“Government CarAid?”

Frank Lasee is Wisconsin’s 2nd Assembly District Representative

Lasee’s Notes
February 12, 2008

Government CarAid?

Last week I wrote about the health care cost shifting that goes on because the government pays a discounted rate for medical services. This increases the cost all of us pay for on our own healthcare purchases whether insured or uninsured. Some of the feedback I got on cost shifting was skeptical (many understood it, as well).

Let’s use an analogy of car purchasing. Say a dealer has ten cars that he expects to sell for $21,000 each. When the dealer sells the ten cars for $21,000 each, he will have $210,000. After costs of sale, financing and overhead, the dealer expects to average (for simplicity’s sake) $3,000 profit for each car. The dealer plans to have an income of $30,000 from the sale of these cars after covering his costs.

Suppose the government steps in and says that owning a car is a right. Dependable transportation to and from work is essential, which, of course is true. The government creates CarAid. Under CarAid any dealer must sell cars to program recipients for $5,000 for each car. Also for simplicity, each dealer will sell three cars for this $5,000 (30% of the cars sold, same percentage as government medical programs).

If the dealer wants to make the same profit and cover his costs he will have to charge more for the seven cars he sells to non-government buyers. To make the same income, the dealer has to sell each of the remaining cars for about $28,000. Since dealers have to subsidize CarAid, the cost of a car to you just went up to at least $28,000.

Then the dealer ups the list price of all the remaining cars to $28,000 each. Now a car aggregator (like a big insurance company) comes to him and says “I have a pool of car purchasers who will buy four cars from you and we want a 25% discount or we will buy those four cars from another dealer (because he will give us a discount).” So the dealer sells them at a 25% discount or $21,000 to that pool of people. (Note that the 25% discount brings the cost back to the original sale price of $21,000.)

To continue the analogy…

Rep. Lasee hits the nail on the head! More government interaction with Health Care is not the way to drive medical prices down!

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