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Obamacare's Costly Flaw

February 25, 2010

By David Gratzer

The administration has blamed rising costs on things that make U.S. health care different from other countries’, but the data suggests otherwise.

Today, President Obama will meet with congressional leaders for a summit to discuss reforming American health care. The White House is expected to tout aggressive measures to reign in spending, and then contrast the president’s ideas with the smaller and — in the administration’s view — less substantive Republican proposals. And while the White House may or may not be successful in persuading Americans during the televised event, data from around the world suggests that White House proposals are unlikely to do much to “bend the curve” of health costs, to use the president’s favorite expression.

On this, we can all agree: American health care is feverishly expensive, swallowing up 17 percent of GDP. Since 2000, health-insurance premiums have more than doubled, affecting the bottom lines of businesses and hitting Middle America in the pocketbook.

It’s not surprising, then, that since inauguration the administration has made the reduction of “long-term growth of health-care costs for businesses and government” its highest priority for health reform. “If we do nothing, then health-care inflation is going to keep on going up at 8 percent, 9 percent, 10 percent a year,” the president said last July, urging immediate action.

Over this past year, the administration has blamed rising costs on things that make U.S. health care different. American private insurers are too greedy. American doctors prescribe wastefully. American doctors are paid inefficiently.

The White House has pushed sweeping measures: a Medicare-style plan to compete with private insurance; new bureaucratic committees to define and oversee private coverage; expansions of public programs; and a government body tasked with bettering health care by guiding the decisions of doctors. White House budget director Peter Orszag crowed that the latest Obamacare bill “contains more cost containment and delivery-system reforms . . . than any bill that has ever been considered on the Senate floor, period.”

Of course, the very same “cost containment” systems exist in countries with socialized health care. And if the White House has confidence in a government-based solution to this problem, here’s the irony: Health-care inflation rates in the United States have been similar to those in government-managed systems that often employ the sort of regulatory policies championed by the White House.

Over the long term, the difference between the rise in costs of American health care and the OECD average from 1990 to 2006 was just 0.4 percent annually — even though bureaucrats manage most of the health spending in those other countries. Jump ahead a few years, and the trend hasn’t changed. Health care might be cheaper in socialized systems (in part, because of rationed care), but, even with their long waiting lists, costs are rising just as quickly there as here. Consider the 2009 figures:

  • In Britain, health costs rose 3.1 percent (and a full 5.5 percent increase in the strictly controlled hospital sector).
  • In Ireland, the republic’s health-care system produced 2.5 percent health inflation; Irish prices declined by 5 percent across the economy, by the way.
  • Germany’s inflation rate was at a 20-year low of 0.1 percent; health costs still rose by 1.8 percent.
  • In Canada, health costs rose by 3.0 percent.

Canada is an interesting case study, since private insurance is banned in most of the country. Yet commentary in newspapers would be familiar to an American reader. The Toronto Star insists “something must be done” to reverse “unsustainable” spending growth. The Globe and Mail describes spiraling health costs as a “ticking time bomb.” But if costs are rising, government rationing can be felt. This month, the Province of Newfoundland’s highest elected official, Premier Danny Williams, went to the United States for urgent heart surgery, insisting the necessary treatment was unavailable in Newfoundland.

And how did the United States do with its lack of Obama-inspired Canada-Irish-German-style bureaucratic controls? Health inflation here was 3.4 percent last year, just over double the basic inflation rate. Tellingly, the worst cost increases were experienced by . . . government. Medicare costs were up 8.6 percent, and Medicaid, up 9.9 percent.

Make no mistake: That 3.4 percent may be lower than the alarmists predicted, but it’s still no cause for celebration. Whether it’s as high as other countries’ or not, health inflation is unsustainable. And international trends suggest health inflation is caused by the things that make America similar to other Western nations: worsening diet and fitness habits; higher health expectations; an aging population; costly new medical technologies; and payment systems that tend to insulate people from the economic consequences of their decisions (mainly private insurance here and public insurance abroad).

If the president wants to have a useful talk about health reform, his summit should focus on affordable wellness incentives, cutting expensive, one-size-fits-all regulations, and creating market competition to attack the real causes of health inflation. Sadly, the summit is more likely to be another attempt at political theater, with government-run “cost containment” as the dog-eared script.

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