Neither Obamacare Nor Its Repeal Fixes The Healthcare Pricing System: The Only Long Term Solution To Healthcare Costs And Medicare Is To Repair And Restore The Pricing Mechanism At The User Level

About 20 months ago, in a post on this blog, "Health Care Is A Pricing Mechanism Problem Not An Insurance Problem," I wrote that the breakdown of the pricing mechanism in healthcare, and not health insurance, is the source of the problem of the high cost of US medical services. The fix of the pricing system requires users, the consumers, to have to budget part of their own income for medical costs.

Next week, the US House Republicans will vote on and likely pass a bill to repeal Obama's landmark healthcare legislation, The Patient Protection and Affordable Care Act, colloquially and disparagingly known as Obamacare. It is extremely unlikely the US Senate will undo the new healthcare law and even if by some odd fluke, the Senate passes a repeal, President Obama will certainly veto the bill.

Unfortunately, neither the new healthcare law, nor a repeal of that law, fixes the consumer pricing mechanism for healthcare services. One strong step towards fixing medical services' pricing in the US would be complete repeal of the employer tax deduction for medical insurance as an employee benefit.

As I wrote in my earlier post:

Most users only have to consider their want of healthcare and do not have to budget and allocate their resources to get it. Without consumers allocating their income for healthcare, the economy's pricing mechanism for allocating investment resources is broken and dysfunctional. It is over allocating investment and resources to the medical industry that otherwise would go to other industries with a better return. Consumers are also using more medical services than they would with a functioning price mechanism.

Any government program must be funded, but to most people their actual expected cost of medical services is higher than they want to or can afford to pay. If people were willing to pay for medical services out of pocket, they would only need insurance for catastrophic illnesses with extraordinarily high expenses.

Most government solutions attempt in part to keep the cost borne by the average user low by subsidizing and shifting some of the unpaid cost to a few others who pay more through higher taxes. This resolution does nothing to restore the pricing mechanism, and usage and cost will continue to grow. When costs are shifted and not borne by the end-user, the government is forced to delay, ration, deny and otherwise restrict services to contain growth in costs and use. The experience of most countries with a government health care system is rationing, delays and denials of services.

The true long-term solution to our healthcare problems is to repair and restore the pricing mechanism for consumer use of health services.

Read the complete earlier post here.

Too Big To Fail Or Too Big To Survive

A thoughtful analysis and article by John Carney on Business Insider, "Why Do Banks Grow Too Big To Fail?"

So why are there big banks? The primary reason for any firm to grow is to avoid some of the transaction costs of using the markets. The transactions costs avoided by centralizing costs in one firm include the difficulty of discovery the relevant prices, as well as the costs of brokering deals and raising capital from outsiders.

But this avoidance of the market is also a disadvantage, as avoiding market prices subtracts from a bankers knowledge and makes efficient economic calculation difficult.

This is actually the central economic dynamics of a capitalist economy. Prices are important to economic calculation but they involve transaction costs. Eliminating transaction costs from dealing with external price markets is the leading explanation for why firms exist at all, and why they grow. But this also has a cost of making prices less transparent, and economic calculation more difficult. The size of any firm is probably dependent on how these things balance out: transactions costs and calculational chaos costs.

Read the entire article here.

I would add to Carney's article that the failure to have accurate pricing in the big institutions misled the firms on the riskiness of their endeavors, postponed the recognition, internally and on accounting statements, of the decline in the value of their investments in securitized assets and contributed to the credit tightening and financial crisis.