This article appears in the July-August 2008 issue of The American Spectator. To subscribe to our monthly print edition, click here.

THERE’S A MODERN FABLE written by Maurice Sendak in which an apathetic child named Pierre answers every question with the phrase, “I don’t care.” Eventually, Pierre responds that way when a hungry lion warns that he is about to eat him, and the young boy is promptly swallowed whole.

The story of Pierre should serve as a cautionary tale for conservatives in the looming debate over the future of American health care. While the right has been effective at mobilizing support among its activist base on issues such as guns, taxes, and judges, when it comes to health care, conservatives who aren’t involved in public policy for a living tend to tune out.

“I think they find health care a sort of squishy, bleeding-heart kind of issue that doesn’t interest them very much,” laments Greg Scandlen, president of Consumers for Health Care Choices.

Liberal activists have had more than a decade to pore over the failure of HillaryCare in 1994, and should Democrats capture the White House this fall and make further gains in Congress, they will be armed and ready to fight for government solutions to the U.S. health-care mess.

“Conservatives are not comfortable talking about this issue, and they are trying to survive it,” grumbles David Gratzer, a senior fellow of the Manhattan Institute. “Democrats are trying to win it, and as a result [conservatives] are always negotiating the terms of surrender.”

Much like Pierre and the lion, the persistent indifference of conservatives will virtually guarantee that government will devour the private market for health care.

PUSHING FOR FREE MARKET SOLUTIONS to the health-care crisis should be of central importance to conservatives, no matter what branch of the coalition they consider themselves a part. Economic conservatives have spent the past several years fighting earmarks that, all told, cost $20 billion a year. But losing the health-care battle would mean allowing government to dominate a sector in which spending tops $2 trillion annually, representing about one-seventh of the U.S. economy. And forget cutting taxes — the only way to fund even the least ambitious liberal health-care proposals would be to increase taxes by a staggering amount.

Hawkish foreign policy conservatives may think that in the midst of fighting wars in Iraq and Afghanistan, as well as in the larger ideological struggle against Islamic terrorism, there are more important debates to have than a tedious one over health care. These same people have consistently advocated the necessity of augmenting the size of the U.S. military, noting the fact that, by historical standards, we are spending a relatively small amount of our gross domestic product on defense. But rarely do they see the connection between our limited flexibility to increase defense spending in the wake of the September 11 attacks and entitlements, which are soaring in cost largely as a result of health care. Should the U.S. move toward a government-run health-care system, it is inevitable that America will come to resemble European welfare states that are too burdened by domestic spending to allocate much of their budgets to defense.

If the government had to take on more of America’s health-care costs, it would lead to an encroachment of the state in areas that are not immediately obvious. For instance, many of the nanny-state laws that have annoyed small government advocates in recent years–such as smoking and trans fat bans–were justified because ultimately taxpayers have to bear the burden for increased health costs through Medicare and Medicaid. Should the government role in health care increase dramatically, the state will have even more reason to impose draconian rules on Americans in the name of public health. One of the hallmarks of a free society is the right of individuals to regulate their own behavior by assessing its risks and rewards. But when government controls the health-care system, it adds a societal dimension to individual risks, thus giving the state more control over our actions.

This should also be a concern for social conservatives. If government is the leading, or perhaps eventually the sole purchaser of health care, the state will be in the position of deciding who gets what kind of care–this is precisely how government-run systems control costs. The Terri Schiavo case was just a harbinger of the tragic scenarios that are likely to arise in the coming decades with the development of life-preserving technologies. It is quite easy to see how government control of the health-care system would put lawmakers in the awkward position of deciding who lives and dies in such situations by determining how long to pay the bills before pulling the plug.

