Like Pulling Teeth...
Katherine Mangu-Ward | May 31, 2007, 4:34pm
Surprise! Medicaid dental care ends up hurting poor kids.
Earlier this year, Deamonte Driver, a 12-year-old boy living in Maryland, died after he got a tooth infection that led to a brain infection. Deamonte had never seen a dentist. The problem wasn't that he was among America's 47 million uninsured. He was covered by Medicaid, the federal health-insurance program for the poor, which includes dental care for kids. But Medicaid reimbursement rates for dentists in Maryland—as in many states—are set at such low rates that few dentists accept Medicaid patients. ...
And so now we have rationing without calling it that. Politicians trumpet gains in Medicaid coverage for children, while the reality is that the shortage of providers leaves sick, poor children without care.
tarran | May 31, 2007, 6:09pm | #
I should point out that Medicare and Medicaid drive up the cost of medicine.
The price of a good drifts towards the point where the supply of a good is completely consumed. This is called the market-clearing price.
Now the price that people are willing to pay is based on how much they want something in relation to other potential goods and services they could spend their money on, and the quantity of money they have.
For example, Paris Hilton might, if hungry enough, be willing to pay $10,000 on a hamburger since she has the money and is so desperate for one.
On the other hand, a similarly hungry person with $500.00 in the bank will probably balk at paying more than $5.00 for a burger.
Programs like medicare and medicaid increase the pool of dollars available to pay for medical care for the consumer. Thus, a consumer who would balk at spending more than $50.00 of their own money for a cleaning will happily purchase the services of someone charging $350.00 for the cleaning because someone else is picking up the tab.
So, a dentist who would have trouble in a free market filling his schedule charging $50.00 an hour can with government subsidies fill his schedule at $500.00 per hour.
And, as the market-clearing price rises, more and more people find themselves suddenly unable to afford the medical services. These people lobby for relief, and are frequently added to the pool of people receiving subsidies. This additional pool of money available for the services increases the price point that people are willing to pay, thus increasing the market-clearing price, leasing to increased political pressure to increase the subsidies.
It becomes a vicious positive feedback loop that continues until the limit of the government's ability to suck money out of the economy is reached. Of course, once the "shoe-event horizon" is crossed things get a mite unpredictable.
Tony | May 31, 2007, 9:13pm | #
Tarran is absolutely correct in his statement regarding government subsidies increasing the cost of goods (in this case medicaid increasing the cost of dental care).
Like almost all things, dental care is scarce, in that there is not an unlimited supply of dental care. As such, it must be rationed somehow. What is the most efficient way of rationing dental care, such that the most people enjoy the most utility from receiving and supplying dental care? Why, the free market, of course.
Unfortunately, interference with the free market almost always results in inefficient results, such that some people who would otherwise have received dental care, and some people who would otherwise have provided dental care, do not receive such utility.
Tarran pointed out one way in which the government has interfered in the market, by providing subsidies. This results in price increases by artificially inflating demand. Yes, some people who would not have received dental care now do because of the subsidies, but the trade-off (and there is always a trade off) is that others who would have received dental care do not because the price has increased and their dental care is not subsidized. Furthermore, those not receiving the subsidy will face higher prices themselves. And of course, there is the overall cost of the subsidy, which in this case directs resources to dental care that would be more efficiently used elsewhere (say for consumers purchasing food, or health care, or investing).
Normally, if the only interfernce in the market is a subsidy, this will result in an increased supply that matches the new price caused by the increased demand. However, in the area of dental care, the market is unable to respond so freely. This is primarily caused by the government restrictions on supply in the case of licensing requirements. The more stringent the requirements, the more costly the initial costs of providing dental care (including time spent in school and training, lost income while attending school, cost of schooling, cost of board exams, licensing fees, etc..) the less dental care that will be provided. And with such restrictions it is very difficult for the market to respond efficiently to price changes caused by changes in demand.
Thus, we have in the area of dental care a two-front assault on efficient distribution of resources. One the one hand we have the government artificially inflating demand with subsidies, and on the other we have government artificially limiting supply with increased costs in the form of barriers to entry in the market. This of course results in artificially inflated prices much higher than what the market price would be.
So how does all this relate to the child who dies because he didn't receive dental care? Would he have received it if the government had not interfered with the market? Who knows. This is a single claim for demand, whereas the market looks to the aggregate. He might have fallen into the category of those who would not have received dental care even in a free market. It is of course a terrible tragedy that this boy died. But from the perspective of government policy, which must deal in the aggregate, it remains but a single isolated incident.
One thing that can be said...the more government interferes in markets (all markets), the less efficient the markets become, and the greater the burden on consumers overall. This has two results that directly impact a case like this one.
First, because of inefficient allocation of resources, consumers cannot receive and pay for all goods and services that they would have otherwise; their resources become diverted to other areas, such as paying for taxes to cover subsidies, paying increased prices for other goods and services deemed more important, etc.. (This is represented by the deadweight loss resulting from subsidies, taxes, and the like that causes inefficiencies in the markets). In other words, the child's parents might have been able to provide dental care if not for government interference in the market; they might be paying more for housing, food, transportation, clothing, health care, etc, than they would otherwise, and could not afford to provide dental care.
Second, the inefficiences caused by government interference reduce the amount of charitable giving, since those who would have made charitable gifts cannot due to increased costs associated with said inefficiences. Perhaps this child would have received aid from a charitable organization or individual that would have provided some or all of his dental care expenses.
Overall though, it seems that in this isolated case, the resulting tragedy falls most likely on the parents shoulders. A reasonable parent would have remained aware of their child's well-being and would have taken steps to deal with it. Given that the preventative costs of this death would not have been abnormally high, it is likely that they could have acquired sufficient resources to provide appropriate dental care, either through attempts to increase income or through charitable gifts.
However, this should not cause confusion over the fact that government interference in the market does cause inefficient allocation of resources, and those inefficiences DO result in such societal costs as unnecessary deaths.
