Health Care and the Supply Chain: Universal Healthcare Meets the Laws of Supply (Access) and Demand

The Obama administration is determined to pass a Universal Healthcare program in a matter of months. On the surface it sounds like the solution to many problems, but no discussion of the topic is complete without confronting the issues of supply and demand. Healthcare is made up of two basic components. The first is coverage and it deals with the cost of health care services and who pays for what. Proponents of Universal Healthcare are laser focused on providing coverage for everyone and having some payment system designed by the government deciding who pays for what. This has been touted as the solution for everything from the cost of U.S. made automobiles to providing care for non citizens. But coverage is only half the story. The other half, and maybe the more important half, is access. Coverage says who will pay for services that politicians assume will be universally available. And here is where the disconnect occurs.

If someone is in a serious car accident requiring a trauma center but the closest one for two hundred miles closed last week because it ran out of money, at that moment the cost of the care or who will pay for it is a non issue. The fact is that without access to the services of that recently closed trauma center that person will die and it does not matter if he has expensive private insurance or taxpayer paid universal coverage.

Covering everyone will almost surely require a net reduction in reimbursement for health care providers including hospitals. The President has promised that no rationing of services will occur. But free healthcare will introduce a flood of new patients to the system, i.e. an increase in demand. Barring increases in reimbursement more hospitals will be forced to close their doors, further reducing supply and limiting access. But because universal healthcare suppliers (hospitals) won't be able to increase their prices as a result of the higher demand, this will lead to more closings further compromising access.

The government can increase demand through universal coverage but it will be unable to guarantee supply, even if it takes over ownership of every healthcare provider (a la GM and Chrysler) -- and as every good buyer knows, the price does not matter if there is no product to buy.

Lynn James Everard

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