SOME CONSERVATIVES THINK that they’ll be able to defeat any liberal health-care reform as they did in 1994, but the terrain is now much more favorable for liberals. A May Quinnipiac University poll found that 61 percent of Americans thought it was “the government’s responsibility to make sure that everyone in the United States has adequate health care.” In a Gallup poll taken last November, 81 percent of respondents said they were dissatisfied with the cost of health care and 73 percent thought U.S. health care was either in a “state of crisis” or had “major problems.” Furthermore, with the costs of health care skyrocketing, businesses are becoming increasingly sympathetic to the idea of government stepping in and taking the problem off their hands.

Scared by the political implications of such polling, some Republicans have decided to enact essentially liberal reforms, arguing that this is the only way to stave off more intrusive measures. Along these lines, President Bush signed the largest expansion of entitlements since the Great Society in the form of the Medicare prescription drug bill. As governor of Massachusetts, Mitt Romney imposed mandates requiring every citizen to purchase health insurance, creating a state-managed system that is wildly over budget just two years after being signed into law. And in spite of such compromises, the liberal charge for national universal health-care legislation is fiercer than ever.

But there’s no reason for conservatives to be torn between indifference and acquiescence on one of the most important domestic issues of our time. There is no shortage of good ideas among academics, physicians, policy-makers, and entrepreneurs who envision a future for health care in which consumers are put in control, costs are lower, and people can take their health-care policy with them from job to job, choosing plans that are right for their health-care needs.

For conservatives to win the debate, however, will require several things, the most important of which is that it will need to be reframed. Currently the public perception is that liberals are fighting to change the health-care system with which most Americans are dissatisfied, and conservatives want to preserve it. That is surely a losing argument. Conservatives need to acknowledge there are the deep flaws with the current system, and offer a competing rationale for what caused those problems in the first place. It is important for conservatives to point out that far from having a free market, America is a nation whose health-care system is suffering from ham-handed government intrusions into the free market. Conservatives have to master liberal arguments for increasing the role of government, and be prepared to offer intelligent criticisms that go beyond merely screaming “socialized medicine.” And finally, conservatives have to demonstrate how freeing up the market could reduce costs and improve health-care outcomes.

II

“WE HAVE BECOME SO ACCUSTOMED to employer-provided medical care that we regard it as part of the natural order,” Nobel Prize-winning economist Milton Friedman wrote in a 2001 essay for the Public Interest. “Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer?”

Most free market critics of the U.S. health-care system trace our problems back to 1943, when the Internal Revenue Service ruled that workers did not have to pay taxes on health benefits purchased through their employers. With wage and price controls in place during World War II and labor scarce, many employers took advantage of the favorable tax status to attract workers. In 1954, the ruling became a permanent part of the tax code. As a result, by 2006, employer-sponsored plans accounted for 64 percent of coverage in the U.S., according to data from the Kaiser Family Foundation. With government programs covering an additional 30 percent, only 6 percent of Americans actually purchase their own health insurance. Many Americans may have difficulty seeing the harm in the government encouraging employers to offer health benefits, but the unintended consequences of the ruling would only become obvious over time, and they continue to haunt us to this day.

The biggest consequence of an employer-based private insurance model is that, combined with Medicare and Medicaid, it helped create a system in which most Americans are isolated from the ultimate costs of health care, causing what economists call a “third-party buyer” problem. Like teenagers with their parents’ credit cards, most Americans have no incentive to shop around for the best deal or to limit their spending to what is medically necessary, as they would with other products or services. In a normal competitive market, it is precisely this process that encourages businesses to innovate, allowing them to reduce costs and improve quality.

“The problem with large buyers is that they inhibit entrepreneurialism,” says Regina Herzlinger, a professor at Harvard Business School and author of Who Killed Health Care? America’s $2 Trillion Medical Problem–and the Consumer-Driven Cure. “That is why we don’t have our employers buy our cars, or our houses, or our clothes.”

