Health-care Reform

It has been a few months since the health-care reform bill has passed. Some people have labeled it as a great success while others an abject failure. One thing is for certain though – the overall popularity of this reform is still quite  low. So would this law make things better or worse?

While the exact nature in which the provisions of the law will affect the health-care market is something that remains to be seen – people have made strong predictions of the outcomes – the liberals have the rosy ones and the conservatives the scary ones, and some people have even thought of ways to game the system. My guess is that the real outcome will probably be somewhere in the middle, largely leaving the current macro trends such as rising insurance premiums and health-care costs unchanged and that health-care would again be a significant issue in the 2020 presidential elections.

In Search of a Better Health Care System

The assumption that spending more of the taxpayer’s money will make things better
has survived all kinds of evidence that it has made things worse.
- Thomas Sowell

Rapid increases in the costs of health care in the US has placed an undue burden on small businesses, the self-employed and the uninsured, and the system is need of an extensive overhaul. The White House health care page has an excellent description on the goals of such a comprehensive reform. While the goals themselves are noble, and no person should be denied health care or have to go broke just because they became sick or had an accident, the lawmakers seem to have forgotten the true goal of the reform viz. make health care affordable for all.

The administration’s proposal for cost reduction involves setting up a massive public insurance plan which will be able to negotiate lower payments to doctors and hospitals. But, past experience has shown us that government involvement and socialization does not result in lower costs. Medicare, one of the government’s largest social programs is already running into budgetary difficulties despite the fact that it negotiates far lower rates with medical providers than private insurance. Moreover, similar reform has already been enacted in Massachusetts, and yet we still see rising medical costs there.

Why are these costs rising? In a previous post, I had argued that the reason costs in India were under control was due the presence of free market competition amongst medical providers. By contrast, in the US, neither the provider nor the patient has any incentive to decrease the cost, as all of it is borne by someone else i.e. health insurance. In fact, both have an incentive to increase the cost by ordering unnecessary or more expensive tests – the provider gets paid more while the patient believes that they are getting better treatment. Obama’s plan does little to change this fact. All it does is transfer the cost from employers who pay the premiums (which is indirectly transferred to the employees in terms of lower salaries) to the tax payers.

Obamacare vs Indiacare

In the last few weeks the healthcare debate has raged all over the US.  Everyday you see new articles in the media describing various conflicting positions held by different people. Now, I don’t claim to be an expert in healthcare reform, and nor have I analyzed the various positions throughly to make any sort of accurate judgement on the proposals. Instead, this article is more what the US could learn from the the healthcare system in India. In fact, it only focuses on one particular aspect of the system – the affordability of healthcare.

The Indian healthcare system is nothing to write home about, in fact it is dismal at best. The amount of government spending on healthcare is minimal, the health of the people is poorer and millions of people do not have access to decent healthcare. This is definitely not a model we want to emulate. But, there is one factor in its favor – viz. low cost. India has good medical facilities, well trained doctors and the  all the same medical treatments that are available in the US. Yet, all of this is available at a fraction of the cost of similar treatments in the US. This has resulted in a huge boom in the medical tourism industry. Before we speculate on the reasons as to why healthcare is more affordable in India, let us look at an example that illustrates the difference in cost: