PrintSeptember 7, 2009
Why Should We Want Politicians To Redesign Our Healthcare?
The first question we should be asking in the healthcare debate is: Why should anyone think that politicians would do a better job redesigning our healthcare than the free market?
After all, politicians have helped create the problems (healthcare costs increasing at an unsustainable rate and a growing number of uninsured) that politicians now are in a hurry to try to fix. For example:
- Tax subsidies for employer-purchased insurance have encouraged the overconsumption of healthcare (because many employers have purchased insurance tantamount to prepaid healthcare), limited employees' choice of insurance plans to whatever the employer offers, and required employees to switch plans (and sometimes lose coverage) when changing jobs.
- The medical liability system has encouraged healthcare providers to practice defensive medicine (i.e., order procedures and make referrals primarily to avoid liability for malpractice rather than to benefit patients) amounting to an estimated 8-15% of total healthcare expenditures (an estimated $201-$376 billion in 2009).
- The government has been mismanaging the trillions of dollars held in trust for current and future Medicare beneficiaries. The trust funds will be exhausted in 2017. Medicare fraud costs up to $80 billion a year (15-20% of Medicare spending).
- Because Medicare and Medicaid don't fully reimburse the costs of physicians and hospitals to provide services, purchasers of private insurance pay a hidden tax of almost $90 billion each year to make up the difference.
- Benefits that the government mandates insurers cover increase the cost of basic health insurance by 20-50%.
Now that politicians are putting their minds to "comprehensive" reform, it's fair to ask whether proposed reforms will improve healthcare. For example:
- Will the Democrats' plan reduce the rate at which healthcare costs increase? No, costs will increase at a faster rate, according to Congressional Budget Office (CBO) Director Elmendorf.
- After the federal government spends $1 trillion-plus on reforms, will the amount it has to spend on healthcare be reduced? No, the CBO has estimated that government spending on healthcare will continue to grow each year (at a greater than 8% rate).
- At least the Democrats' plan won't increase the budget deficit, will it? Despite $583 billion in tax increases and $219 billion in Medicare and Medicaid cuts, the CBO has estimated that the plan will increase the federal budget deficit by $239 billion over the next 10 years and will "probably generate substantial increases in federal budget deficits" during the following decade.
- Will everyone be insured? No, the CBO estimates that the House Democrats' plan will leave 17 million uninsured. It estimates that the Senate Democrats' version will leave 34 million uninsured.
- Will defensive medicine costs be reduced? No, the Democrats haven't even tackled that issue.
- Oh, and a pesky little detail: who will care for the millions of newly insured?
Despite the vital importance of healthcare, individuals have been a non-factor in making financial decisions about it. Most individuals are covered by insurance purchased by their employer. Others receive healthcare provided by the government, which will spend $1.2 trillion on healthcare (47.5% of all healthcare expenditures) in 2009. The percentage of healthcare expenditures that the individual pays out-of-pocket has dropped from 40% to 14% since 1970.
Some people argue that we shouldn't even talk about market-based reforms for healthcare because consumers can't make the complicated healthcare decisions required for the free market to work.
However, consumers who've had to pay for healthcare out of their own pocket have forced healthcare providers to become innovative and price conscious to compete for business. For example, the cost of cosmetic surgery has been increasing at about half the rate for goods in general even though the number of procedures performed has increased almost 600% and there have been enormous technological advancements. The price for LASIK vision correction surgery has actually fallen.
Ironically, the same people who argue that healthcare decisions are too complicated to be left to consumers have faith that 1/6 of our economy can be better run by politicians, even though politicians don't read (let alone comprehend) the legislation they pass and exempt themselves from the requirements. People so condescending to consumers somehow are confident that politicians skilled in the art of compromise won't compromise our health care.
While we're moving toward greater government control of our healthcare, other countries have been recognizing the value of market-based reforms. In response to growing criticism of healthcare rationing and a lack of incentives for efficiency and innovation, the Netherlands in 2006 set up an exchange selling private insurance (no public plan is offered) to everyone. The 2008 Euro Health Consumer Index rated the Netherlands' healthcare the best in Europe.
What are some of the things that politicians could do to improve our healthcare? They could:
- Establish a national health insurance exchange where individuals, businesses, nonprofit organizations, and other entities could purchase private insurance. The government's role in administering the exchange should be to enforce insurers' promises, make sure that participating insurers have the financial strength to honor commitments, and provide clear information about cost, coverage, and quality.
- Establish a risk-equalization fund compensating insurers in the national exchange for insuring less healthy individuals and charging insurers for insuring very healthy insureds. That would encourage insurers to compete based on cost and quality instead of their ability to attract healthier insureds.
- Allow insurers to offer health-status insurance, which guarantees that the insured can purchase a policy from any insurer at the rates offered healthy individuals even if the person's health has deteriorated.
- Eliminate mandated benefits so that insurers can offer lower-priced policies tailored to the needs of the insured. Let insurers give discounts for healthy behavior (e.g., not smoking, controlling weight and blood pressure, and monitoring blood sugar levels).
- Replace the current tax exclusion for healthcare benefits provided by employers with an income tax credit that is available to everyone, refundable (meaning that those with little or no tax liability can receive it), payable in advance, and assignable to an insurer.
- Help lower-income individuals obtain insurance by automatically enrolling them in a high-deductible insurance plan covering major expenses (but allow a change in plans). Make up any difference between the income tax credit and the cost of the plan, and separately provide funds covering the deductible.
- Reduce defensive medicine by establishing health courts run by experts and protecting providers who follow recommended guidelines. Providers who don't follow such guidelines should be sanctioned.
- Encourage healthcare providers to be innovative in improving quality and controlling costs by eliminating rules that discourage disclosure of prices, restrict collaboration among providers, and limit the services for which providers can receive payment (e.g., physicians may not be able to charge for telephone and e-mail consultations).
- Increase the number of healthcare providers and let lower-cost providers perform services that don't have to be done by physicians.
The free market allocates resources the way the individual wants, not the way the government decides the individual should want. The free market encourages innovation; government encourages conformity. Advances are made through individual ingenuity, not government directives. There is no limit to the improvements that could be made to our healthcare if market forces were unleashed.