Friedman noted that though rapid technological advances in agriculture, transportation, and communication have lowered prices in each of those areas, only with medicine has technological change been accompanied by much higher prices–and he attributed this largely to the third-party buyer problem. If health-care spending had continued to grow at the rate it did between 1919 and 1940, prior to the spread of employer-based health insurance and the introduction of Medicare and Medicaid, he estimated that by 1997, per capita medical spending would have been less than half of what it actually was under the current system.

Beyond driving up costs, the employer-based system limits choice, because businesses typically offer only a few health plan options. It makes people afraid to leave their jobs, because they are worried about losing health benefits. And ultimately, the current system is unfair because the favorable tax treatment is not extended to the growing ranks self-employed Americans, who are forced to navigate the inflated individual market.

III

ONE OF THE MOST WIDELY cited health-care statistics is that 47 million Americans are uninsured. But the figure, a key justification for massive government intervention, is deeply misleading. David Gratzer, citing a 2003 Blue Cross Blue Shield report in his book The Cure: How Capitalism Can Save American Health Care, pegs the actual number of “chronically uninsured” at closer to 8 million. That’s because the higher figure includes illegal immigrants, people who go without health care for just a fraction of the year while between jobs, and those who are eligible but not enrolled in existing government programs. Perhaps even more interesting, the same report found that roughly one-third of those households without health insurance earn more than $50,000 a year and more than 16 percent earn more than $75,000 (this being the fastest-growing segment among the ranks of the uninsured). That means that there is a substantial number of Americans who should theoretically be able afford health coverage, but choose to go without it. Why would that be?

While the federal government, through the tax code, makes it difficult for individuals to purchase health coverage on their own, some state governments make it close to impossible. The reason is that many states impose onerous regulations on insurers requiring them to provide certain benefits. That means if a person who is relatively healthy wants an inexpensive, basic plan that would cover him in the event of a sudden catastrophic illness or freak accident, he’s out of luck. Instead, he’ll have to pony up for a comprehensive health insurance plan that pays for doctors he may never visit and prescription drugs he doesn’t need. It’s the equivalent of mandating that a person who is perfectly content driving around in an old jalopy purchase a Porsche or no car at all. That isn’t even an exaggeration.

In New York, a father seeking to buy a typical health insurance policy for his family could lease a Porsche for what it would cost him to pay the monthly premiums. Some would dismiss this as a mere reflection of the fact that things tend to cost more in New York. But that doesn’t explain why in neighboring Connecticut as well as in California–two states that rank right up there with New York for the highest cost of living–a family policy costs less than half of what it does in the Empire State, according to average data compiled by online insurance broker, eHealthInsurance.

J.P. Wieske, director of state affairs at the Council for Affordable Health Insurance, helps compile an annual list of health insurance mandates imposed by the states. The number has exploded from a handful in the late 1960s to a staggering 1,961 today. Some of the benefits companies have been forced to cover include in vitro fertilization, morbid obesity treatment, and lockjaw disorders. Some states require coverage of specialists including acupuncturists, pastoral counselors, marriage therapists, and massage therapists. Additionally, several states have imposed so-called “slacker mandates” allowing parents to keep grown children on their health-care policy until the age of 30.

There’s no reason to cast judgment on those who value such services, and in a free market, they have every right to seek out and pay for insurance policies that are appropriate for their needs. But is it really fair for other citizens who desire basic coverage to go without insurance because they cannot afford souped-up policies?

“Mandates certainly make health care more comprehensive, but they also make it more expensive,” Wieske says. “And we know it drives some people out of the market.”

The report that Wieske co-authored estimated that such mandates can add anywhere from 20 percent to 50 percent to the price tag of a health insurance policy, depending on the state and the type of mandate. It’s no coincidence that New York, one of the most regulated states, is also among the most expensive.

In other forms of insurance, the carrier covers the policyholder only in the event of substantial losses, but in health care an expectation has developed that people shouldn’t pay out of pocket for anything, from major procedures to doctor visits. One can only imagine the cost of a homeowner’s insurance policy that had to cover every call to a plumber, or a car insurance policy that subsidized tanks of gas and oil changes.

