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The Health Care Number You Didn't Hear

February 26, 2010

By David Gratzer

On Thursday, the President gathered with Congressional members to discuss health reform. The President and Democratic leaders spoke of many numbers in their attempt to rebuild support for their proposals.

They mentioned 30 million (the number of uninsured Americans, according to the White House), 17 (the percentage of GDP spent on health care), and 1912 (the year when Teddy Roosevelt first called for universal coverage). But here’s the number that no one mentioned: 12. And while all the other numbers are important, the key to reforming American health care rests with that one number, unmentioned.

American health care is expensive. If we spent what Switzerland does, we could cut income tax rates by 80%. And American health care is getting more expensive. Federal government figures indicate that health costs rose by 3.4% last year, roughly double the rate of inflation. It’s not surprising, then, that the Obama White House has advocated “bending the curve” of health costs since Inauguration.

And, for the past year, the Administration has attempted to explain to Americans why health costs keep rising. The President spoke in July of Americans being offered two pills - “a red pill and a blue pill” - that are equally good, but one is half the price. Translation: drug companies are greedy. The President toured the Mayo Clinic, one of the best hospital complexes in the world and noted that Mayo physicians are on salary. Translation: your fee-for-service doc is greedy. The President used his September address to a joint session of Congress to bemoan the dearth of competition in the health insurance industry. Translation: insurance companies are greedy (and running a cartel).

If greed is the trouble, the White House seeks to address these woes with a raft of new regulations and rules. Obamacare will cut the profitability of pharmaceutical companies; it will create a committee to pay doctors for what the committee views as quality medicine; it will introduce a new Medicare-style public insurance to compete with private providers. Washington, in other words, will grow. The House version of the White House’s proposal would create more than 100 new federal agencies and bodies.

But the problem with American health care isn’t greed, its structural. After all, food and clothing are all organized with the profit motive - and the President isn’t giving speeches that your butcher is too greedy or that Macy’s is overly concerned with the bottom line.

The problem, ultimately, is 12.

A bit of background: American health care is an accidental system. Private coverage - the type most Americans have - has its origins in the wage controls of the Second World War as employers offered rich health-insurance benefits in pre-tax dollars. Public coverage like Medicaid and Medicare, on the other hand, takes its inspiration from the Beveridge report in Britain, drafted in the early 1940s; Lord William Beveridge believed in zero-dollar health care - that people ought to pay nothing at the point of use. Today’s American health care fuses these two systems, but with a common economic flaw: people are overinsured, paying pennies directly on every dollar of health service they receive.

The end result: for every dollar spent on health care in the United States, just 12 cents comes out of the individuals’ pockets. Imagine what food costs might be if your employer paid 88% of your grocery bill or what a trip to Saks might be like if your company covered the vast majority of the costs of the shopping spree.

Far from addressing the 12 cent problem, Obamacare would exacerbate it. With its rich subsidies, expansion of government programs, insistence that all insurance cover specific services (and some with no copayments at all), Obamacare would pour fuel on the fire of health inflation. It’s one reason that even the chief actuary of the Centers for Medicare and Medicaid Services - a federal employee - predicts cost rises under the President’s plan.

The White House has been sharp with its critics, demanding that they outline an alternative vision. Here’s one: that Washington move decisions away from bureaucrats (be they corporate or government) and empower individuals and families. In other words, American health care should be more like the other five-sixths of the economy where consumers spend more of their own money - certainly much more than 12 cents on the dollar - and get more value for it.

Original Source: http://www.realclearmarkets.com/articles/2010/02/26/the_health_care_number_you_didnt_hear_98362.html

 

 
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