The news that the threat of new restrictions on the Second Amendment has spurred a sharp increase in the number of Americans seeking to buy guns should not come as a surprise to people who consider the incentives created by the actions of government. In many ways, the run on guns reported last week by Examiner can shed light on what can be expected as the reforms of the Affordable Care Act go into effect.
In economic terms, the run on guns is the result of an artificial increase in demand. This is driven by the threat of interrupting the supply of guns, particularly assault weapons like the AR-15. People who think that they might want to own an assault rifle are buying one now, while they are still legal, rather than waiting.
The effect of this increased demand is two-fold. Some retailers, like the pawn shop in Cartersville, increase the price of their AR-15s to react to the increased demand. As the price of the guns increased, more and more buyers found themselves priced out of the market. Eventually the price and level of demand would find equilibrium, where the number of guns and the number of buyers would be equal.
Other stores, like Atlanta’s Bass Pro Shop and the Barnes Store in Carrollton, that did not increase their prices to reflect the new levels of demand, found that their stock of the guns was quickly depleted, leading to a shortage. The price that they charged was based on the old, lower level of demand so there were too many buyers for the supply of guns.
The lessons on supply and demand learned from the increased demand for guns apply directly to the changes that are forthcoming in the market for healthcare. When the Affordable Care Act goes into full effect next year, the Congressional Budget Office estimates that there will be an additional 14 million Americans who become covered by health insurance. This represents a massive increase in the demand for health care services. This will be a permanent increase in demand rather than a temporary one as with the gun buyers.
The assumption made by the architects of the Affordable Care Act was that most of America’s uninsured were young people who chose not to purchase insurance because they were healthy. It was believed that these young people would purchase health insurance policies to comply with the law, but then not use them. In effect, the young and healthy were being forced to purchase insurance to subsidize the older and sicker people.
The assumption that new insureds will not use their insurance is probably not a good one. The Kaiser Foundation estimates that by 2016 the average annual premium for an individual health insurance policy would be approximately $5,000. For a family, the average premium would be $12,500. The national average salary is $42,979 according to the Social Security Administration. This means that 11 percent of the average individual’s salary will go to pay for health insurance. If the worker is the single breadwinner supporting a family, health insurance costs will eat up nearly 30 percent of his income. (In some cases, these insurance premiums will be paid in part by government subsidies. The Kaiser Foundation offers a calculator to estimate premiums and subsidies here.) It seems likely that if a person is forced to spend thousands of dollars each year for insurance, they will use it as much as possible. They will avail themselves of the preventive care services in their plans and go to the doctor for each sniffle, cough, sneeze and stubbed toe. This will translate into almost immediate shortage of doctors.
The dramatic increase in demand for health care services will disturb the equilibrium in the market. In a free market, the increase in demand would lead to an increase in prices. In the real world, health care is not a free market. Prices are already somewhat controlled by the government, through reimbursements for Medicare, Medicaid and Social Security, and by insurance companies with negotiated rates.
There are several possible responses to the increased demand. The most obvious would be to increase the number of doctors to match the new demand. The problem is that doctors take years to train. Medical school takes four years after obtaining an undergraduate degree. After medical school, new doctors do a one year internship, followed by four to six years of residency, depending on their area of specialization. Essentially, it takes a decade to fully train a doctor, not counting the undergraduate degree. Even if we start training multitudes of new doctors now, they will not fully enter the system for another ten years. To cut the training time short would sacrifice the quality of the education and the depth of experience.
A second possibility would be to allow doctors to raise their prices. As with the AR-15s in the pawn shop, when prices rise, more buyers find that they don’t really need that product after all and demand falls. To some extent, insurance companies are trying to control the cost of health care by using increased cost sharing already. Many health policies are moving away from flat copayments to a model where the insured pays a percentage of the cost of their care. In theory, this means that the insured will shop for better prices and use less care. In reality, few people know how much their care will cost until they have already received it.
The problem with letting prices increase is that one of the stated goals of the Affordable Care Act was to reduce the cost of health care (or to at least slow its rate of increase). Higher prices are certain to be unpopular with voters as well as politicians. Prices are already starting to rise because of new coverage mandates and community rating according to a study by the American Academy of Actuaries detailed in Forbes.
The other alternative is for the government to impose price controls. The effect of price controls can be seen in the gun retailers who maintained the price of their AR-15s below the actual market rate. High demand means that there are not enough guns, or health care, to go around. Doctors will not accept new patients. Existing patients may not be able to get an appointment when they need one. Waiting rooms will overflow and wait times will be long. Patients who are truly sick might not be able to see a doctor when they really need one.
Think this can’t happen? It already has.
Because government reimbursement rates for Medicare patients are below market rates, there is already a shortage of doctors for Medicare patients. The Atlanta Journal reported last year that many Georgia retirees are unable to find a doctor who will accept Medicare. The problem is not limited to Georgia, however. According to the New York Times, many doctors around the country no longer accept Medicare. The Times notes that there are already thousands fewer doctors than needed and that the problem will be compounded by the new health law and retiring Baby Boomers.
Massachusetts, where Romneycare served as the prototype for Obamacare, is also suffering a severe shortage of many types of doctors. The Associated Press reports that seven of 18 medical specialties were in critical or severe shortages in 2012. These include shortages of basic specialties such as family medicine, internal medicine and general surgery. Predictably, this means that patients in Massachusetts have long wait times. According to Boston.com, only half of Massachusetts primary care physicians are accepting new patients. Once a patient finally locates a doctor who will see them, the average wait is 45 days for an appointment. In spite of the subsidies in place under the law, half of the respondents still say that affordability is still the most important health care issue.
The problems with government controlled health care are not limited to Medicare and Romneycare. As Examiner reported last year, shortages of health care are common in countries where health care is run by the government. In Canada, the Montreal Gazette reported in 2012 that wait times for cervical, breast and ovarian cancer surgery is three times longer than government bench marks. This is a death sentence for many cancer patients. In England, the Independent reported in 2011 that the National Health Service is openly rationing many types of health care. In 2008, the Daily Mail described how patients were left in ambulances for up to five hours so that hospitals could meet government targets for timely care. One of the most horrifying examples of government health care run amok comes from the Netherlands where CNN reported in 2004 that health officials were working with doctors to create guidelines to kill people with “no free will” including children, the mentally retarded and people in comas. In 2012, Wesley Smith, senior fellow of the Discovery Institute, estimated in the Daily Caller that as many as six percent of Dutch deaths involving end of life career involved doctors intentionally killing their patients.
Around the world, government control of health care costs lives when people are unable to get the medical care that they need in a timely manner. It seems that no government and no commodity, whether it is health care or guns, is immune to the economic laws of supply and demand.