UNFORTUNATELY, THE MANDATES on services, specialists, and beneficiaries tell only a small part of the story. The most prominent criticism liberals offer regarding private health insurance is that in a free market, insurers would never want to cover the truly sick–or at least not at affordable prices. For many, the solution is two sets of regulations. One is called “guaranteed issue,” which requires that insurance companies offer coverage to anybody that applies, even if the applicant has a preexisting condition, and “community rating,” which requires that insurers charge the same amount to all comers, regardless of risk factors, so that the young and healthy can subsidize the old and sick.

While such regulations make health insurance more affordable for high-risk patients, healthier citizens are forced to pay more, giving them less reason to enter (or remain in) the market. Making matters worse, because insurance companies cannot deny anybody coverage, those who are healthy are given every incentive to defer purchasing insurance until they get sick. This would be like a motorist waiting until after he gets into an accident to purchase car insurance.

As several states have already passed such laws, there’s no need to be theoretical about their ramifications. “It’s been an unmitigated disaster,” Wieske says of guaranteed issue and community rating regulations in the states.

Kentucky is a textbook example. In 1994, the state legislature passed a health-care reform package that imposed both requirements, causing a mass exodus of insurers from the state. Within two years of enactment, about 60 insurers had exited the market, according to the Kentucky Office of Insurance. This left the state with just one private insurer in the individual market, plus a now defunct state-run plan. As a result, Kentucky was forced to rescind the regulations in an effort to woo back insurers, and now it has seven carriers in the individual market.

Despite the atrocious track record of such experiments, Sen. Barack Obama’s health-care proposal would impose the same type of regulations at the national level. The plan, as described on his campaign’s website, promises “Guaranteed eligibility. No American will be turned away from any insurance plan because of illness or pre-existing conditions” and “affordable premiums, co-pays and deductibles.” It would also create a National Health Insurance Exchange in which participating insurers “would have to issue every applicant a policy, and charge fair and stable premiums that will not depend upon health status.” (Interestingly, Obama has come out strongly against an individual mandate requiring that everybody obtain health insurance, which many liberal policy analysts see as crucial for keeping healthy people within the system.)

While insurers can still do business elsewhere when such regulations are imposed at the state level, they wouldn’t have that option if the requirements were the law of the land. It is hard to see why any presidential candidate would want to impose guaranteed issue at the national level unless the goal were to deliberately destroy the private insurance market. As it turns out, that may very well be the case.

IV

IN MID-MARCH, ABOUT 2,000 progressive activists invaded Washington’s Omni Shoreham Hotel for the annual Take Back America conference organized by the Campaign for America’s Future. The mood was ebullient this year as liberals celebrated the “Crackup of Conservatism” and the “Emerging Progressive Majority,” confident that this would be a winning year for Democrats. When it came to domestic policy, health care received as much attention as any other. Activists roamed the halls with “Health Care Not Warfare” and “I’m A Health Care Voter” stickers, and there were four different panels dedicated to the topic.

In one strategy session, an audience member proposed that they enlist the aid of religious groups in pushing for universal health care, asking, “Who would Jesus deny health care?” Celinda Lake, a progressive equivalent to Frank Luntz, came armed with a slide presentation on the type of rhetoric that resonates best with voters. The word public, she said, “tests better than government.” Lake instructed progressives that they would be more successful if they made people angry, instead of making them fearful. “Rather than make people expansive, [fear] makes people contract to hold on to what they have,” she said. “Animating anger makes them expansive.”

There was broad agreement that the ideal type of health-care system would be a single-payer model, which is a technical term for a socialized system in which the government is the sole purchaser of health care. The big debate was over how to achieve that system. The purists argued that progressives should push for it immediately, while pragmatists insisted that they should focus on reforms that are achievable in the short term, and incrementally move the country toward a single-payer system.

