- To understand what is going to happen to America's health
care delivery system, we must first understand what has happened to Detroit.
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- Detroit is dying. Yes, I know that there are lots of
books on "The Death of. . . ." That word sells books. But Detroit
really is dying. It is the first metropolis in the United States to be
facing extinction. We have never seen anything like this in American history.
It is happening under our noses, but the media refuse to discuss it. To
do so would be politically incorrect. Two factors tell us that Detroit
is dying. The first is the departure of 900,000 people over half
the city's population since 1950. It peaked at 1.8 million in 1950.
It is down to about 900,000 today.
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- In 1994, the median sales price of a house in Detroit
was about $41,000. The housing bubble pushed it up to about $98,000 in
2003. In March 2009, the price was $13,600. Today, the price is $7,000.
Check the price chart.
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- There has never been a collapse of residential real estate
values of this magnitude in peacetime history, anywhere. Detroit is dying.
We are unfamiliar with anything like this. The media are silent. The Powers
That Be are not interested in reporting on this, because readers might
ask the obvious question: "How did this happen?" Obvious questions
tend to lead to obvious answers.
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- Detroit has been killed by flight out of the city. The
2008 Clint Eastwood movie, Gran Torino dealt with this problem. Eastwood
plays an 80-something Korean War veteran who will not leave the neighborhood.
His children keep bugging him to sell and move into a retirement home.
He will not hear of it. He is alienated from them and from his immigrant
neighbors: Hmong refugees from South Vietnam. The Hmong have trouble with
the Blacks. Every group is essentially trapped in a neighborhood, with
the gangs running the show.
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- There is no surge of buyers to take advantage of fabulously
low prices in Detroit. Can you imagine buying a home for cash for $13,600
in 2009 a house that had sold for $98,000 six years earlier
and losing half your money? It's incredible.
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- The Wall Street Journal recently ran one of the most
creative stories I have seen in years. The journalist told the story of
the history of a 5-bedroom home in Detroit, from the land purchase to its
recent sale. It was built by one of the most influential man you have never
heard of, Clarence Avery. Avery was on the Ford Motor Company team that
conceived of implementing an assembly line for Ford's factory. He copied
the idea from a hog-slaughtering operation. His home was a very nice home
for the time. The journalist located his daughter, now age 91. She said
that she always thought the home was the best home she ever lived in.
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- As recently as 2005, the home sold for $250,000. It was
purchased by a woman who was lent $200,000 to buy it. It was financed by
a subprime loan. The asking price was $189,000. Where the other $61,000
went, the woman has no idea. She defaulted. The deteriorating house was
bought by a Christian organization that is renovating it. The house sold
for $10,000.
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- This is simply inconceivable to anyone who is unfamiliar
with Detroit since 2005. Nothing like this has ever happened. How can we
conceive of a lender lending $200,000 to a woman to buy a $250,000 home
offered at $189,000? How can we conceive of a fall in price from $250,000
to $10,000? This is the sign of a dying city. This does not happen in a
normal environment. Even with the mania created by Fannie Mae and Freddie
Mac, in conjunction with Alan Greenspan's Federal Reserve, nothing like
this has happened anywhere else.
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- If you had predicted anything like this in 2005, you
would have been dismissed as a crackpot on crack. You would not have been
taken seriously by anyone. Yet it has happened.
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- The city planners, the Federal government's subsidy defenders,
and the welfare state aficionados are all discreetly silent about Detroit.
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- The city funds its schools with property taxes. Property
taxes have collapsed as sources of revenue. An honest property tax system
will generate less than ten cents on the 2003 dollar.
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- Last week, the school board announced the closing of
one-quarter of Detroit's schools. The city is out of money. The central
agency of propaganda by the government is in the process of closing up
shop. This is not "anti-business as usual." This is collapse.
The American public does not perceive what is happening in Detroit.
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- When a city simply shuts down from the effects of government
mismanagement, the media say nothing. Detroit has become the poster child
of government regulation, welfare systems, and a population that has given
up hope. The media say nothing because they are caught in a dilemma. If
they say that the local government's welfare programs are not really to
blame, what does that leave? The unmentionable issue: 82% of the city is
Black. So, that means blaming white employers, who discriminate, despite
40 years of Federal anti-discrimination laws. But the main non-employers
today are the region's auto companies, and two of the three are partially
owned by the U.S. government. One GM is mainly owned by the
retirement fund of the United Auto Workers. So, the media are not about
to blame the auto companies not now. That leaves that other politically
incorrect issue: the rate of illegitimacy, which is in the 80% range. That
social phenomenon represents a moral collapse, but the participants were
all educated by the tax-funded schools.
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- Who ya gonna blame? The media pundits cannot decide,
so they simply ignore the collapse. "Detroit? Never heard of it."
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- The lesson of Detroit is this: the experts do not see
a collapse coming. They assume that next year will be like today, give
or take 3%. They do not believe that anything as complex as a city can
collapse. So, they believe that things will continue, as they always have.
Taxes need not be cut. Spending need not be cut. Schools should be allowed
to educate. Tax-funded welfare programs should be increased. When it comes
to tax revenues, "there's always more where that came from."
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- And then, overnight, the system collapses. The assumptions
were wrong. Real estate prices collapse, indicating an irreversible flight
of capital from the city. The ability of the government to collect taxes
collapses.
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- OBAMACARE
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- This brings me to the other subject: the health care
law. It is not law yet, but it soon will be. I know what is going to happen.
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- 1. Cost overruns
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- 2. Fraud
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- 3. Additional coverage extended to groups
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- 4. Rising deficits in the program
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- 5. Lower payments to physicians
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- 6. Lower payments to hospitals
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- 7. Delays in payments
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- 8. Rising taxes on the rich
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- 9. Rationing by doctors, hospitals, government
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- 10. Delays in treatment
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- 11. More HMO care: assembly line medicine
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- 12. A search for scapegoats
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- In 1977, I was involved in an early warning operation.
Three teams of physicians and economists toured the country. We hit 30
cities in two weeks. We warned physicians in poorly attended meetings that
something like Obamacare was coming. It has now arrived. The physicians
we spoke to are mostly retired. They saw some of this happen on a minor
scale, but they escaped.
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- I spoke about the percentage of the GDP (then GNP) devoted
to heath care: about 7%. Today, it is 15%. Medicare and Medicaid have increased
costs. The care is no better. Except for technology, it is arguably worse.
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- Obamacare will lead to an expansion of these forms of
medicine:
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- 1. Concierge
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- 2. Wal-Mart
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- 3. ER
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- 4. HMO
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- 5. Mexican
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- CONCIERGE.
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- The rich and very rich hire their own physicians. They
pay top dollar. The physicians do not take third-party payments, either
from the government or insurance companies. They are independent practitioners.
They make house calls. The houses they call on are very large.
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- For the upper middle class, there are fee-for-service
physicians. They take no third-party payments. They do not make house calls.
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- WAL-MART.
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- These are the walk-in clinics. They are price competitive.
They treat minor ailments. They sell services on a one-time basis. They
take credit cards. They may or may not cater to the Medicare crowd. They
are assembly-line clinics. There are no major surgeries or other high-cost,
high-risk services.
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- ER.
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- Large hospital emergency rooms are mandated by law. The
poor get treated there. In a life-and-death emergency, they work. People
who would otherwise die in a couple of hours are saved. For walk-in patients,
the ERs ration by time. Patients demonstrate their patience.
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- HMO.
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- This style of medicine is efficient. It cuts costs by
cutting services and cutting time. You see the physician on duty. You may
not have seen him before. His job is to get you in and out as fast as possible.
Time is monitored by the company. Computers make this easy.
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- MEXICAN.
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- This is off-shore medicine. In Canada, when you can't
get treated for months or years, you come to the United States and pay.
This will not be possible for Canadians much longer, except for rich ones.
Mexico will serve upper middle-class Americans as the USA has served Canadians.
It is possible to get very good surgical care in Asia and Latin America.
You have to know who the good practitioners are. Asian hospitals sell for
25% the same level of services. There is less regulation there. Plane fares
are cheap. A stay in a hotel is cheap.
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- There will be entrepreneurs who set up Websites off-shore
that direct Americans to practitioners abroad. The Web allows this sort
of advertising.
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- Physicians who practice alone or in small limited liability
corporations will find that they cannot compete under the new payment system.
Assembly-line medicine will replace the traditional doctor-patient relationship.
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- TRAPPED
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- Most physicians are trapped. They cannot sell their practices.
The price of practices has been dropping.
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- Foreign-trained physicians who can pass the U.S. tests
are coming to America. They are competitive.
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- Technical Services that can be digitized are being outsourced
to India and other Asian nations.
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- Young American physicians begin with a lot of debt. They
need income fast. They will be hired by the HMOs and clinics. They will
not reach the salary level of this generation of physicians. They will
be upper-middle-class income-earners.
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- There will be specialists, of course. Plastic surgeons
who specialize in making rich women better looking will not be part of
the new system. They will be able to do well. But for the typical practitioner,
his career options have been dramatically restricted by the new law. I
think most physicians will stick it out until they retire at age 67. They
owe money. They need the income. The law's most restrictive provisions
will not kick in until 2014. They will adjust.
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- Residents of Detroit also adjusted. Then, without warning,
the economy changed. Those who were still living in the city saw their
capital disappear.
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- People put up with the devils they know. They do not
look for a lifeboat when they hear the ship scrape the iceberg. They assume
that it will be business as usual.
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- Then, one fine day, it isn't.
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- CONCLUSION
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- You had better decide which kind of medical care you
can live with. Then you had better locate a practitioner soon. This is
especially true if you want a fee-for-service physician. People with money
will go to them. They are already hard to find. They charge more. It's
not easy to become a patient. They are booked up.
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- If you have an existing physician, do what you can to
become an above-average patient. You had better start getting into shape.
You can no longer afford to be vulnerable to the diseases and afflictions
of a flabby lifestyle. ObamaCare has changed the risk-reward ratio. Risk
has just gone up. It will continue to go up.
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- There will be no roll-back of this law. It is going to
be enforced for as long as the U.S. government has money. That may not
be as long as Obama thinks.
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- Gary North is the author of Mises on Money. Visit http://www.garynorth.com. He
is also the author of a free 20-volume series, An Economic Commentary on
the Bible.
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