Free Markets

Does anyone else find it ironic that our entering government is basically saying: "The free market system has shown that it can't work so we are going to implement policies designed to mimic the free markets so that we can control the outcome."

The idea that the free market system has failed us is outright incorrect. We haven't had a true free market in a long while. I also think its funny when it is insenuated that Bush invented the free market system. While in a way he was at the helm when the current market system was developed, he most certainly did not invent a system that had been around for centuries.

A free market is where a buyer and seller can transact business without any interference from each other and the government. When was the last time we had that throughout our economy? I can think of one prime example where this interference has caused huge problems throughout our country and economy: The Health Care System. Costs are rising at twice the rate of inflation, there is not enough money going into Medicare to cover costs, companies are passing more and more of the costs of insurance on to employees and things appear to be getting worse.

The biggest cause of our problems with the health care industry today is the moral hazard (and thereby cancelation of a free market) of having insurance, in particular Medicare, pay for the transaction taking place between doctors and patients. Why is this moral hazard? Since we, as consumers, don’t pay the full bill that we incur when visiting the doctor, since we pay a fixed deductible regardless of actual cost, we tend to not shop for the best, least expensive care and we don’t hold our doctor’s visits to emergencies. In other words, instead of purchasing a cheap mp3 player because we only have $25 to spend, we are going for the most expensive "do-it-all" mp3 player available because someone else is paying for the difference.

Think of it like our recent oil problems. The price of oil went from an average of $64 a barrel in 2007 to its peak this year at above $147 a barrel. One big reason for that 130% increase was the subsidies that many governments placed on the cost of oil. Meaning the consumer wasn’t feeling the full impact of the price and continued to demand more. The price dropped when consumers finally felt the price and demand dropped.

It really is supply and demand at its purest form. The problem has been that doctors are in short supply and costs of producing new drugs that we all demand are higher again limiting supply. Demand, on the other hand, has only increased and will steadily increase while the baby boomer generation goes through their peak medical spending years and they don't feel the full effect of the costs. Because of this disconnect the drug companies feel that they can spend outrageous amounts on R&D and of course pad their own coffers quite a bit and doctors feel that they can charge good amounts to cover their costs (which I understand are a lot higher than many think especially given malpractice insurance) and still pay themselves a salary worthy of someone with such high education.

Insurance companies have been taking the brunt of these increases but they can't keep doing it, hence the costs are finally being passed on to the actual consumers a little bit. At some point, however, something has to give even more.

Unfortunately it is almost political suicide to even suggest real, plausible solutions to the problems in our health care system. It seems, that like deer in the headlights, we all know something is coming, but we can’t seem to decide or agree on how to get out of the way.Our political leaders have proposed some possible solutions to our problems, but as of yet none of them address the moral hazard and limit to free market theory currently involved in the health care industry. We’ve heard President-Elect Obama’s plan, or at least what his plan was while on the campaign trail. What plan will be implemented? How can you allow the consumer to “feel” the costs associated with health care, while not refusing care to those who just can’t afford it? I am not sure, and I don’t think our leaders are either.

The real question is: How can we protect ourselves against the unknown future of health care costs, no matter what government does?

For starters, we can use the vast resources available to us for our health care advice. With resources like http://www.webmd.com/ and others, doctor’s visits could be cut back. Of course you should never rely completely on these sources when and if there is a major concern. We can also start our own savings plan for our future emergency health care costs.

One of those methods is through a Health Savings Account (HSA). HSA’s were signed into law in December of 2003 and can be a little confusing. A great resource, which does explain in a very detailed way what HSAs are and what they do, is http://www.hsaresourcecenter.com/ and I encourage you to visit their site. In particular their site describes what an HSA is and how it could help with health care costs for you as an individual and quite possibly, if participation is good enough, lower costs in general.

The second possible solution comes through purchasing Long Term Care or Life Insurance policies with benefits that give the possibility of using your death benefit for qualified medical expenses. There are restrictions and rules on how it can be used, but could help.

The main idea is that, relying on our political leaders to fix the issues is not going to work because our current leaders are bound and determined to take over the free markets and try to mimic it through their own manipulations.