Now that we have surfaced that a price that is below where the supply and demand curves meet will spur consumption of a good, create shortages and reduce quality, and the focus on managing to the numbers can produce undesirable results, what does the inability to increase price do when costs rise?
This happens – from the UK Telegraph:
The number of shifts filled by the temporary workers has risen by more than 50 per cent in a year – with private agencies receiving more than seven times the rate paid to nurses on the pay roll.
Experts said the disclosures show how hospitals’ attempts to improve their efficiency have backfired, with jobs being cut, only for temporary staff to be hired at vastly inflated rates.
The scale of job losses is fiercely disputed, with unions claiming thousands of frontline posts have gone since 2009 while ministers say less than 500 posts lost involve nurses.
Meanwhile, the number of nurses from overseas who have registered to work in Britain has soared by 70 per cent in just two years.
Disclosures under the Freedom of Information Act show that since 2009, private agencies have been paid up to £1,600 per shift to provide the health service with specialist nurses, compared with an average rate of around £212 a day for those on the NHS pay roll.
A shortage of labor.
Health care delivery is not just medicine and fixed assets (i.e. hospitals, laboratories and equipment), it is largely people…the “soft” assets that hold the knowledge and deliver the services. Labor is a substantial component of health care cost (aside from lawsuits, we needed tort reform because it would have saved as much as O-Care was purported to with virtually no added cost). The incentive from the government is to increase salaries across the board, so labor costs will inevitably rise.
The NHS in the UK is already at a tipping point. As the NHS cuts budgets to save money, they are caught in the squeeze between price and demand. As we posited yesterday, the inability to raise price due to the government price controls will create shortages – in this case, labor shortages – and since the fixed price (i.e. free) is driving excess demand, the government has to meet that demand.
What happens? They turn to the free market that exists outside their control and they pay more than the market would have demanded in the first place…and they are hiring more and more health care employees from outside the UK, thereby paying more for jobs that could have been filled by people already living in the country – a form of de facto “outsourcing” by government.
As I wrote yesterday, this system of socialized health care delivery inherently and implicitly guarantees either waste or rationing. There is no way around it. The most basic laws of economics, supply and demand, still apply – even in socialist systems.
Actually there is a way around it – raise taxes – but the supporters of O-Care have so boxed themselves in with cost management promises that tax increases beyond those imposed to implement it aren’t a viable option without admitting total defeat. As a benchmark, I just received my P60 form from Her Majesty’s Revenue Service (the end of year tax statement equivalent to the US W-2) and with VAT and other government “fees” considered, I paid an effective tax rate of approximately 58%.
For evidence of the cost cutting and reduction of care in the UK, this article in the Daily Mail details how A&E departments (what we call emergency rooms or trauma units) are being closed to shunt patients to “urgent care” clinics that really don’t provide “urgent” care:
Revealed: Shocking truth of axed A&E wards (and where it will now take you an hour to reach casualty)
- Full extent of ‘Beeching-style’ closures of major casualty units that leave millions with huge journeys for emergency care
- Documents reveal ‘urgent care’ centres which will replace them can’t even treat anyone who needs routine pain-relieving drugs
A massive – and until now unreported – programme of closures of accident and emergency departments will leave millions forced to use so-called ‘urgent care centres’ that in reality cannot provide urgent care, a Mail on Sunday investigation has found.
The centres are allowed to handle only the simplest injuries and mild illnesses. An NHS document obtained by this newspaper reveals they are legally forbidden from treating a vast array of serious and life-threatening conditions, including shock, internal bleeding, most types of broken bones, breathing difficulties, stab or gunshot wounds, heart attacks, strokes and head injuries.
Extraordinarily, they are also banned from treating patients suffering from ‘severe pain’ – defined as anybody who needs medications not commonly prescribed by GPs, such as intravenous pain-relief drugs.
Why are they closing? Why, to cut costs, of course.
Opponents also argue that the real purpose of the ‘slash and burn’ approach – as it was described by one London hospital consultant – is to save money. The NHS must cut £20 billion from its budget by 2015.
Artificially low price points, inability to actually control costs, labor shortages, reduced quality, attempts to decouple the laws of supply and demand, rationing, outsourcing of labor – these are all “features” of the NHS in the UK and it is simply unrealistic to think that America will not see the same thing.
I think it is paradoxical that even as Obama tries to tie Mitt Romney to outsourcing, his signature piece of legislation almost guarantees it. I’m all for privatization, don’t get me wrong. I just don’t want to pay for a new bloated social program in addition to private services just to get what I would have had without it…and when a socialist program has to go to the private sector to fulfill its obligations, that is exactly what is happening.
Man can temporarily bend and stretch the laws of physics and economics but they cannot be broken. Like a stretched rubber band, they will snap back to equilibrium and the greater the distortion, the greater the pain when they do.