Fixing Health Care in the US

Nima, EconomicsJunkie.com

The large majority of Americans hold health insurance. It is estimated that about 15.6% don’t. But out of those who don’t, most are between jobs and not having health insurance remains a temporary phenomenon. About a quarter of the uninsured lack coverage for periods of less than one year.

The health care debate in the US too often focuses on health insurance per se. The real problem, however, is the fact that health care products and services themselves are too expensive. If one had to pay only a tenth or less of current prices for, say, a hospital visit or a doctor’s appointment, one might not even need insurance and could easily pay out of his pocket.

But even if one were to buy an insurance policy, the premiums would be much lower if prices for products and services were lower. Thus, the main objective of health care policy needs to be the lowering of prices along with an improvement of quality of all health care products and services offered.

Why are prices for health care so high in the US? It is simply because, aside from defense, there exists no sector in this country with higher government involvement than health care. In fact, public health care spending in the United States is higher than in most other large western countries. The Trouble With Bureaucracy is that always and everywhere it leads to higher prices and lower quality.

Every expansion of governmental powers (…) will inevitably lead to a bureaucratic misuse of the scarce factors of production available, an increase in poverty, and a lower standard of living for everyone.

The Montreal Economic Institute points out some interesting fact about the US health care system in Two myths about the U.S. health care system:

A totally private system?
Another big myth presents the U.S. health care system as totally private, or almost. It is true that most health care establishments are private – either for profit or non-profit – and that private health insurance systems generally run on a for profit basis (apart from Blue Cross and Blue Shield). But it is incorrect to suggest that public health care spending is low or that no public health insurance system exists in the United States. The U.S. very clearly has public health insurance systems, Medicare and Medicaid. Heavy public spending also goes toward various areas such as public hospitals or Department of Veterans Affairs facilities.

With everything taken into account, public health care spending in the United States is higher than in most other large western countries (see Figure 1). Public health care spending as a proportion of GDP is 6.6% in the U.S., putting it ninth among the 30 OECD countries. It should be noted that the U.S. comes just after Canada, where public health care spending accounts for 6.7% of GDP. Moreover, per capita government spending is higher in the U.S. than in Canada – $2,364 compared to $2,048 at purchasing power parity, based on OECD data.
(…)
The corollary of this myth is that the health care market in the United States is completely free and that unbridled capitalism runs rampant. In fact, the U.S. health care market is highly regulated at several levels, leading to distortions in the use and supply of care. This explains in part the difficulty that millions of Americans face in paying for private insurance. Standards set by state governments and by federal authorities are ubiquitous in the insurance field, limiting the introduction of cheaper, more accessible policies. Regulations specify, for example, which medical procedures an insurance policy must cover. Private health care supply is also tightly regulated, both by the medical profession and in the management and financing of health care establishments.
(…)
Conclusion
Contrary to myths that have been going around, only a small minority of Americans are involuntarily uninsured on a long-term basis, and even these people generally have access to free health care. Public health care spending is higher in the United States than in most other OECD countries, and the U.S. has sizable public health insurance systems.

The problems of the U.S. health care system largely result not from its private character but rather from the heavy regulation to which it is subjected and from the way the insurance system functions. The tax treatment of insurance and the very low degree of direct involvement by policyholders in controlling health care costs are partly responsible for bloated insurance premiums and for the presence of a certain proportion of uninsured people.

As with public financing, when the payer is a third party, costs tend to run wild. In this regard, it is not very surprising to see that the most innovative solutions proposed for reforming the U.S. health care system resemble those suggested for dealing with problems in the Canadian system. These solutions involve the assumption of greater responsibility by patients receiving care and a liberalization of supply mechanisms, whether in terms of care or its financing.

One highly promising suggestion involves health savings accounts, established in 2003 with slightly over a million accountholders across the United States by March 2005. These accounts enable individuals to build tax-free savings for coverage of health care costs while purchasing insurance policies with fairly high deductibles but lower premiums. Be that as it may, a more realistic perspective of the advantages and flaws of the U.S. health care system would lead to a more pertinent debate than the repetition of unfounded myths.

… if we truly want to fix the US health care system, that means lowering prices for health care services and products, we need to take those facts into account.

Any proposal that suggests even more government involvement, decrees, and spending than we already have, needs to be rejected unconditionally.

If you want to look for true solutions, listen to those people who recommend the opposite of what we have been doing for the past decades, and in particular the past 8 years, during which President Bush presided over an increase of public health care expenses on the federal level of no less than 100%.

Listen to the people who recommend to get the government out of health care, to spend less on Medicare and Medicaid, and to get rid of government decrees and rules that aim at regulating the market for health products and services.

Only then will the dream of affordable health care for every single American become reality.

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