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National Review Online


Real Health-Care Reform

October 08, 2009

By Paul Howard

In health care, Canada and Europe provide great models of what not to do.

“I am not the first president to take up this cause [health-care reform], but I am determined to be the last.” You’ve got to give President Obama credit for his boundless self-confidence: He has never met a problem that he wasn’t destined to fix. It might come across as charming naïveté, however, to the leaders of Canada, the U.K., France, and Germany, where health-care spending remains a sticky and expensive problem despite “solutions” that date back to Bismarck.

A glance at our wealthy competitors reveals not a benighted America ignoring the commonsense solution (i.e., single-payer health care) embraced by our “civilized” cousins, but rather very similar systems struggling to match limited resources to aging populations and rapidly advancing medical technologies.

Third-party payment systems (translation: “Somebody else pays the bill”) in the U.S. and other affluent nations create the illusion that health care is free or nearly free to the patient when he walks into the doctor’s office or needs a hospital bed. But nothing is more expensive than “free” health care.

In the U.S., thanks to a tax rule dating from World War II, employers typically pay most of the cost of private health insurance for their employees — a disguised form of compensation. This increases health-care inflation, as workers opt for health-insurance plans with high pre-tax premiums and low post-tax deductibles. Private-health-insurance premiums have nearly doubled since 2000. And remember: Every dollar that goes into your employer-sponsored health insurance is a dollar that comes out of your take-home pay or 401(k).

Government safety-net programs for the poor (Medicaid) and the elderly (Medicare) aren’t in any better shape. There is no Medicare “lock box” that pays for seniors’ coverage: Current workers pay the medical bills for today’s seniors, and as the balance between workers and retirees tips into the baby-boomer abyss, the program faces a long-term deficit of some $38 trillion. Medicaid spending is split between the federal and state governments, meaning that no one really controls spending. In 2008, the Office of the Actuary for Medicaid estimated that Medicaid spending would increase by nearly 8 percent annually over the next ten years, reaching a staggering $670 billion by 2017.


Well, what about handing over the entire health-care budget to Uncle Sam? Sure, Medicare and Medicaid aren’t paragons of fiscal virtue now, but maybe if we doubled down, things would improve.

Government-dictated health-care budgets can undoubtedly hold down costs in the short run by squeezing doctors, hospitals, and drug companies, who have no choice but to sell to their one and only customer. But in the long run, rationing takes its toll, as doctors retire or refuse to take on new patients, waiting lists lengthen for scarce hospital beds, and medical innovation stagnates as investment capital for new drugs shifts to other, more lucrative sectors. In short, single-payer systems can starve health-care providers of funding for only so long before facing the inevitable consequences.

What are those consequences? Consider some recent news from Canada and Europe:

In 2005, in response to a challenge by a physician operating a private (and therefore technically illegal) clinic, the Canadian supreme court ruled that, under the Quebec Charter, access to a waiting list was not the same as access to health care. Emboldened by the Quebec example, more than 70 private clinics now operate in British Columbia, offering MRIs and surgeries in days or weeks; by contrast, it can take public hospitals months to provide these same procedures. Brian Day, former director of the Canadian Medical Association, recently told the Los Angeles Times: “What we have in Canada is access to a government, state-mandated wait list. . . . You cannot force a citizen in a free and democratic society to simply wait for health care, and simply outlaw their ability to extricate themselves from a wait list.” The supreme court of British Columbia may soon rule on whether these services are legal, which could further splinter the government’s monopoly on health-care spending.

Despite massive increases in government spending on the National Health Service (NHS) over the last several years (the NHS budget has tripled since 1997), the U.K. still lags behind Europe and the U.S. when it comes to the treatment of chronic disease. In 2007, The Lancet Oncology reported that England’s cancer-survival rates were among the worst in Europe: They were equal to Poland’s, despite the fact that England spends at least three times as much on health care as Poland does. For women, England was sixth worst out of 22 countries surveyed. (The U.S. led in overall cancer-survival rates for both men and women.) In June, NHS officials released a report warning of a “huge budget shortfall” starting in just two years.