“I’m a single payer advocate,” declared Bob Creamer, a Democratic strategist married to Illinois Rep. Jan Schakowsky, who helped devise the campaign to defeat Social Security personal accounts in 2005. “Here’s how I think we should get there. I think we need to create a public plan that is superior to any private insurance plan, include it in a package that can pass Congress…. As Newt Gingrich used to say about Medicare, he wanted it to wither on the vine. I want private insurance to wither on the vine.”

In another panel at the Take Back America conference, the influential Yale University political science professor Jacob Hacker declared outright that, “You need to have an enemy in any battle, and there are two enemies I would like to have.” The first, he said, was the right, and the second was private insurance. “I really don’t think we can mandate our way, or regulate our way, into getting private insurance to operate in a public-spirited way,” he said.

During this year’s Democratic nomination battle, the primary focus of the health-care debate between Obama and Hillary Clinton concerned the fact that Clinton’s plan required all individuals to purchase health insurance and Obama’s did not. But lost in this back and forth was the fact that both plans included a government-run option modeled after Medicare. To Hacker, this was no small detail. “It’s not like a decal on a car,” he said of the public option. “It’s the engine of the car.”

In a breakaway session during the conference, single-payer advocate Rep. John Conyers (D-MI) tried to quell a room full of progressives who wanted to push for such a system immediately.

“That’s why I didn’t jam Barack Obama on this subject, because this subject would tear up the election of 2008,” Conyers explained. “We’d never come out of this alive if we tried to use the presidential election as a forum to determine (single-payer health care).” He added, “You’ve got to keep your eyes on the prize. The first thing is to get one of our people in there that we can come in and talk to him.”

Back in 2003, Obama expressed similar views. “I happen to be a proponent of a single-payer universal health care plan,” he said at an AFL-CIO event. “As all of you know, we may not get there immediately, because first we’ve got to take back the White House, and we’ve got to take back the Senate, and we’ve got to take back the House.”

Even though Obama has not endorsed such a proposal, he ended up with a plan that, if implemented, would expand the role of government in health care while decimating the private insurance industry. So while it would be inaccurate for conservatives to charge that Obama’s plan would represent “socialized medicine” in the immediate term, there’s no doubt that it would put America on the pathway to socialized medicine.

The popular rallying cry among American progressives is “Medicare for All,” and supporters of such a system cite data showing that patients report higher satisfaction with the government program than with private insurance. The problem is that we already have Medicare for Some, and it’s bankrupting the country by sticking us with a long-term deficit of $36 trillion.

“Why shouldn’t it rank very high in satisfaction?” Harvard’s Regina Herzlinger asks rhetorically. “For every eight dollars that people spend in Medicare, they pay for only one. I’d be very satisfied with that. And Medicare gives you access to almost any provider. It’s a great system. Except for young people and my children and grandchildren who are paying the bill. What kind of great system is that? It’s an intragenerational shell game.”

A pair of recent studies by MIT economist Amy Finkelstein found that within the first five years of its 1966 implementation, Medicare triggered a 37 percent increase in hospital spending, but had “no discernible impact” on mortality rates among the elderly. What it did accomplish was to reduce their out-of-pocket expenses, representing a massive transfer of wealth from the young to the old.

V

LIBERAL PROPONENTS of government-run health-care systems argue that other countries spend less on health care than the United States, and yet are able to provide quality care to all their citizens.

“They don’t do miracles,” explains Herzlinger on the cheaper cost of care in other countries. “They do it through rationing care to the sick. That’s an unacceptable way to control costs.”

In Canada, for instance, citizens are forced to wait months to see a specialist. A 2005 ruling by the Supreme Court of Canada struck down a law in Quebec banning private health care. The case was brought by a Quebec resident after he was put on a one-year waiting list for hip-replacement surgery.

