Thursday, August 27, 2009

Party purchases

Bob McEwen looks at why health care costs have skyrocketed, and it has to do with parties. 

No, not that kind....

When you buy something for yourself you are very careful with your money. You care about Price and Quality. You might pay 3.00 for a cup of coffee at 7:00 a.m. in the morning but wouldn't pay 50 cents for it at three in the afternoon. This is known as a first party purchase. You are spending your own money. For this reason you care about cost and personal consumption, or, the price and quality of the product.

When you buy something for someone else that is known as a second party purchase. It's still your money so you care about price, but you are more flexible about the quality of the product.

However, with a government run healthcare program you get the worst of both worlds: the third party purchase. The government will be buying something with money that is not theirs (therefore, they don't care about price) to buy something they will not personally consume (they are exempt, and, therefore, they aren't concerned a wit about quality). Here's the rub. By definition, ALL GOVERNMENT PURCHASES ARE THIRD PARTY PURCHASES. Hence, there will always be waste and fraud in government. The Pentagon? You bet. The Department of Health and Human Services? Count on it. The local county highway department? In every pothole.

Since 1942 most Americans have experienced second party purchases of their health insurance. The result? We have the finest healthcare system in the world because we care about quality; but we are not concerned about price because someone else is paying for it. The solution is not to make matters worse by going deeper in the direction away from accountability. We should be free to choose our health insurance just as we do every other piece of insurance we need. Let the marketplace compete with millions of consumers to give a little more coverage for a little less cost. It only works every time.

Consider the fields of cosmetic and Lasic eye surgery. Neither one is covered by health insurance so there are no second party purchases. Consumers must make a first party purchase. The net result? With the free market in place, the price of these surgeries has dramatically reduced while the quality has improved.

Actually, there are two types of second party purchases.  There's the kind he mentions, where you're spending your money on a product for someone else, and the kind where you're spending someone else's money on a product for yourself.  You can actually chart it in a grid:

Your moneyOther's money
your usefirst partysecond party
other's usesecond partythird party

The result [of second party purchasing] is that we have the best health care system in the world, but costs that are out of control. The solution is not to imitate the rest of the world. (After all where would the rest of the world-- at least those who can afford it--go to get their health care if we change our system?) The solution is not to do more of what is causing us problems-but less of it. This means free market reforms that create more of a first party pay system.

Obama's proposed government run system cannot defy the law of economics-even though he would like us to believe that it could.

Part of the problem is that the left doesn't believe the laws of economics are laws -- merely guidelines, subject to revision as proves to be convenient.

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