Posted by Joseph Y. Calhoun, III

Tyler Cowen has a post about this story from the Washington Post. From the article:

In the face of greatly increased demand for services, providers are likely to charge higher fees or take patients with better-paying private insurance over Medicaid recipients, “exacerbating existing access problems” in that program, according to the report from Richard S. Foster of the Centers for Medicare and Medicaid Services.

About which Tyler says:

The laws of economics have not been repealed.  I know fully well how hard it is politically, but until the supply side (and I mean the supply of services, not health insurance) is more competitive, the proposed reforms will make the core problems of U.S. health care worse not better.

This is one of the reasons I haven’t spent a great deal of time on the health care debate. None of the plans being offered are serious about actually reducing the rate of health care inflation. Back in June I said:

The problem with this plan is that over time it will tend to increase the utilization of healthcare services and absent any action to increase the supply of those services, the price will rise. If the public option becomes the default for most Americans over time, the government will be forced, as they have in other countries, to ration services and/or impose price controls. And those actions will just further exacerbate the problem by further reducing the supply of healthcare services. Or at least that has been the experience of every other country that has tried to take over the administration of healthcare. Does economics work differently here?

The problem with all the healthcare reform plans I’ve seen is that they concentrate almost exclusively on the demand side of the problem. Even worse, the reforms will increase the demand for healthcare services while the stated goal is to reduce the cost. If reform doesn’t also address the supply side of the problem there is no way we can accomplish the twin goals of increased access and decreased costs. The plans that are being debated in Congress only address the imbalance by attempting to reduce the long term demand per capita by encouraging more efficient use of healthcare (and not in very effective ways in my opinion). Why not do something to increase the supply at the same time?

Nothing much has changed since I wrote that 5 months ago and nothing is likely to change anytime in the near future. It’s a waste of time to debate the particulars of the bills being offered if even a cursory examination reveals them to be logically inconsistent.