doe not lie in our concern over peoples’ feelings should they be treated unfairly. Instead, its importance lies in the fact that the type and magnitude of the unfairness we’re dealing with here goes well beyond the merely “routine,” merely unpleasant injustices we deal with every day.

Mundane, everyday unfairness – the kind about which an American stoic might well advise, “Just suck it up!” – abounds, to be sure, in our healthcare system.  Here’s just one obvious example: Millions of struggling, low-to-middle-income Americans, who themselves have no health insurance, find that precious dollars are confiscated from their paychecks to pay the Medicare expenses of well-do-do retirees. Unfair? Sure. Should we fix it?  Certainly.  (And we probably would, too, if making it virtually impossible for millions of Americans to get health insurance weren’t such an effective means of covert rationing.)  But really, that’s just one of the routine injustices we see every day.

The injustice we’re talking about here, where the massive and continually growing bill for our own healthcare is being passed on, via the federal deficit, to future generations, is of an entirely different species altogether. This injustice stems from our violation of the economic principle which dictates that people need to pay for their own consumable products.  There’s a reason this is a principle and not just a “nice to have” – following this principle is necessary in order to keep our economy, and our society, stable.

Clearly, our society takes pains to keep individuals from violating this economic principle, specifically, by enforcing strict limits on how much debt a person can accumulate. People are allowed to borrow even rather large amounts of money, as long as they promise to repay it and their credit rating is sufficiently high. But if a person should fail to pay back what they owe according to a predetermined schedule, society will quickly take very definitive steps to interrupt further borrowing, and will bring great pressures to bear to try to force them to repay. By no means will society allow individuals to simply accumulate more and more debt.

Any society that expects to thrive will do the same, that is, will not permit individuals to accumulate more debt than they can repay in a timely fashion. The reason, quite simply, is that people die.  If people were routinely permitted to compile large amounts of debt until the day they die, finally leaving all that debt to be borne by people who haven’t died yet, the economic system would collapse. We have no choice but to insist that when individuals buy things, they make arrangements to pay for them before they depart this vale of tears.

Fundamentally, the same economic principle – purchasing no more than one can pay for – holds for society itself as well as individuals. That is, society must actually pay, eventually, for everything it buys through its agent, the government.  But for society the timeframe for repayment is substantially different than for individuals, because society, in economic theory at least, lives forever.  The accumulation of debt, even very large amounts of debt, thus is less alarming, since society will “always” be there to pay it back. 

Furthermore, the ability to carry a large debt is important to the normal functioning of any complex society. Among other things, the ability to carry very long-term (i.e., multi-generational) debt enables the government to borrow the money it needs to do the long-term things that benefit multiple generations of humans – things like improving the nation’s physical infrastructure, maintaining national defense, advancing medical research, and engaging in other forms of non-commodity spending that will allow our country to progress and grow stronger, and steadily improve the lives of successive generations of its citizens. This kind of debt, then, the “right” kind, is an investment in the nation’s future. 

Where things begin to go awry is when we begin to burden society with the “wrong” kind of debt, the kind used to purchase products and services that are simply “used up” by individuals, such as healthcare. This kind of debt – the kind where individuals become “entitled” to personal services provided by the government – does not constitute an investment for the future, but instead merely constitutes a massive debt load, one that should not be borne by future generations. 

Even more importantly, when the government takes on a new entitlement such as the burden of paying for healthcare, the checks and balances that ought to apply to the federal budget are no longer effective.  If Uncle Doug needs quadruple bypass surgery, as long as he can get his doctor to admit that he needs it, he gets it.  There are no intrinsic checks to this kind of healthcare spending decision.

When a society faces an accelerating debt burden that is completely open-ended and not subject to normal checks and balances, that society is dealing with what I'll call a disproportionate economic variable (DEV). DEVs are dangerous. Unless brought under control they push an economy toward collapse.

Until a few decades ago, healthcare in America acted like any well-behaved economic sector. The size and growth of spending on healthcare was directly related to the size and growth of the GDP-that is, it was a proportionate economic variable. Specifically, until the 1950s the cost of healthcare was a fairly steady 4 percent of the GDP. This began to change during the early 1950s (at about the time the Tooth Fairy variety of Quadrant IV healthcare was becoming established), so that by 1960, the cost of healthcare was growing much more rapidly than the overall economy. Healthcare spending accounted for 5.3 percent of the GDP in 1960, 7.3 percent in 1970, 10.2 percent in 1980, 13 percent in 1993, and 14.9 percent in 2002. Over a relatively short period the demand for healthcare took on a life of its own, with an apparently endless capacity for growth that is disproportionate to the growth of the overall economy.

There are few examples of DEVs in real-life economics, because they are inherently unstable and destructive. The only common example occurs during wartime, when the demand for military spending grows out of proportion to the overall economy. Wartime spending is a tolerable DEV, because wars are temporary. The expenditures for conducting war can usually be borne as debt, and are gradually paid back by society after the war ends. It is a debt that is accepted as the price of long-term societal existence. It is another form of investing in the future.

One reason warfare is temporary is that in a prolonged war a nation can spend itself into oblivion. The demise of the Soviet Union was directly related to the ever-increasing military spending that we forced on it by our ever-increasing military spending during the Cold War. The defunct Soviet Union is the poster child of DEVs.

Whereas warfare is temporary, our growing demand for healthcare is not. The demand for healthcare spending is bottomless; there are no apparent limits. Healthcare expenditures are behaving as a relentless, voracious, DEV, one for which there is no end in sight.

The Grand Unification Theory of Healthcare tells us there are two ways to get control of the DEV that healthcare has become. One way is to have everybody pay for their own healthcare, out of their own pockets (that is, move to Quadrant II healthcare). Because individuals cannot engage in unlimited deficit spending as the government can, the growth in healthcare spending in Quadrant II would slow dramatically and eventually would find its natural ceiling. We can't do that, however, because healthcare is an entitlement, and individuals cannot be expected (or even permitted, according to some) to pay for it themselves. The second way is to ration healthcare openly (as in Quadrant I healthcare), which would give us the opportunity to select the proportion of the GDP we think ought to be spent on healthcare, and hold expenditures, through rationing, to that level. But we can't do that, either, because it would be rationing.

So we've backed ourselves into a corner. We've taken a sphere of commerce that economic principles dictate ought to be paid for by individuals - given that it delivers products and services consumed by individuals - and we've convinced ourselves that the government ought to pay for it. Yet we still claim the right to make all the spending decisions ourselves. In other words, we've embraced the entitlement mentality and the no limits mentality at the same time, and it has driven us into Quadrant III, where we can support our fantasy of unlimited-but-free healthcare. And in creating this fantasy, we've created a fiscal time bomb, one that is scheduled to go off in our children's or, at best, in our grandchildren's lifetimes and whose massiveness will gravely threaten societal cohesion. 

We need to admit that there is indeed a limit to what we should spend on healthcare, even if we liberally define that limit as “something less than would eventually cause our society to disintegrate” – especially since so far we are failing to meet even that modest limitation.

Still, even conceding that there are limits to what we should spend on healthcare does not necessarily lead to the conclusion that we must ration.  We have already established that before coming to that conclusion, we should leave no stone unturned.  Therefore, let us examine the reasons healthcare is so expensive.  If we understand the costs, perhaps we can avoid rationing by figuring out how to bring those costs down.