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Sunday, March 04, 2012

Department of HHS makes economic breakthrough: declares there IS a free lunch after all

Nobel prize winning economist,Milton Friedman, is quoted as saying that economics could be summed up with two principles. 1) There is no such thing as a free lunch and 2)demand curves slope downward or ( in non econo-speak) people buy more when the price is lower and less when prices are higher.

Dr Friedman did not live long enough to see that his first principle overturned.

When the dictum of the HHS Department ordering employers to provide medical insurance that included paying for birth control pills hit a snag when the Catholic Church hierarchy raised a loud and righteous ruckus as it impacted Catholic hospitals and schools, necessity once again became the mother of invention.

The Secretary of HHS , in a move alleged to be compromise, declared that: no, the employer would not have to pay but rather the insurance company would. (see here).When challenged with the argument that the insurance company would simply increase the premiums,the Secretary replied;no, the insurance company would not be allowed to do so. Further, that order would actually save the insurance company money because the savings from medical costs not incurred because of the decrease in the number of pregnancies pregnancies would be greater than the cost of the pills. So, not only are the birth control pill free but provide a saving to the insurance company.So it is even better than a free lunch. The insurance companies should be happy to be forced to save money.

But this previously unrecognized saving ( which for some strange reason insurers never recognized on their own) is only the beginning. If taking statins and blood pressure pills decrease the risk of heart attack, should not insurance companies be giving those medications to policy holders as well. After all, generic pills are cheap enough and treating a heart attack is a big ticket item. The opportunities along these lines seem endless.Once insurance companies grasp this principle their profits will soar and they will begin to "give away" a lot of stuff even without government coercion.

Some would argue that these dicta from the Department of HHS make any contract that existed between the insurer and the insured a farce since for hundreds of years a contract based on force or coercion rather than mutual agreement of the parties was considered not valid.(See here for the comments from the Institute for Justice arguing that is exactly what the individual mandate does.) Those naysayers just cannot see the big picture which is that a new economic principle has been discovered- namely there can be a free lunch if the government says so.

Now HHS needs to get to work on the abrogation of Friedman's second principle; the demand curve thing.Recently an MIT economist re-discovered that principle in regard to medical costs and Medicare.She found that there was an increase in the quantity of care demanded once older folks had the Medicare card which made their health care cheaper. See here for my earlier post explaining the data and analysis employed by the economist to "discover" that people like to spend other people's money.

Might not the huge increase in the number of folks who will be given an insurance card ( or forced to buy one) pose a real problem as there is no concomitant increase in the number of physicians to provide that care.One solution would be for HHS to determine that people do not demand more services and goods when they are cheaper which would solve the problem of a physician shortage.

Getting those silly economic misconceptions out the way should really make Obamacare work more smoothly and all of the social justice embedded in the 2000 pages of the statute can emerge.

1 comment:

Andrew_M_Garland said...

HHS Secretary Sebelius is only arguing in a small way the larger argument of Progressivism.

/ Despite your low-level view that our policies will not work, be assured that you will be wiser, happier, and wealthier after doing all of the things that we tell you to do. /

/ Despite your low-level view that you are actually less informed, more miserable, and poorer than you were before, you should appreciate that this is still much better than you would have been had we not acted. Our policies have created or saved your lives, as miserable as you may think you are. /

/ You are not smart enough to be grateful. We didn't expect you to be, but it would be nice. /