Solutions Part Three: When Rationing Works   (September 29, 2010)

The "free market" (a convenient fantasy in economies dominated by State/crony capitalism) does not distribute resources equitably in eras of permanent scarcity. Rationing works if it operates alongside a transparent market rather than attempts to replace it.

There's only one little problem with Medicare/Medicaid: there isn't enough treasure in the Universe to pay what's been promised to 45 million (soon to be 60 million) aging/aged citizens, each of whom can burn through $500,000 or more in the waning days of their lives. Medicaid covers another 60 million low-income citizens, and there are few limits on what can be billed to Medicaid.

There are few limits on what Medicare spends on each recipient, most of whom contributed via Medicare taxes and monthly fees perhaps 1-3% of the average outlays expended on them, which are in the neighborhood of $250,000 - $500,000 each.

There is every incentive to bill the system and virtually no incentive to limit medications, tests, surgery, etc.

Then there is the culture of entitlement which permeates the U.S.: everyone "deserves" "the finest care" regardless of cost because "it was promised to me" and "I paid my fair share."

Medicare taxes are $1.45% of payroll for both employer and employee, and that is a recent number; in the "old days" it was near-zero. That means a person who has earned $1,000,000 in the era since Medicare taxes were 2.9% of payroll contributed a total of $29,000. People like my Mom who worked sporadically and for low wages paid perhaps a tenth of that.

The costs of Medicare are completely out of scale with the contributions paid. Medicare is thus a massive transfer of wealth from the generation collecting the benefits to the younger generations. My Mom had a one-hour procedure last year on her big toe: cost paid by Medicare $17,000. My buddy's Dad went in for treatment of a gallstone and was hospitalized (against his will, mind you) for a few days: cost to Medicare $120,000.

Many of the costs are for medications, procedures and tests of little to no value. But since Medicare/Medicaid is paying, and you might get sued if you "denied treatment," then give everybody everything, just in case.

Here is an example from the real world, submitted by Dr. "Ishabaka":

Doctors also have questioned the value of Genentech's Tarceva for pancreatic cancer. The $4,000-a-month drug won approval by boosting median survival by a mere 12 days. Here's how to think about this cost: People who added Tarceva to standard chemotherapy lived nearly 6 1/2 months, versus 6 months for those on chemo alone. So the Tarceva folks spent more than $24,000 to get those extra 12 days.

I have covered the fundamental, structural insolvency of Medicare/Medicaid many, many times in depth:

Social Welfare, Socialism and Healthcare (May 19, 2009)

Trends for 2009: Discussion Begins on Means Testing and Rationing of Entitlements (January 6, 2009)

Healthcare "Reform": the State and Plutocracy Stripmine the Middle Class (Again) (November 9, 2009)

Simulacrum Reforms Won't Fix Anything (March 5, 2010)

Why "Healthcare Reform" Is Not Reform, Part II (December 29, 2009)

The "Impossible" Healthcare Solution: Go Back to Cash (July 29, 2009)

Everyone who works in the front line of the dysfunctional American sickcare system knows it's broken, and knows that some form of rationing is the only solution which can distribute limited, costly care with a modicum of fairness.

All purely "socialist" systems (that is, private insurance and care is banned, the Central State has a monopoly on providing all care) have de facto rationing systems in which those at the tail end are on waiting lists. The system effectively weed out the weak and ill, as those people die before they get treatment.

Here are two key characteristics of rationing which works. I know we as a nation have been brainwashed that "rationing doesn't work," but that is simply not true if you set your biases aside and examine the history of say, civilian rationing in World War Two. Was it perfect? Of course not. Did it get the job done? Yes.

Not all rationing systems work, but some do. The key characteristics of rationing which works are:

1. The governed believe the system is fair and justly administrated.

2. The rationing system exists alongside a transparent open market providing the same goods and services for cash.

In most rationing systems, the Central State attempts to control the entire market, which instantly creates a lucrative black market.

National healthcare systems which have some hope of being sustainable, such as the French system, offer what is in effect a limited, rationed amount of care paid for by the Central State, and a parallel private system of insurance and cash which covers everything the State does not provide. The vast majority of French households buy private insurance.

In the U.S., a rationed system might have these characteristics:

1. There is no "free" care except at charity institutions which decide to offer care for free. All government emergency room services must be paid in cash: $20 for minor stuff that shouldn't even be emergency room cases, $50 for more serious cases and $100 for acute-care.

Exceptions are made for those living out of shopping carts or in cardboard boxes. The "poor" with cellphones, cable TV, new Nikes, etc. will have to forego some other purchase and start budgeting for medical care.

2. A national catastrophic insurance system which covers those serious diseases which are not lifestyle diseases: brain tumors, ALS, psychosis, etc. The triage order is common-sense: children first, those adults in their prime working/parenting years next, the elderly (over 75) last.

