Basic Economics: Trump Administration Lowering Healthcare Costs, Debunking Socialism

Why are people – Republicans and Democrats, old and young – so concerned about healthcare costs, about securing pre-existing condition insurance, about affordable diagnosis and treatment (i.e. medicine, surgery, therapy)?  The answer is painfully obvious – and not so obvious. 

As mere mortals, we worry about day-to-day functionality, productivity, and pain relief.  We worry about state of mind and quality of life, “being there for others” and longevity.   As a result, we monitor our health, try to maintain it, and always watch costs. That part is human and unchanging.

Another source of concern about healthcare costs, however, lies elsewhere.  That part is controllable, not by the government – but by having government to get out of the way.  That source is uncertainty – about actual prices for medical products, procedures and services, access to accurate quality comparisons, assessing hidden risks, costs, distorted incentives (i.e. to over-prescribe, over-medicate, under-evaluate, perform unnecessary surgery, require unnecessary appointments, secure unnecessary referrals). 

In short, uncertainty about the healthcare market – lack of transparency in how it operates, where prices and protocols come from – is unnerving and frustrating, a source of recurring stress for many Americans, especially as they grow older. 

Interestingly, it is also an avoidable source of stress – one the Trump Administration is courageously tackling it head- on.  The Administration is deliberately, persistently and to good effect – disrupting the status quo.  They are taking the cover off seldom reviewed and never reformed established practices. 

Specifically, they are shining a bright light on medical care prices, potentially “requiring hospitals, doctors and other healthcare providers to publicly disclose the secretly negotiated prices they charge insurance companies for services, a move that would expose for the first time the actual cost of care,” according to the Wall Street Journal. 

This conviction by the Trump Administration is revolutionary.  It upends the long-secret relationship between insurers and providers, where prices, discounts, rebates and rewards for continued business lurked in shadows, invisible to consumers who paid for provider and insurer profits through mark-ups, undisclosed reductions to providers, and “sweetheart deals” never passed on to the consumers. 

Moreover, this lack of transparency between insurers and providers, leaving consumers in the dark as to key information for healthcare cost and quality comparison, has been – in economic terms – an avoidable rigidity.  It creates unaccounted-for “transactions cost” that is quietly passed along unknowingly (and to now, unknowable) to consumers.

What happens when a market is quietly distorted in this way?  When knowledge is denied to the consumers, as others profit from consumer ignorance in making choices (or even knowing they have a choice)? 

The answer is two things happen.  First, the consumer pays more for things about which he or she knows less, or may know nothing at all in terms of pricing.  That is, consumers are denied information to make informed choices about their own healthcare.  This is because lack of open competition keeps prices high; restored competition would lower prices and make providers again focus on the consumer.

Second, this “in the dark” pricing allows ill-informed, politically motivated pro-government forces to argue for “Medicare for All,” “Single Payer” socialism, and ending individual choice, by howling that prices are too high. 

Actually, if we were to incentive price reduction by more open competition, transparency and mandating public disclosure of secret inter-industry deals and rates, prices would fall, quality rise, and focus would shift from pleasing insurers and the government to pleasing individual consumers again. 

That, in a nutshell, is what the Trump Administration is now proposing – and pushing hard via the Department of Health and Human Services.   They are saying that patients – consumers – have “a right to see the discounted prices in advance of obtaining care,” likely changing the incentive mix behind a formerly closed curtain.

In the end, what consumers deserve is the information to make informed choices, and the right to those choices.  We have this when buying food, clothes, cars and houses.  It is about time we got it in healthcare, and once we do – we can worry a little less.  Reducing consumer uncertainty, spurring competition, reducing prices while keeping quality high – and giving socialism the lie – is a net positive.  The Trump Administration is again at work, in ways that benefit average Americans.