Solving Our Healthcare Mess with Basic Biblical Economics

by J. Ross Justice
May 1st, 2003

For the past three years company costs for health care benefits have risen at double digit rates. Current data indicates that this escalating price trend will continue during the year 2003. And if that was not bad enough industry experts project similar price increases for the coming year as well.

Strategic handling of this issue has become one of management’s most challenging and potentially rewarding pursuits. The reason is twofold. Health insurance has become one of the most effective recruiting and retention tool for key employees, while at the very same time that it has also been cited as the single greatest administrative problem currently vexing business organizations.

Why has health care cost vastly exceeded the general rise in the cost of living?

The Economic Basics

In a free competitive marketplace, the price of any good or service is a natural result of the voluntary exchanges between individuals. That exchange rate (price) then tends to determine how scarce resources are allocated in society. Prices exist because scarcity exists. High prices indicate that the market participants believe that a particular good or service is rare and very hard to obtain.

Rising prices means that the quantity available (supply) is shrinking in relationship to the consumer’s current desire (demand) for that good or service. Therefore, the proven recipe for rapidly rising health care prices is a rising demand (by consumers) coupled with a shrinking supply (of health care providers). There has been no reduction in the supply of doctors of conventional medicine. However I will argue that there may be an artificial restraint and shortage of qualified but unconventional health care providers.

It could be mentioned that a decline in technology could increase the cost of health care. But America has never seen a decline in technology growth in any field. It is an economic maxim that advances in technology tend to reduce both supplier costs and consumer prices. However, in the field of health care this economic maxim does not seem to hold true. In fact, the more medical “advances” we have, the more expensive health care seems to become. Such a state of affairs could only exist in a monopolistic/oligopolistic marketplace. Such monopolistic power over prices in the marketplace can only be sustained where government regulations outlaw and suppress potential competitors.

If the current increases in health cost is not caused by a decline in health care providers then an increase in demand for health care is the most logical explanation. There are only a handful of factors which cause demand to rise.

  1. Change in consumer taste and preference can increase demand.

    Could it be that Americans just enjoy being physically ill as a form of entertainment? I think not. So what’s the next common reason?

     

  2. Changes in income can increase demand.

    Could it be that Americans are making so much more money recently that they can afford more health care? Well, since health care costs have exploded during an economic recession that theory is also a pretty poor one. Next!

     

  3. Change in population can increase demand.

    The indigenous (non-immigration) American population has not been expanding by double digits. In fact, the reproduction rate has barely matched the mortality rate. We’ll scrap that idea as a cause of rising health costs.

     

  4. Change in price expectations can increase demand.

    People will buy more now if they think that prices will rise in the future. But health care services are not like a tangible good that can be purchased in advance and stored for future use.

     

  5. Change in financial accountability.

    Employees tend to spend their “own” health care dollars much more judiciously if they are financially responsible for their own medical expenses, unlike a larger pooled account plan (insurance). In group medical plans, those who do not use it get no economic advantage for their frugality. Therefore, the simple economics of such a plan tends to cause participants to overuse and even misuse the plan. On the other hand, employees who are financially accountable for their own medical costs not only tend to make wiser expenditure judgments when their economic interests are involved but they tend to employ more healthful lifestyle decisions as well.

    The larger the pool (i.e. larger insurance programs) the less personal economic effect someone’s health problems will cause. The smaller the pool (i.e., self-insurance or small Christian insurance communities), the more personal economic effect someone’s healthcare decisions will cause. The greater the personal economic impact, the greater frugality and health lifestyle, hence, the lower medical costs to our insurance pools and overall society.

     

  6. Changes in the price or availability of competitive goods or services.

    This theory may also be helpful. For example, Pepsi and Coke are competitive goods. However, if the government decides to outlaw the sale of Pepsi, then thirsty cola lovers will then demand more Coke. So how can this cause of increasing demand help us understand the root cause behind our rising health care costs?

Hint: Think of Pepsi and Coke as competitive health care options. Then assume that the government outlaws Pepsi from the marketplace. Coke would then have a government-sponsored monopoly. Monopolies over essential goods or services can vastly increase and sustain high profits since consumers have no other choice. By definition, a monopolist is the sole provider of a desired product. A similar situation exists when a small handful of providers enjoy a monopoly position in the market. That kind of situation is called an oligopoly. The vast majority of our nation’s Gross Domestic Product comes from sales by oligopolistic industries; and the regulated health care industry is a classic case.

Monopoly Profits and the Health Care Market

In short, there is no free market in the American health care industry. It is a highly regulated oligopolistic market at best. By law, consumers are not allowed access to more cost efficient healing options. For degenerative diseases such as cancer, only drug based (patentable) remedies, expensive surgical options, or capital intensive (nuclear) options are pursued by the oligopolists. To date, only those options are legally condoned by government regulators and therefore only those options are covered by health insurance benefit providers.

