Health carelessness

The debate over changes to the U.S. health care system has gone global.

No matter where you live, it seems, it’s easy to criticize your health system.

In England, where increased taxes have more than doubled funding for the National Health Service, the average wait for hospital treatment last year grew to 49 days.  Getting a new digital hearing aid can take five years. 

In Canada, Nova Scotia and Ontario towns have held lotteries to decide who gets to see the doctor. 

Even the World Health Organization’s highest-rated health care system has serious shortcomings.  Following a 2003 heat wave in France, more than 15,000 of that nation’s elderly died due to a lack of hospital facilities and too few available doctors.

And then there is the United States, where soaring health care costs, millions of uninsured and an insurance bureaucracy are Exhibits A, B and C for those who favor universal, centrally controlled or so-called “single payer” health care.

What’s wrong

From a market-based perspective, all of the world’s health care systems have significant problems, most notably a disconnect between the consumer and the actual cost of the service provided. 

In most developed nations, the government decides what kind of health care is available and rations it accordingly.  Patients may never receive a bill for services (they’re already paying it via taxes), but wait times and the limited range of available services bring about an unhealthy system. 

Those who feel shortchanged by this approach must either do without or contract for private services, which, in some countries, is illegal.

In the U.S., a combination of government agencies and insurance companies has taken over most health care decisions, including what’s covered or not covered, and at what cost. 

There are plenty of private sector insurance plans in the U.S., but, in reality, almost all of them closely reflect government guidelines for reimbursement. 

Thanks to a complicated system of co-pays, preferred providers and third-party billing, most patients in the U.S. have no clue as to the actual cost of their care.

For that matter, neither do most patients in countries with nationalized health care.

Perverse incentives

Being connected with the true cost of health care provides a powerful incentive for managing costs.  Unfortunately, that connection has been seriously eroded.

In 1960, Americans personally paid
for 47 percent of all health care procedures.  Altogether, the private sector paid 75 percent. 

Today, the private sector pays 54 percent and individuals pay barely 10 percent.

Over that same period, government’s share of health care payments has almost doubled, from 25 percent to 46 percent.

Because so much of health care is now paid for by third parties, including government programs such as Medicare, health care as a percentage of U.S. Gross Domestic Product has swollen from 5.5 percent to more than 16 percent of GDP.

This increase in the portion of health care paid for by third parties is partially driven by a perverse tax incentive: employer-paid insurance premiums are typically deductible while personal payments generally are not.

Doctors also face perverse incentives.  Many physicians feel pressured to perform extra services and order additional tests in hopes of avoiding lawsuits.

Patients seldom have the incentive to work with doctors to optimize the trade-offs between quality of treatment and cost.

Essential ingredient

Another factor driving costs higher is the lack of competition.

In free markets, competition improves quality, expands choices and lowers costs. But in the global health care market, competition is an endangered species.

In the UK, for example, citizens can lose access to all national health services if they seek further, private treatments not offered by their government.

In the U.S., insurance companies are usually prevented from competing across state lines and are given mandates on what coverage to offer. 

Ironically, some reform proposals in both the House and Senate of the U.S. Congress seem intent on further reducing competition by establishing a “not-for-profit public option” for health insurance.

Never mind that plenty of non-profit insurance cooperatives already exist, or that a program very similar to the Senate proposal, in Massachusetts, has already led to rising costs and higher insurance premiums.  

Curiously, as America leans toward a more costly, less competitive European health care model, much of Europe is headed the other direction.

Germany, Slovakia and Sweden – all countries with nationalized health care – are now contracting for health services from private, for-profit groups.

Other people’s money

It is an inescapable fact of life that when we know how much something costs and we’re paying for it personally, we tend to make better choices.

If you’re shopping for beef by the pound, filet mignon may cost two or three times as much as a sirloin steak and five or six times as much as brisket. 

Depending on your budget, you might choose ground beef tonight.

On the other hand, if you expect someone else to pay the bill for your grocery shopping, your behavior will probably be dramatically different.

You might be tempted not only to choose filet mignon, but also lots of it.  When millions of others do the same, we soon have a sharp increase in the cost of filets.     

Whether you’re talking about steaks or stents, there is no escaping the law of supply and demand. 

Any health care system that assumes someone else will pay the cost of services and hides the true cost of those services is headed for trouble.

Skin in the game

Health care costs are also being driven higher by a lack of personal responsibility.   

Cardiovascular disease, cancer, diabetes and obesity account for about three-fourths of all U.S. medical procedures.

All four could be dramatically reduced by exercise, a sensible diet and giving up tobacco. 

Healthy people require less health care.  And yet, all around the world, those with a healthy lifestyle tend to pay the same insurance rates – or taxes – as those with unhealthy lifestyles.

Just as grocery shoppers need to be connected with their spending decisions, we need to be connected with our lifestyle choices and health care decisions.  

To get a better handle on health care costs, it makes sense to ask questions of health care providers and challenge their assumptions about the need for tests and services.

Most health care systems are biased against timely, accurate information for consumers. We cannot make good decisions without good information.

What to do?

Any reform of health care is doomed without proper incentives, competition and individual responsibility.

This is as true in the U.S. as it is anywhere in the world.

The fact that some in the U.S. cannot afford health insurance doesn’t change economic reality.

It is not uninsured patients that are driving America’s health care costs higher.  It is rising government expenditures and mandates that are spiraling out of control.

This year, 40 percent of personal income tax revenues in the U.S. will go toward paying interest on the national debt.

The U.S. is already facing trillions of dollars in unfunded liabilities for programs such as Medicare and Medicaid. 

Given these circumstances, further health care spending on an even grander scale is patently unaffordable.

As costs rise, government has no option but to ration care and limit choices.

French health care taxes, levied at a rate of 20 percent of income, are covering only 60 percent of costs.  Consequently, France is discussing cutting benefits and raising prices.

If Americans want to reduce the cost of health care, then more Americans need to take responsibility for their general health and make better-informed choices.

A more market-based solution for those that cannot afford health care or insurance is targeted assistance and subsidies, not a complete government takeover.

Government health care policy should promote competition and consumer choice.  Centralized control will only lead to higher costs while reducing choice and quality.