France and Germany have more decentralized systems than either Canada or the U.K., and appear to have better outcomes as a result. But they are still struggling to control costs: France had a €4.4-billion health-care deficit in 2008, and that figure is expected to rise to €10 billion in 2009 and €15 billion in 2010. (France spends about 11 percent of GDP on health care, second only to the U.S.) Costs are exploding in Germany as well: “Everything has gone downhill,” one German nurse recently told Deutsche Welle. “We all have less time, there are so many cuts, patients are dissatisfied, especially the elderly ones.” Doctors are pushed to spend less time with patients, and more German doctors have to rely on private patients to cover their costs. (Only about 10 percent of German patients have private insurance coverage.) An August poll found that nearly 60 percent of physicians “had thought about walking out on the public health sector in favor of a job in private health care,” and 62 percent of the general population “did not have a good impression of the health-care service.”

Every developed nation is struggling with rising health-care costs, and the rate of growth in U.S. spending isn’t much different from the corresponding rates in other rich countries. The Kaiser Family Foundation reports that, from 1990 to 2003, total per-capita health-care costs rose by 3.6 percent annually in the U.S., compared with 4.2 percent in the U.K., 7.1 percent in Ireland, 3.2 percent in France, and 4 percent in Australia. More recently, my Manhattan Institute colleague Dr. David Gratzer calculated that the U.S. averaged real annual growth in health-care expenditures of 4.95 percent from 2000 to 2006, compared with an OECD average of 4.9 percent.

And, of course, at the end of the day, the generous welfare states in Canada and Europe are financed by high taxes that kill jobs. As the French economist Guy Sorman wrote recently in City Journal, “economists agree that unemployment rates and the cost of national health insurance are directly related everywhere, which partly explains why even in periods of economic growth, the average French unemployment rate hovers around 10 percent.”


Single-payer solutions may seem more attractive, but they don’t seem to be any more efficient. The employer-based solution in the U.S. provides more innovation and choice, but it doesn’t encourage the kinds of productivity gains we’ve seen in other sectors of the economy. An approach not yet embraced in either Europe or the U.S. involves giving consumers more control over their own routine health-care decisions.

There have been some intriguing experiments. In 2003, Congress authorized tax-free health savings accounts (HSAs) to pay for routine medical expenses, provided that such accounts were linked to high-deductible insurance plans. A 2009 study of HSAs, based on four years of data collected by economist Benjamin Zycher, found that premiums for these consumer-directed plans were 10 to 40 percent lower than premiums for other types of plans. More than 6 million Americans now have HSAs.

As part of the same 2003 legislation that created HSAs, Congress added a new prescription-drug benefit to Medicare, called Medicare Part D, and gave seniors a choice of prescription-drug plans with varying coverage and premium costs. Thanks to choice and competition in the program, the Centers for Medicare & Medicaid Services estimates that total ten-year spending under the program (2004–2014) will be nearly 40 percent lower than originally estimated.

Looking for more consumer-driven options? Check your local grocery aisle. Whole Foods offers HSAs to all of its employees who work more than 30 hours per week, paying 100 percent of the premiums and giving workers as much as $1,800 annually to spend on routine medical expenses. Money that isn’t spent rolls over. The CEO of Whole Foods, John Mackey, estimates that the company spends “$2,100 per employee, and about $7,000 for a family . . . about half what other companies typically pay.”

Since 2005, Safeway has offered an employee health-care plan that rewards healthy behavior. Premiums for employees vary based on smoking, weight, blood pressure, and cholesterol levels — all risk factors for high-cost chronic diseases. “If [employees] pass all four tests, annual premiums are reduced by $780 for individuals, and $1,560 for families,” explains Safeway CEO Steve Burd. Over the last four years, the company’s per-capita health-care costs have been flat, while other employers have seen their costs go up by 38 percent.

We should be expanding and building on these consumer-driven experiments, but instead President Obama and the Democrats are proposing to add more government subsidies, more price controls, and more regulations. These policies will constrict patients rather than empower them. The result will be exploding costs and growing consumer frustration with a sclerotic system.

Original Source:



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