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The "12 Cent Problem"

January 26, 2011

By David Gratzer

At the end of the day, Republicans and moderate Democrats need to remember one thing: the Administration is right — there really is a problem with American health care. With each passing year, costs rise without a clear increase in the overall value of care. The Administration may be wrong in its prescription, but the diagnosis is solid.

Since Inauguration, the Administration has attempted to explain to Americans why health costs keep rising. The President toured the Mayo Clinic, one of the best hospitals in the world and noted that these physicians are on salary. Translation: your fee-for-service doc is greedy. The President used his Congressional address to criticize the dearth of competition in the health insurance industry. Translation: insurance companies are greedy (and running a cartel). The President has spoken of two pills —“a red pill and a blue pill” — that are equally good, but one is half the price. Translation: drug companies are greedy.

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 regulate insurance companies right down to the percentage of profit they can make on a dollar of revenue.

But the problem with American health care isn’t greed, its structural. Food and clothing are organized around the profit motive, too. And despite the hyperactivity of the White House, at no time have they contemplated initiatives to regulate department stores or the nation’s grocery chains.

The problem, ultimately, is the number “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 cost of the shopping spree.

Far from addressing the 12 cent problem, Obamacare exacerbates it with further subsidies and grants, which only increases the share that insurers will pay. Americans are being pushed further from the financial consequences of their health-care decisions.

Republicans and moderate Democrats can seek to tame the worst aspects of ObamaCare, but the overall problem of American health care remains. In the coming years, the prescriptions need to be bold: strengthening health savings accounts; empowering patients with meaningful health information; moving Medicaid to the states to allow experimentation; recognizing the overly generous commitment of Medicare and tempering it.

Original Source:



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