This oligopolistic trend began with the establishment of the Interstate Commerce Commission and their regulatory influence over prices and services in the railroad industry. Since that time the proliferation of government regulatory boards have routinely been staffed by industry “experts” whose primary allegiance was to the very oligopolistic interests whom they were supposed to regulate. A fascist and symbiotic relationship then develops in which both the government agencies and the oligopolistic firms strive primarily to protect and preserve the life of the other, and only secondarily look after the consumer’s economic interest as a window-dressing side effect.

Let me offer a couple of personal examples to illustrate the point.

Case #1: Recently, a veterinarian friend of mine and I were reflecting upon our childhood. We compared how we fell off wagons, broke bones, suffered nasty cuts, and generally amazed ourselves over the fact that we both made it to adulthood. We also had fond memories of “the doc” who patched us up. Few people ever thought that seeing a doctor for such things was a major economic hardship. Today however, one outpatient trip to the emergency room for those kinds of “normal” childhood accidents routinely cost the greater part of a thousand dollars!

I commented to my veterinarian friend that the next time my child needs a few stitches I’d bring him over to the vet before I’d pay that kind of money. He quickly responded that I was free to come over but he would only hand me the instruments and watch over my shoulder. I would be required to do the work myself. Government regulators have decreed that if he ever stitched the wound of a human being, he would lose both his license and his livelihood. In economic terms, that is called an oligopolistic “market sharing arrangement” between medical professionals. To a cost-conscious person like me, good sewing is good sewing no matter what government license a person possesses.

Case #2: My daughters raise goats. On one occasion, our prize doe displaced her hip after a particularly hard delivery. Only with great personal persuasion, and my promise to be secretive about the matter, I finally prevailed upon a chiropractic physician to come to the aid of our goat. It was a great success. I knew that he was an expert on bones and their alignment, but his license did not include working on animals. So from a government regulatory perspective, he was doing veterinary business without a veterinary license. Again market-sharing agreements among medical professionals must be preserved in spite of what the customers may desire.

Case #3: My wife and I decided upon the option of a homebirth for our children. Our midwife is a single Mennonite woman who primarily served the local Amish community. She is very well known, and earned an excellent reputation with many of the medical doctors in my community. She had attended over a thousand births before ours. She was not only extremely professional and competent but she was very inexpensive compared to a conventional hospital delivery. I mention this lady because a life-threatening loss of blood situation occurred during childbirth of a neighboring family.

This same midwife administered a hormone (drug) to slow the bleeding while in transport to the hospital. All reports tend to indicate that her quick action probably saved a life that day. However government regulators see things differently.

They have an oligopolistic “market sharing” regulation to enforce that says that she was not allowed to administer that kind of substance no matter what! Out of Christian duty this midwife faithfully reported her use of that drug to emergency room personnel. The doctor in charge immediately filed criminal charges against her. Of course, without that information they would have quickly administered that same substance, and two doses could have caused further complications. Consequently, this gentle midwife is now presently serving time in the Holmes County, Ohio jail for “practicing medicine without a license” and for refusal to give the name of the medical doctor who graciously provided this hormone for exactly that sort of emergency situation, in this case, to save a life.

Economically speaking, greater customer freedom of choice in medical services tends to increase quality and lower cost. Biblically speaking, when civil government gives favored health care providers monopoly power over a nation’s health care options, then that government is sinning by stealing the God-given liberty of the citizen’s biblically lawful choices. Oligopolistic industries seek to convince government that consumers are immature children who must be protected from themselves. A biblical social order denies that role to civil government that demands that fathers to be mature and responsible for making wise health care decisions for their family.

The Micro-Revolution in Employee Health Care Benefits

Freedom to exercise health care choices under a free market and personal financial accountability for health care decisions is the key to reversing the present crisis in health care cost. Christian business owners and managers can play a profound grassroots role in restoring affordable health care.

The way that we do this is to return healthcare choices and financial accountability to the end-user consumer. The best way to do this is to become “self-insured.” Seeing that not everyone has a ton of money in their banks in order to become self-insured overnight, the second best way is to do a combination of a low-cost, Christian community based pooled program, such as Samaritan Ministries and Medi-Share ($175 to $250 per month per family). Then, combine something like $200 per month to an “HRA-501(c)3 plan.” This way, the employee is not restricted to any particular group of doctors, nor any specific kind of healing treatment (which means you get the chance to exercise your free choice). Also, the employee is more financially accountable because he or she is now part of a smaller Christian-based community sharing each others burdens. When the employee is able to be self-insured, then the employee will be financially accountable only to himself or herself. In the meantime, the employee has immediate medical coverage and working to become self-insured. If the employee chooses to never leave the Christian-based sharing community, then he or she has saved and invested a ton of money that they can use for retirement.

The “HRA-501(c)3 plan” and smaller Christian-based medical groups used by Business Reform consultants is designed to help restoring a free market in health care. This can only be accomplished by giving the consumer of health care services greater economic resources, greater range of choice and much more personal responsibility and potential profitability in making health care choices. Successful management of our health care crisis requires that responsibility for managing health care options and health care costs back to the employees themselves.

Neither government nor corporate paternalism is a viable long run option. At the end of the day, when the world has tried everything under the sun, they will be forced to return to sound biblical economic thinking. You as a business owner or manager, minus well get a head start, so your company and your employees may prosper.

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