October 19, 2005
Why houses and healthcare cost so much
Two recent and related headlines:
Discount Real-Estate Brokers Spark a War Over Commissions (WSJ, 10-12-05)
A turf war over medical care (Indystar.com, 10-6-05)
Federal judge to decide whether communities have right to restrict new medical centers
The tag line of the second article gives a clue as to the relationship between the two. They are excellent illustrations of groups protected by government regulations operating at the expense of the consumer/taxpayer and creating rising costs.
Both stories arise from the heartland, where I suppose such things as government over-regulation may still be challenged. On the two coasts, government meddling is integral.
James Hagerty of the Wall Street Journal spins the story of the struggling market for discount real estate brokers in the over-heated housing market. The issue is this: as house prices have risen, and in some places they have really risen, some sellers have begun to question the percentage of price arrangement for the broker, thinking 5-6% of a really big number is excessive for what the real estate agent-broker does.
Enter the discount broker. For a flat fee, say $500, they will get your house listed. You still have to pay the agent that sells your house, but that is usually 3% of price. Why do discount brokers work on the cheap? To drive business volume. Not hard to figure.
Ah, but, the brokers associations not surprisingly have rules about who and how to use their listing databases (like MLS), protecting them from free market forces. Some of the flat fee brokers are beginning to get traction for obvious reasons. Now pick up the story:
“The old guard is fighting back. Six states, pushed by traditional brokers, have recently passed "minimum service" laws. These prohibit brokers from listing homes on the MLS without also providing certain basic services, such as negotiating contracts and receiving offers. The new laws have forced some discounters to change the way they do business, and in some cases, raise fees.”
It was at this point of the story that I spilled my morning coffee. Let me get this straight. Because brokers have associations who can pay lobbyists who in turn can pay legislators to pass protectionist bills, consumers pay more. As I heard recently on a talking head show (courtesy of John Rutledge), “Congress (substitute “legislature”) is the only whore house that loses money!”
And I’m sure without looking that the “reason” we had to have these laws was to “protect the public”—the stupid, unsuspecting public who can’t figure out what a service level is. Remember, all government standards by definition become minimum standards.
Well, for those of us in healthcare, this is old hat—business as usual. The Cartel has been controlling access and protecting interest groups with regulation while driving up prices and costs in healthcare for several generations now.
But the story by Josh Duke in the October 6 Indianapolis Star was just too much to pass up. In addition to describing how the Cartel accomplishes its goal of keeping prices high and higher, it illustrates nicely why the government should not be engaged in both finance and delivery of healthcare.
OK, here’s the story: “Glenn Mills' heart attack last year served as an unwelcome introduction to health-care economics. Because the St. Francis hospital in his town has no emergency room, the Mooresville man was taken by ambulance to the St. Francis-Beech Grove location in Marion County, about 20 miles from where he lives. Whether hospital companies such as St. Francis should be allowed to build ERs to serve patients in Mooresville -- or anywhere else, for that matter -- without government restrictions was the focus of a trial this week in U.S. District Judge David F. Hamilton's courtroom in Indianapolis.”
This is an occurrence that has no rational basis, and most reasoned people who live in the home of the free and free market ask, “I have to ask a judge to get a hospital built—even when there is someone willing to spend the money to build it?”
Without going into the tortured history of government regulation and control of access to care by controlling the type and number of facilities there are, this lunacy can be summed in three words: “certificate of need.”
As hard as it is to believe, in most states you have to get a certificate of need to build a new healthcare facility. And they are often hard to come by. I have heard they can be bought. But here’s the thing: the government is charged with this task. But the government also delivers healthcare, and so has an incentive in keeping competition away.
To wit: “Morgan County's defense of its temporary moratorium on new medical facilities: County-supported hospitals are healthier when they don't have to compete with an oversupply of beds. Uninsured patients have a guaranteed place to go to receive medical assistance. Taxpayers' investment in their county hospital is guarded.”
So restrict competition and access, define quality with government minimum standards, keep the uninsured, what else, uninsured, and keep the taxpayer fat and dumb. Keep prices artificially inflated so that the county and not the market can employ some folks and fulfill Bismarck’s (as in Otto von) cynical contract.
Folks this is not about healthcare; this is about politics. You have heard it said we don’t have a healthcare system. Perhaps, because it is really a political system.
The solution here is simple. Close the county hospital. Sell it to a for-profit system. Use the operating budget to create a financial instrument that can provide access to insurance for the uninsured. Let the people determine what healthcare services they want, need, and can support. Stop driving up costs and hurting your people. Government, get out of the delivery of healthcare business…you don’t know what you’re doing!!! Or maybe, sadly, you do.
