Private
Profits, a Necessary Evil Making Social
Safety Net Possible
It is a
socialistic idea that making a profit is a vice; I consider the real vice is
making a loss
Winston
Churchill
Today I was
reading today’s health care news.
It went like this:
·
UnitedHealth to exit California’s ObamaCare
exchanges
·
Texas BCBS asks to raise rates by 59.4%
·
Hospitals in ACOs may lose exemptions and
profits as charitable institutions
·
Insurers say they require 2017 ObamaCare rate
hikes to satisfy stakeholders
·
Clinton must defend the calamity of premium
hikes
·
Ohio’s non-profit co-op shuts down.
Deepening Concern over Role of Profit
What these news items share in common are deepening concerns over the role of profits in our health care system. This concern is a rehash of the century’s old argument - how to divvy up profits between the government
and private sectors, between socialism
and capitalism’s special interests.
Since socialist
Bernie Sanders launched his presidential bid,
he has argued that for-profit health care has to go and nobody should
make any money out of health care. The head of western health care system, a nun,
on the other hand, cogently said, “ No margin, no mission.” And Peter F.
Drucker, the father of modern management,
characterized the socialistic mindset as “ Once the ‘wicked private interests have been
eliminated, the right course of action will emerge, and decisions will be
rational and automatic. Private business and profits are bad – ergo, government
ownership must be good.”’
And so it goes. It’s profits
vs. the people, too much profit for business vs.too little money for the
people.
There’s only five problems
with the rosy socialistic scenario.
Trouble with Socialism's Problem with Profit
One, there’s
never enough rich people to go around, and the burden must fall on the middle
class.
Two,
socialism hasn’t worked well for even the most advanced socialistic
countries, many of whom are nearing bankruptcy
from generous social welfare and entitlement programs and most of whom are
scrambling to offer alternative private practices for those seeking choice of non-government
care.
Three, socialism
presumes a centralized remote government bureaucracy can regulate, monitor, and control what goes
on at the level of marketplace where billions of transactions take place.
Four, socialists assume that profit-making is not amicable or “fair” for
the people and that government knows what margins are necessary to run
all health care sectors, in short, that.
Government
may think it knoweth
What
health care profits are best for most of us,
But i markets often bestoweth
What
profit margins are good for the rest of us.
Five, as Edmund Burke (1729-1797), the British parliamentarian
who was sympathetic to the American
revolution, declared: “All government - indeed, every human benefit and enjome3nt ,
ever virtue and every product – is founded on compromise and barter.
(Conciliation with American speech, 1775).
Every Human Activity Requires a Profit
Burke’s point was that every human activity, health care or
otherwise, require a profit margin to stay in business, satisfy constituents or
stakeholders to carry out its mission,
commercial or charitable. These activities include “not-for-profit”
and “for-profit” organizations .
Indeed, the different between for-profit
and not-for-profits is not clear cut.
Indeed, six of the ten most
profitable hospitals are not-for-profit organizations.
Profit Margins Vary in Health Care Sectors
Profit margins vary by health care sector and risks
involved. According to Quora, profits vary by health
care subsector (Sabrina Ali, former health care marketing analyst, these are
profit margins by health industry subsector, May 10, 2016)
Health Care Subsector Example Profit Margin
Global Pharmaceutical Pfizer 43%
Global Medical Device Medtronics 33%
Hospitals HCA 20%
Health Insurance Aetna 9%
Source: Capital IQ for the margins
These margins may appear excessive to socialists
who do not know the dynamics of any given
health care sector, and they will certainly vary within any given
sector, depending on the age the competing organizations and their age.
How government would go about regulating
those in any given sector can be counterproductive, e.g., Pfizer and Medtronic may move to Ireland to
avoid prohibitive U.S. corporate income taxes.
Profits and Economic Growth
Why is this: because the U.S is one of the few countries in
the world that taxes earned abroad and because the U.S. has the highest
corporate income tax (35%) on profits of any major industrialized company. And it can be argued that ObamaCare, because
of its aggressive regulations and high taxes,
has slowed economic growth to 2% compared to the usual 3 to 4% following
a deep recession, the slowest economic
recovery since World War II.
Safety Net and Profits
Everybody agrees the U.S. needs a social safety
net to help the have-nots in our society, but we do not agree how big should it be. The U.S., if you include Medicare, Medicaid,
ObamaCare, CHIP, and the VA in the social safety net, already pays roughly half of the nation’s $3
trillion in health care costs. Given
our national deficit, government debts ( 1/3 of which are due to entitlements), hospitals and doctors going out of business
due to ObamaCare cuts, how deeply should
government cut into corporate and private profits to make government health
care spending sustainable. Only one
thing is certain. A growing economy and
private profits are a necessary evil to pay for government expenditures on the
safety net.
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