by Karl Denninger, Market Ticker:

First article of stupidity: Medicare for all will lower costs.

No it won’t.  But it also won’t add to costs as much as many of the scolds are claiming.  What it will do is shift costs from the private to the public sector.

Today if you have a “family insurance plan” through your employer you are being shorted $20,000 a year in wages as that’s roughly what your employer is paying “on your behalf” to obtain it.  If you have a “single” plan (just you) it’s about half that.  If you are making $50,000 a year in wages you’re really making $60,000 but you don’t see any of it.

Warren and others allegedly will “shift” this onto the Federal Government and then shift the funds your employer pay now into the government to pay for it.  Except it won’t work like that because socialism is always more-expensive than capitalism.

Why is our medical care so expensive now?  Why can you get on a plane, fly to India and get Sovaldi (the cure for Hepatitis C) for under $1,000 for the entire 90 day course of treatment while here in the United States it costs forty to eighty times as much?  The reason is simple: You don’t have to pay cash for it here, but there you do.  When people have to pay cash suddenly price matters.

You see this every single day in your life.  You drive past the gas station and there are three of them within a half-mile distance.  One has a higher price than the other two and, on a percentage basis, no customers compared to the other two.  The other two split the difference.  That happens frequently even when the difference in price is a literal penny a gallon; an amount that in my car amounts to less than 25 cents!  Nonetheless given the choice I will pay the 25 cents less.

All of the health care scam resolves around exactly this.  If every health provider, whether it be a doctor, hospital, pharmaceutical company or otherwise had to charge everyone the same price for the same goods or services consumed in a similar amount then were you able to choose you would choose and the guy who was a dollar cheaper would get all the business.

The problem with “Medicare for all” — or any socialized medicine system — is the same with all socialist systems: The price feedback mechanism from the customer to the supplier is removed since the customer does not pay the tab.

Any time the customer does not pay the check directly for any good or service this occurs; the only difference is in degree, not outcome.  You can only avoid this problem in market when everyone must post a price, must charge everyone the same price for the same thing, and the customer has to pay the price out of his or her own pocket at the time, whether they later get reimbursed (e.g. by an insurance company) or not.

Last fiscal year (ended September 30th) the Federal Government spent $1.576 trillion dollars on Medicare and Medicaid combined.  This is approximately 8% higher than last year.  This 8% annual increase has been going on for decades with very few interruptions.  The ACA “downward” shift for a couple of years has now been proved to be what I suspected, which was shifting some people from government-paid medical into forced employer plans.  But that’s a one-off, not a trend change.

Medicare and Medicaid by definition do not cause any sort of price shopping — that is, capitalism — to occur.  The government pays whatever schedule they wish and the only option is for a provider to either take it or refuse all such patients.  But the government, in choosing the amount to pay, is of course subject to lobbying, which you know damn well goes on and at a furious pace.  That’s what socialism is and does; providers of a good or service the government purchases have no incentive to compete when the end user doesn’t get any benefit from choosing a cheaper alternative and in fact the incentives are exactly the opposite way!

How much are you overcharged?

Typically you are paying, and so is the government, 500% or even more than you would be for equivalent services if pricing was exposed, you paid the bill and everyone had to be charged the same price for the same thing.

Note that this change would not stop companies from offering “insurance”; indeed, there’s nothing wrong with that at all.  But whether you have insurance or not is between you and the insurance company, not you and the hospital, doctor or pharmacist.  In addition said insurance company cannot set and negotiate a price; insurance is the business of making you whole after a bad thing happens, not price-fixing.  The medical industry has twice gone all the way to the US Supreme Court to try to get price-fixing under the rubric of “volume buying” declared legal and lost both cases.

The problem with Warren’s and everyone else’s plans — including what Trump is doing right now (leaving the existing system alone) is that at 8% escalation the Federal Government cannot pay the check within the next few years.

Last fiscal year Medicare and Medicaid combined totaled 35% of the Federal Budget.

But far more-importantly they totaled 46% of all federal taxes.  Within the next five years — by 2024 — these two programs will try to spend $2.316 trillion, or 47% more than they spend now.

I remind you that this is just under a trillion dollars less than total tax receipts and both military and interest on the debt currently comprise just over a trillion, or an equal amount.  As debt rises so does interest expense.

In other words even though tax receipts will inevitably rise (they were up 4% last year) the compounding effect of interest and these medical program payments will outstrip tax receipts handily no matter who wins the White House in 2020.  This will inevitably lead to either severe rationing or a collapse of the federal government’s funding capacity by 2024.

Further, here’s other bad news:

That’s right — $1.203 trillion ($1,203 billion) was the deficit not the claimed $984 billion.  The difference?  The Treasury has $219 billion off its balance sheet, nearly all in the form of spending on Medicare.  But the facts remain that the money was borrowed and spent, and thus despite them holding same “off the balance sheet” the interest has to be paid and it still counts.

There is exactly one way to stop this, and that is to stop the socialism and monopolies.

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