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Posted: December 7, 2013 10:30 p.m.

Incentives keep medical costs high

For all the confusion it is causing, President Barack Obama’s signature legislative accomplishment did not fundamentally change the health-care industry. Both before and after the law passed, the business of providing medical care in America could best be described as a conspiracy by government, insurance companies and medical care providers to keep prices high.

One example of how this works can be found in a provision of the president’s law requiring insurance companies to spend at least 80 percent of premiums on medical care.

It sounds like it’s designed to stop excessive profits, but what it really does is keep prices high. Why? If medical costs for a patient are, say, $80, the insurance company can collect $100 in premiums and keep $20 for its own expenses and profit. But, if medical costs double, the insurance company can keep $40.

Few industries have such perverse incentives. In just about every other consumer-oriented business, buyers can shop around and keep prices down.

But that doesn’t work in the medical-care field because consumers never see the costs. If a doctor recommends a test and it’s covered by insurance, it would be unwise of the patient not to take the test, regardless of how expensive it is. And since nobody is concerned about costs, equipment manufacturers and test centers would be foolish not to keep prices high.

The government plays a key role in enforcing this price-gouging system. Insurance companies are protected from price competition because they have been granted an exemption from antitrust laws. On top of that, it is generally illegal to buy insurance across state lines. With no competition, insurance companies can keep charging more.

Insurance companies get another boost from the tax code, as insurance that pays for medical procedures is tax-free to workers. But if they want to pay for the same procedure out of pocket, they have to pay tax on it. This leads to more insurance coverage and less consumer control.

Medical equipment manufacturers and care providers also benefit financially from all of this because they face no consumer pressure to keep their prices down. Doctors are stuck because too many decisions are taken from them, and they can’t afford to challenge the system that pays them so well.

These general parameters have been constants in the medical care industry for decades. Obama’s plan leaves them in place, imagining regulators will keep prices low. But that never works, especially in the corrupt world of official Washington. Today’s regulators are likely to be tomorrow’s insurance company executives.

In short, the entire business of providing medical care in America is a form of crony capitalism. No wonder people are unhappy with it.

The only way to change this is to break up the conspiracy and put consumers in charge. End the antitrust exemptions for insurance companies, let people shop across state lines and stop the tax discrimination that favors more expensive insurance.

Don’t let employers or government bureaucrats pick our insurance plans. Let all individuals decide for themselves, whether they want more expensive insurance or a bigger paycheck.

Putting that power in the hands of consumers will hold insurance companies accountable, bring prices down and improve customer service in this vitally important industry.

To find out more about Scott Rasmussen, and read features by other Creators Syndicate writers and cartoonists, visit www.creators.com.

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