The story is similar in the United Kingdom. After a scandal erupted over patients having to wait for days in emergency rooms for service, the government set a target for state-run “trusts” to treat everybody within four hours. The perverse results would be comic if people’s health were not involved. In February, the Daily Mail reported that thousands of “seriously ill patients” were being kept in ambulances for hours before being allowed in emergency rooms, because once they were let in, the clock would start ticking and the government-run trusts would miss the four-hour target. As a result, the ambulances were not available for new emergency calls.

With the proliferation of horror stories coming out of Canada and the UK, many liberals have pointed to the French system as ideal.

“Sure, because they don’t speak English,” jokes Gratzer, a physician who became a dedicated advocate for free market medicine after practicing in Canada and seeing all the adverse results. He says that because we have access to Google, Americans tend to read more horror stories about Canada and the UK than about France. “I don’t think these systems are radically different.”

In August 2003, nearly 15,000 people died in France when a heat wave struck, and one of the leading reasons given for the heavy death toll was that so many doctors were on vacation. Liberals have used the tragedy of Hurricane Katrina to make the case for why we need bigger government in the U.S., but the disaster in France was the equivalent of eight Katrinas (or about 40, adjusting for population), and yet the same crowd still promotes their health-care system as a panacea.

Furthermore, the French system has run a deficit every year since 1985, and that shortfall continues to grow each year. In May, France received a stern warning from the European Union to get its fiscal house in order so they could meet the organization’s budget rules. It cited health insurance as one of the areas in dire need of reform.

VI

IF MOVING TOWARD a government-run system isn’t a better way to lower costs and increase the number of Americans who have quality health-care coverage, then what is? For Herzlinger, the answer is quite simple: “We do it elsewhere in the economy by letting consumers run loose in the system.”

Herzlinger is one of the leading advocates for a consumer-driven approach to health care in which the market for medical services resembles the market for other goods and services, where competition has forced prices to decline and quality to improve.

For instance, in 1948, a 12-inch black and white television would cost more than $4,000 in today’s dollars. At Best Buy these days, for just one-fourth of the cost, a consumer can purchase a 50-inch flat-panel color plasma HDTV.

In the current health-care system, there are several reasons why technological progress hasn’t had the same results. There is the third-party buyer problem as discussed above, but there is also a lack of transparency. In the rest of the U.S. economy, there is a wealth of information available to shoppers who want to compare prices and quality. When a tourist visits a new city and wants to choose a restaurant, he can pick up a copy of the Zagat guide; websites such as CNET.com and epinions.com, as well as magazines such as Consumer Reports, give Americans the ability to comparison shop; J.D. Power and Associates and Car and Driver allow those looking for an automobile to find a wide range of data, from performance to fuel efficiency. And yet, in the midst of the information age, Americans are forced to make life and death health-care decisions largely in a black box.

“The Maytag sitting in your kitchen I think you know more about than the health-care outcomes at your local hospital,” Gratzer says. “I don’t think that’s because health care is deep, dark, and mysterious, but simply because of the mysterious way we’ve organized it.”

The growth of several online ventures indicates that Americans have a hunger for health care-related information, and that there is the potential for a vibrant consumer market. WebMD Health Corp. owns and operates more than a half-dozen Internet-based sites for health information that attract more than 50 million visitors each month.

Another site, eHealthInsurance.com, which makes it about as easy for consumers to shop for health plans online as it would be for them to purchase airline tickets, has enjoyed tremendous growth in recent years. The revenue of its parent company, eHealth Inc., has rocketed from $16.5 million in 2002 to $88 million in 2007, and the firm recently projected it would be as high as $117 million this year. While this is just a drop in the bucket compared to overall health-care spending in the U.S., its growth suggests that consumers will respond when given the opportunity to compare prices and quality.

“We encourage individuals to think about what they need and then go shopping for it, and the Internet is obviously a powerful place to do that,” said Robert S. Hurley, the senior vice president of carrier relations for eHealth. “What we do is bring transparency to the market.”

