Nationalized health care includes any universal system by which the Federal government sets and provides payment for health care. This includes systems that employee health workers directly and those that regulate the delivery of health care to the extent that costs are not determined primarily by market forces. Costs may always be reduced by limiting the amount of health care that is provided, and every nationalized health system established uses some form of rationing to minimize costs. The paradigm for government systems is that is appears cheap, but you can’t get much of it.

Here we are talking about the unit cost of delivered health care. If you manage to receive X amount of care, how much can we expect that to cost under a government system as opposed to a free market system. The reasons why costs will rise are:

1. Currently the fees paid by Medicare (the current government health care system for those over 65) are inadequate, so that individuals, private insurance, and local government ends up paying a disproportionately high fraction of the overhead costs of hospitals and physicians. When the private payers are eliminated, those costs will be realized in government costs.

2. Medicare, the model, pays only five or six percent in administrative fees compared to around eleven to thirteen percent for private insurers. The reason Medicare administrative costs are low is that they do not examine claims either for validity or fraud. There are provisions to report fraud, but only cases of large scale fraud are referred to the Justice Department. The Justice Department costs for investigation come out of the Justice Department’s budget and are not counted. Thus the costs of large-scale fraud detection are there, they are just not counted. The costs of undetected lesser fraud and of billing errors are borne by the system, but they are not identified as waste because they are not detected.

3. Bulk purchases of drugs do not lower the costs of the drugs. The costs of development and manufacturing are the same regardless of how the drugs end up at the patient’s bedside. Currently, R&D costs are borne disproportionately by private payers. If the government takes over all drug purchases, then all the development costs will be borne by the government, or, more likely, investment in new drugs will decrease because pharmaceutical companies cannot cover the R&D costs. New drugs cost about a billion dollars apiece to develop. With the likely result of fewer newer drugs, health care costs will rise substantially.

Drugs are cheaper in Canada because Americans pay the R&D costs. There are also some below market bulk buys by the Veteran’s Administration. So long as most drug purchases are paying the huge development costs, then manufacturers will sell incremental quantities so long as they are above the manufacturing cost. When the government sets the prices nationally, there is no one left to bear the development costs.

4. Nationalized health care destroys competition, thereby increasing costs. Some aspects of medicine, cosmetic surgery and laser eye correction, are firmly in the free market. Neither private nor government insurance pays for them. Costs in those areas half dropped by half, while other health care costs have risen sharply. This happened despite the desire to make profits. In fact, costs dropped because of the desire to make profits in the face of competition. That motivates an endless search for cost savings.

This is being seen in the current expansion of the “mini-clinic” industry in which small clinics are being built into drug stores to provide routine care, preventive medicine, and child health care at low fixed prices. the savings are achieved through high automation of routine services, with many services provided by nurses rather than physicians. Overhead is low.

5. Bureaucratic payment systems shift the emphasis from providing care to gaming the system. For example, Medicare pays by the office visit, so matters that could be handled in one or two visits are typically stretched into many visits. This is inconvenient for the patient and increases costs overall due to the decreased efficiency.

6. The claim is often made that a national system would increase preventive care, but it would not. A private health insurer tries very hard to make sure customers take their pills and get preventive care. Insurance companies know full well that lowers costs in the long run. A bureaucracy, however, only “succeeds” by expanding, and success within the system depends upon gaming the system. Neither motivator promotes preventive care. Preventive care would certainly be paid for by the government, but it wouldn’t be promoted. That’s evident in the Medicare system.

7. A national health care system will end up paying unskilled and low-skilled workers considerably more as a mechanism for politicians to buy their votes. That’s why government contracts often require that union wages be paid, and why government employees are the largest class of union workers. For example, the Postal Service pays 30% above market rates for labor, while FedEx and UPS pay slightly below the average rates.

8. There are two main reasons why health care costs are so high in the United States. One reason is that there is an elaborate and expensive emergency health system in the U.S. that is not paralleled in other countries. This is needed because of the very high incidence of traffic accidents, drug overdose, suicides, and criminal violence. There are also many heart attacks, which relates to the other cost factor: very poor lifestyles, characterized by obesity, poor diet, and lack of exercise. These cost factors are not treated at all by a national health care system. They are without question problems, and they may well deserve national programs, but they are social problems, not medical care problems.

Costa Rica has virtually no health care system, and costs are around $350 per year per person. U.S. costs are around $8000 per person. Yet the life expectancy in Costa Rica is only about three years less than in the United States. Clearly, the main cost driver is lifestyle, and a national system does not improve that.

9. About 16-17%, about 50 million, of the U.S. population is currently uninsured. The uninsured comprise about 15 million illegal aliens, 10 million who are eligible for Medicaid but haven’t applied because they are not sick, and about 5 million are people who can afford insurance but elect not to buy it (typically young self-employed people). Illegals should be given humane emergency care and then sent to be cared for by their home countries. That leaves about 7% of the population without health insurance. They mainly receive free health care through the emergency room system, and that is not an efficient way to deliver ordinary care. They could be covered by extending Federal aid to support Medicaid in poor states. That would improve efficiency without engendering the needless high costs of a nationalized health system.

10. Proponents of nationalized care claim that forcing doctors into large health centers would reduce costs. they claim that this would allow better utilization of expensive equipment. America has a very large rural population and has a critical dependence on emergency care. Replacing local care with a large center a hundred miles away would dramatically reduce the quality of care. Heart attacks and traffic accidents cannot be conveniently arranged to occur only near official centers. Reducing the care delivered by a large percentage to obtain a small percentage of administrative efficiency raises the unit costs.

11. Proponents claim that standardizing claim forms would lower costs. Non-uniformity of forms among insurers poses little problem because they all want about the same information, so the format is not a major cost item. However, if it could be shown that it saved a lot of money by always having the date in the same place, or whatever, that could be accomplished with a law far short of nationalizing health care.

12. The new government requirements for digital record keeping vastly increase the costs of record keeping. The government requires far more paperwork than any insurance company. The government is requiring that the vast amounts of information now kept in the doc’s filing cabinet, and mailed to the patient’s next physician, be laboriously digitized and stored on line. The government needs all that information so a bureaucrat can ration health care, deciding what you really need, and so government bureaucrats can second-guess the physician’s treatment remotely. It enhances the growth of multilayered bureaucracy while putting obstacles to prompt care. It also makes your medical history an open book to the government so you can be targeted for regrooving when they think it appropriate.

It is fundamental that increasing demand without increasing supply increases costs. It is also fundamental that nothing increases efficiency like the profit motive. Bureaucracy only “succeeds” by growing, further increasing costs. Winners in the system are those who game the system, not those who work efficiently.