I know this is contrary to our current fantasy that everybody can get everything regardless of cost, but at some point we will be forced to do some triage. If I make it to 75, I've already had a good life. Some unlucky soul/parent who is 42 and has a brain tumor deserves scarce resources more than I do.

If I chose to smoke, drink massive amounts of alcohol, generally let myself go, eat crappy food, etc., then the choices and consequences are both mine.

And I always have an alternative: divert my income away from other expenses and pay for whatever care I want in cash, or with private insurance I chose and paid for in full.

3. Care provided under the government plan is scaled in by cost. Marginal treatments like Tarceva will not be offered. If a patient wants Tarceva, they can pay for it themselves.

4. A first-come, first-serve network of government clinics on the Veterans Administration model (national information sharing, everything owned by the government lock, stock and barrel and all staff paid by the Central State) offers prenatal and preventative care only. Services are paid for in cash, like emergency rooms, and the basic idea is to encourage prevention rather than highly profitable "care" or management of preventable lifestyle diseases.

The services offered would be cheap and scalable: for example, blood pressure tests, prescriptions for cheap, generic blood-pressure meds with few side-effects. If the patient wants some other med, they can pay for it themselves or buy some private insurance and battle the insurance company for coverage.

I know many complain about the VA model--long waits, minimal niceties, etc.--but once again we are talking about triage and personal responsibility: if you don't want the rationed government care, then you have a choice: save money and pay for it yourself, or lower your risks for diseases which can be avoided by becoming devoted to maintaining your own health.

An example of taking charge of one's own health is comedian Drew Carey, who chose life over death by changing his lifestyle and diet. Drew Carey: No More Mr. Fat Guy. Yes, he is wealthy and could hire personal trainers, but everything he did was common-sense.

Americans like to offer the excuse that they "didn't know it was bad for me," but this is a transparently absurd claim. Does anyone bellying up to the fast-food counter really think it's healthy for them? Of course not.

Americans are also prone to complaining about their genetic predispositions. Yes, it is true: we are not all perfect specimens. I have predispositions to heart disease, high blood pressure, high cholesterol, melanoma, to name but a few, and so the obvious choice is to lead a life which minimizes the risks incurred by lifestyle. That is not a difficult concept to grasp; we all understand it, even as we resist it.

The question for our deeply corrupted crony-capitalist, Elite-dominated society is whether we can offer rationing which is actually fairly administered. If the Elites gain control of the machinery and skim the resources off behind closed doors, as they do with everything else in America, then the consequences will be dire indeed.

The consent of the governed is a requirement of democracy. If the governed no longer consent to Elite skimming, fraud, embezzlement and corruption, then systemic change will occur.

I fully expect gasoline to become permanently scarce and rationing will offer a transparent solution to the resulting inequalities. As I have often explained here, oil is priced on the margin, which means a 1% shortfall in supply can trigger a 10% jump in price, and a 10% shortfall can unleash a 300% price hike.

I explained the consequences of this in The Invisible Hand, The Bastille and the Overthrow of the Ruling Elite (September 13, 2010): when gasoline is $10/gallon, few average-income Americans will be able to afford it.

Rationing works by redistributing a scarce resource equitably.

For example: urban citizens would get chits for 40 gallons a month, suburban residents would get 60 gallons (hello, car-pooling) and rural residents would get 120 gallons.

Here is the key to how this would work: you can sell whatever you don't consume on the open market, for whatever price you can fetch. Wealthy people would pony up whatever the market would bear because it would still represent a tiny slice of their household income.

Those of lesser means would have a huge incentive to conserve and make some side money by selling their gasoline chits.

Once again, I know we've been brainwashed that "rationing doesn't work." It does redistribute essential resources equitably when it exists in parallel with a transparent market for the same goods and services.

I am always dumb-struck by the rigidity of the status quo and those who resist adaptation. The number of people who will claim this or that is "impossible" is legion.

To provide but one example of many: when the Loma Prieta earthquake damaged the Bay Bridge, the flow of tens of thousands of vehicles a day between the East Bay and San Francisco fell to zero. Commerce without this traffic was widely deemed "impossible," and various doom-and-gloom scenarios were breathlessly tossed about (everybody loves a doom-and-goom scenario, the worse it is the better, just as with horror films).

Guess what: everybody got by. The BART subway system added trains, essential traffic went around via San Jose, and very quickly life went on without the "essential" Bay Bridge. Traffic was not horrendous; people adapted and made common-sense choices.

Rationing works when it is fairly administered and when a transparent, open market for the goods and services being rationed exists side by side with the rationing. That gives everyone a choice in how they respond, and what they prioritize as in their best interests.

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