Despite its growth, the company still faces obstacles because of the difficult regulatory environment. The company sells health insurance in 46 states, but not in four states that still have guaranteed issue laws. Hurley said there’s “no doubt” that state-imposed mandates drive up the cost of insurance and reduce consumer choice.

Quickly browsing the site shows that in the low-regulation state of Wyoming, a 30-year-old male can choose from 61 plans ranging from a bare-bones policy with a $5,000 deductible that costs $50.82 per month to a plan with zero deductible for $217 a month.

In New York City, only 12 plans are available, ranging from a $136.85 per month policy that only covers hospital services to a comprehensive plan costing a staggering $887.85 a month.

The one silver lining to come out of the otherwise disastrous 2003 Medicare prescription drug bill was the creation of health savings accounts, which allowed individuals to put up to $2,700 (or $5,450 per family) annually into tax-exempt accounts, linked to high-deductible health insurance policies, from which they could pay out-of-pocket medical expenses. The number of Americans enrolled in these types of policies swelled from just over 1 million in March 2005, to over 6.1 million in January of this year, according to a study by America’s Health Insurance Plans (AHIP).

Contrary to liberal stereotype, the purchasers of such plans are not limited to the young, healthy and wealthy; the participants are quite diverse. The AHIP study found that 46 percent of those covered were over 40. Meanwhile, according to a 2005 eHealthInsurance study, 45 percent of enrollees in HSA-linked plans earned less than $50,000 per year. Studies have also shown that those with HSAs are more judicious about their medical spending, but still responsible enough to pay for necessary care.

VII

A LEADING CRITICISM of a consumer-driven approach is that health care simply cannot be compared to other aspects of the economy in which technology has brought down prices, because shopping for something like hip-replacement surgery is not the same as choosing a television. But the evidence we do have from the types of surgical procedures that exist in a competitive market suggest otherwise. For instance, the cost of LASIK eye surgery has declined by 30 percent in the past decade, and the inflation-adjusted price of cosmetic surgery has declined over the past 15 years despite a six-fold increase in demand, according to information cited by the National Center for Policy Analysis.

Still, critics argue, most medical decisions are made under stressful conditions, and, especially in emergency situations, consumers are not going to have the time or be in the emotional state to rationally choose among alternatives. Besides, the whole discussion is moot, they say, because insurance will be picking up the tab for the most expensive procedures anyway, so consumers will never be concerned with shopping around for the cheapest price.

But Herzlinger is dismissive of such criticisms, because most medical decisions are not made in emergency situations, and to the extent that they are, when a people choose their health plans in a consumer system, they would also decide where they would want to be taken in an emergency. The important thing to keep in mind about a consumer-driven system, she says, is that people wouldn’t be shopping for each and every procedure, but for a health plan — and the price of the health plan would be determined by what providers and centers are included in the policy.

Furthermore, the system would lead to a wide variety of choices, not just in terms of price and quality, but also in the length of a policy — which could revolutionize the health insurance market. Currently, insurance policies have to be renewed each year.

“If you are morbidly obese, an insurer doesn’t have an incentive to permit you to have bariatric surgery, because five years from now, when you’re slim and trim, you’re likely to be on somebody else’s insurance policy,” Herzlinger explained. “In a consumer-driven market, you can have these long-term policies because the consumer framework is different. The consumer may be interested in a long-term policy that says, ‘Look, you get in shape, you lower your health-care costs. We’re going to share half the savings with you.'”

Another significant advantage of having a free market for health care is that it would allow entrepreneurs to develop what Herzlinger calls “focused factories.” An example would be specialty hospitals that concentrate on one type of medical treatment, such as heart disease, hoarding all the latest technologies and expertise into one building that is smaller and more humane than behemoth hospitals that handle everything. While some doctor-owned specialty hospitals have enjoyed success, they have faced huge obstacles, including a moratorium imposed by the U.S. Congress, and hardball tactics by large hospitals that exploit their non-profit status, and fear competition.

