A rather unhappy event occurred in New Hampshire last week. One of our larger health care providers, LRGHealthcare, announced that after the state cut back the Medicare rates it pays, it would no longer accept Medicare and cut 3,500 patients it currently treats. Our governor is quite indignant, and says it’s inappropriate for a non-profit like LRGHealthcare to do something like this.


Time to introduce Economics 101 to the situation.


OK, we have Patient A that needs a service. Hospital B provides that service. In the simplest model, the two discuss the price. There is a ceiling that A will pay, and a floor that B will accept. The two will negotiate until they come to agreement or one walks away from the bargaining.


Insurance complicates things slightly. Patient A pays money to Insurer C, who negotiates on behalf of all the patients it signs up for set rates. Hospital B is a bit more willing to go lower, as they are guaranteed a certain amount of business from Insurer C, who will steer all their patients to the hospital. And if they can’t reach a deal, C will go talk to other hospitals or raise their offer — and pass along that cost to their patients.


But when Government D gets involved in place of Insurer C, pretty much all logic goes out the window. (There it goes!)


Patient A needs a service. Hospital B provides that service. And Government D has either replaced Insurer C, or so tightly controls C that it makes no difference — either way, Patient A is covered by D.

Now, there is little to no negotiations between B and D. D simply decides what it will pay, and presents the list to B. And it’s all or nothing, take it or leave it. And in the case here in New Hampshire, B has said “screw that, we’d lose money at that rate.”


Now, what is Patient A’s option? They can demand that Hospital B accept the deal — but they have no leverage to do it. They can’t try to find a new insurer C, as there are none. So their only option is to go to Government D, where their options are “offer more to Hospital B” or “make Hospital B take the offer.”


The first is easy — Patient A isn’t already paying much (if anything) for their coverage, so they don’t expect to have to pay for the increase — “the government” will. Which means it will have to take more money from everyone else to cover it.


The second is almost as easy — all it requires is for the government to compel that Hospital A simply take what the government pays, and find some way to make up the losses. And if they can’t… oh, well.


This is the future of ObamaCare writ small. The government will control only part of the economics of the health care provider industry — what providers can charge for certain services. This will be determined by other factors besides what it costs, and — as we see in many cases now — often means that the amount paid is below cost. Which is why we’re seeing more and more cases like this one, where providers simply decide it ain’t worth it.


And forcing them to accept it won’t make the problem go away. More likely, it’ll make the providers go away.


Yeah, our current system has its problems. But having the government take over the insurance business is far, far more likely to make it worse than better.

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