Changing The Medical Mindset
This column was written by Sally C. Pipes.
Health care spending is on the rise. As a country, the United States devotes 16 percent of output to health care, more than any other nation. Spending for the poor is straining state-government budgets. Medicare is an increasing burden on federal taxpayers. Employers are struggling to pay for employee health care, passing more costs on to employees and muting salary increases. In extreme cases, those with extensive retiree expenses have gone bankrupt.
What is to be done? A solution currently in circulation is more pooling of risks, or more socialism. This was argued in a widely syndicated Wall Street Journal opinion piece by United Auto Workers president Ron Gettelfinger and based on an article in The New Yorker by Malcolm Gladwell, author of "The Tipping Point." The California legislature embraced it when it passed a bill to establish the government as the single payer for health care. However, Governor Schwarzenegger announced that he will veto the bill.
Yet risk pooling won't reduce overall spending or even individual affordability. A dinner party analogy demonstrates why. If a person can't afford a steak, letting everyone order a steak, pooling the bill, and distributing it back to individuals doesn't make the steak more affordable. As a society, there is no other table to which to send the bill.
For a fresh analysis of health care, people ought to look to economist Arnold Kling's new book, "Crisis of Abundance." Although it offers no easy villain-versus-hero narrative or solution to the challenges of funding health care, it diagnoses the problem with precision.
The perfect health care system, Kling argues, would achieve three goals. It would offer unfettered access; people could receive all the care they needed when they needed it. It would insulate people from extreme health care expenses. It would be affordable for society as a whole, meaning that health spending wouldn't sacrifice other public and private needs.
We can't have all three of these goals. No country or economy can. Socialized systems provide insulation and achieve affordability at the expense of unfettered access.
In Canada, the average wait to see a specialist is 17 weeks. The newly-elected president of the Canadian Medical Association told the New York Times, "This is a country in which a dog can get a hip replacement in under a week and in which humans can wait two or three years."
The U.S. health care system mangles these goals. For example, most people are insulated and, compared to most countries, have unfettered access to expensive medicine. The average person consumes more than $5,000 worth of health care but spends only $1,029 out of pocket.
This insulation from transparent expenses and access pushes total health spending up. Individuals pay in reduced salary. The insulation makes the insurance more expensive, thereby causing employers to drop insurance and individuals to elect not to purchase it. Eventually, we will all pay in increased taxes to support Medicare and Medicaid.
While no perfect solution, there are sound ways to address the issue. The first is honesty. If we want top-tier health care, it will be costly. The question is how to pay. Advocates of greater pooling must confront and quantify the increased taxes or rationing that such programs would necessarily entail.
A better approach is to put the insurance back into health insurance with high deductible plans that allow for long-term insurance protection. While we are young and healthy, most of us will self insure and accumulate money in health savings accounts. When we grow older and need more care, we will have a combination of private money and insurance to insulate us from the devastating expenses of modern medicine. The very poor will be taken care of collectively through Medicaid.
An individual's spending on health care would be transparent under such a system, rather than obscured as it is today. Access would remain unfettered. Most important, people would be insulated from devastating medical expenses.
The biggest obstacle to this transformation is the American mindset, which views health care a something that should be free. For Americans to truly manage health-care expenditures, we must see it as akin to other life necessities, food, housing, clothing, and transportation. The truly needy are provided for collectively, through government programs. The rest of us, must budget for routine expenses and insure against catastrophe.
Sally C. Pipes is president and CEO of the Pacific Research Institute. She is author of "Miracle Cure: How to Save America's Health Care Crisis and Why Canada Isn't the Answer" with a foreword by Milton Friedman.
By Sally C. Pipes
Reprinted with permission from National Review Online