VIII

HEALTH-CARE ANALYSTS OFFER several ideas for reforms that would usher in a consumer-based market. Most pressing is the need to change the tax code that makes the country overly dependent on employer-based policies. The purist free market reaction would be to simply scrap the benefit altogether, which would lead to higher salaries with which individuals could purchase their own insurance and which would save the government $200 billion in tax subsidies. The more politically palatable option would be to extend the same tax status to individuals purchasing insurance on their own, which would lower the ranks of the uninsured and allow people to maintain their insurance when they leave their jobs.

Another reform would be to allow individuals to purchase insurance across state lines, which would create a national market that would help consumers get around onerous regulations.

A change that Herzlinger believes is crucial to an efficiently functioning market would be requiring hospitals and doctors to disclose data on patient outcomes and publish prices, so that consumers can make informed choices.

The biggest challenge of any health-care system is answering the question of how those with pre-existing conditions and chronic illnesses such as diabetes would get covered, because it often isn’t profitable for insurers to take on the risk.

To some extent, opening up the market would help, because if it were easier for people to purchase cheaper, high-deductible insurance policies in the individual market, insurance companies could capture premiums from healthier people and bring them into the risk pool, thus offsetting potential losses from higher-risk patients.

John Goodman, the president of the National Center for Policy Analysis, says that “what we need is a market for sick people….In normal markets, entrepreneurs go after unmet needs. That’s how entrepreneurs make money, but in health care we’ve made it very difficult for people to make a profit by meeting the needs of sick people.”

Beyond that, there are several other solutions offered for how to cover the very sick. One option is to create risk pools, which have already been experimented with in some states. Under this system, all the riskiest patients would be taken out of the normal insurance market and given the option to choose among a number of plans. At the end of each year, an administrator would tally up the cost of the losses for treating those patients, and insurers would divide up the cost among themselves. The result is that the losses get spread out, so no single insurer has to worry about getting stuck with a high concentration of the difficult cases.

Herzlinger would prefer organizing things the way they do in Switzerland, where there is a consortium of insurance companies. The companies that take on the higher-risk patients receive compensation from the companies that get the healthier patients in a system that resembles revenue sharing in Major League Baseball.

The point is that there are plenty of ways to approach caring for the sick that don’t involve destroying the private health-care market.

WHILE IT STILL NEEDS MORE fleshing out, John McCain’s health-care plan actually goes a long way toward addressing the most egregious problems with the system. His proposal would provide tax credits to individuals and families for purchasing health insurance, thus ending the tax code’s discrimination against the individual market; he would move to allow people to purchase insurance across state lines; and he would improve transparency.

The contrast between the McCain and Obama plans actually provides conservatives with a valuable opportunity to make the case for a free market approach, but it remains to be seen whether McCain himself, who is more comfortable discussing other issues, will dedicate the energy required to sell the American people on his own proposal. Either way, the current political environment is a difficult one for such a proposal, because liberals have spent years dictating the terms of debate.

The road to instituting free market reforms in health care will be a long one, and conservatives have a lot of catching up to do. Gratzer notes that conservatives spent decades laying the groundwork for welfare reform, and several states had to experiment before it was actually achieved in 1996.

At the end of the Maurice Sendak tale, a doctor shakes the lion that ate Pierre, and the boy tumbles out. He is alive and well and has learned a lesson: care. But that’s just a children’s story. If conservatives do not become actively engaged in the health-care debate and soon, there won’t be any second chances. Once the state gets its claws on the remaining segments of the private health-care market, the long-running battle over the size of government will be over — and government will have won.

Philip Klein is a reporter for The American Spectator. This article appears in the July-August 2008 issue of The American Spectator. To subscribe to our monthly print edition, click here.