The other day a commenter recommended David Goldhill’s article on health care reform from the forthcoming Atlantic, and let me now do the same. It’s a long piece, and not easily excerpted, but absolutely worth reading carefully and in its entirety. Here’s a quick summary of what I take to be its most important points:
1. We spend too much money on health care. 18% of GDP, a quarter of our total economic growth from 2000-2008, 20% of total government spending … you know the drill. And like the housing bubble, this is largely the result of misguided government policies that distort the market in the name of combating undersupply, on which more shortly.
2. We treat “health insurance” and “health care” as synonymous, but they shouldn’t be. Understanding the purpose of health insurance as that of paying for all of our health care expenses is a quite recent phenomenon, and it has a lot to do with the post-WWII policy of subsidizing employer-provided health benefits, which quickly became the norm (and was mimicked by Medicare and Medicaid) and crowded out alternative methods of payment. Among others, one consequence of this is the vast amount of money we spend – $500 per person, as of 2006 – just to staff the insurance bureaucracy.
3. There is a massive moral hazard problem. Patients have little direct financial incentive not to request whatever expensive treatments they see on TV, and doctors have clear financial incentives to provide them. Combine this with a massive informational asymmetry, and costs spiral perpetually upward; individuals with health insurance (or “insurance”; see #2 above) spend nearly four times as much of other people’s money on health care than do individuals without it, and in many instances the attendant benefits are marginal at best.
4. We’re the only ones who can pay. Not the health insurance or drug companies, whose profits would fund our appetite for health care for less than half a year. Not our employers, who just take it out of our salaries (and the would-be salaries of our would-be coworkers). And wouldn’t some of that money be better spent doing something else?
5. Governments can’t do enough reduce costs. Concerns about innovation aside, state bureaucracies aren’t actually very good at cost control; even the costs of Medicare have risen consistently (and their relatively low costs are largely the product of shifting costs onto non-beneficiaries anyway), while single-payer systems like those in France, Canada, and the U.K. have lately seen increases in per-capita spending comparable to our own.
6. Regulation limits competitiveness. State laws make interstate competition an impossibility. Licensing requirements form huge barriers to entry. Safety regulations are reshaped by powerful interests as a way to disadvantage their would-be competitors. Government laws and payment policies have encouraged a situation where large and powerful hospitals, rather than smaller specialty clinics, have a near monopoly on many forms of care. None of this is the result of a free market, and little if any of it works to our benefit.
7. Medical providers work to serve the people who pay them, not the people in their care. With the exception of billing, hospitals and other health providers have little incentive to make IT improvements. Costs are hidden from potential patients, which of course is a perfect way to inflate prices and discourage real competition. And very little is done to encourage greater transparency with respect to cost or quality of care.
8. The costs of medical technologies are vastly inflated. In contrast to the open, competitive, and relatively transparent market for ordinary consumer goods and, say, services like LASIK surgery (with insurance seldom covers), much new medical technology is used in a way that involves little incentive to lower prices. And as per the above, this can’t be fixed through supply-side remedies; the only solution is to alter the way we make our demands.
9. The present push for “comprehensive” reform will do nothing to solve the underlying problems. Rather, it will only perpetuate many of the present system’s worst excesses, thus further solidifying the sorts of tendencies that have given rise to the present mess. (This is an important point to be made in response to those who argue, not unreasonably, that the present situation demands that we move quickly and not sacrifice the better for the perfect; as I’ve suggested before, the flip side of this is the risk that self-styled “reforms” are passed with much fanfare, and then the demand for truly necessary changes comes to an end with a whimper. Short-term gains can easily become long-term losses.)
10. The proper response is a shift toward consumer-driven care, with subsidies for the poor and a single program of truly catastrophic insurance available to all. In other words, pretty much what I’ve been saying.
Please note that Goldhill is a Democrat, and that he comes at this issue as a businessman who recently lost his father to poor hospital care, rather than an industry wonk with a line to toe. If anyone knows of any especially forceful criticisms that have been made of his argument, please do link to them in the comments and I’ll take them up in a future post. In the meantime, you should read the whole thing.
P.S. Here are the transcript and audio from an interview with Goldhill on NPR’s Morning Edition.