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Do we really want to rein in medical costs?
Having failed to excite the majority of American about covering 30 million of their fellow citizens at the expense of jeopardizing their own medical care, the Obama Administration has settled on an even more implausible reform argument — extending these benefits will lower medical costs.
The amen chorus in the press has seconded this claim. “Dramatic figures in the [recently released Center for Medicare and Medicaid Services] report show that health care accounted for 17.3% of the U.S. economy in 2009,” writes Kate Pickert in Time. “The increase in health spending, from $2.34 trillion in 2008 to $2.47 trillion in 2009, was the largest one-year jump since 1960. CMS predicts total U.S. health spending in 2019 will be $4.5 trillion. This will bolster the Democratic argument that dramatic health reform is an urgent need that must happen quickly.”
The New York Times paints a similar picture of a system spiraling out of control:
If nothing is done, the number of uninsured people — 46 million in 2008 — is sure to spike upward as rising medical costs and soaring premiums make policies less affordable and employers continue to drop coverage to save money.
The Congressional Budget Office projects 54 million uninsured people in 2019; the actuary for the federal government’s Centers for Medicare and Medicaid Services projects 57 million.
All this raises an embarrassing question. If more and more people are losing coverage, why do costs keep going up? The Times’ answer is that by postponing treatment, uninsured people end up requiring more expensive care. Or alternately, if they are treated anyway, hospitals will slip the bill to other patients. But none of this adds up. There is widespread agreement that preventive treatment is just as expensive if not more so as emergency treatment. After all, isn’t it all that preventive medicine to guard against lawsuits that is driving up costs? It is indeed unfortunate when people don’t get proper medical care, but you can’t argue that they aren’t getting proper care and not providing that care is more expensive.
Likewise, even if hospitals are shifting costs, isn’t that what the Democrats are trying to do as well? You can argue that cost-shifting should be done in a more above-board manner, but you can hardly argue that this will bring down the costs of medicine.
So maybe we should start with a more basic question. “What’s so bad about Americans spending more and more money on healthcare?” Wouldn’t it be just as easy to argue the opposite? Americans are spending more on healthcare — therefore they are living longer and healthier lives. It seems quite true. Given the choice, isn’t it possible that Americans prefer spending money on medical treatment than on vacations, third cars, home entertainment systems or some other big-ticket item? What is more valuable than a person’s health? And if so, won’t “bending the cost curve down” simply mean taking away medical care that people would otherwise want?
The topography of the healthcare “crisis” is all too familiar. It is one of those periodic fervors that seem to occur during every Democratic administration. Recall the “Energy Crisis” of the Carter Administration, when Congress managed to parlay a one-time Arab Oil Embargo (which lasted only three months) into a decade-long oil shortage. Then the greedy oil companies were the problem and government intervention the solution. Instead of allowing oil companies to produce oil, we had Department of Energy bureaucrats drawing up Five Year Plans to wean the nation from fossil fuels. It was not until President Reagan threw out price controls his first week in office that the “oil shortage” solved itself.
Today it is the “greedy insurance companies” that must be slain by heroic politicians. Only yesterday Senator Dianne Feinstein told the New York Times, “We are the only industrialized nation that relies heavily on a for-profit medical insurance industry to provide basic health care. I believe, fundamentally, that all medical insurance should be not-for-profit.”
Yet only 6 percent of Americans buy health insurance directly from those insurance companies. Some smaller businesses also buy policies for their employees but together this constitutes less than 15 percent of the market. The largest bloc of Americans — about 40 percent — have health benefits, not insurance. This means their employer self-ensures under the federal ERISA program, which allows employers to offer their employees health coverage free of state and federal taxes and cumbersome state mandates. The insurance industry’s profits rank 88th out of the 100 largest industries. Insurance companies are not the problem. They are only the scapegoats.
So what is the problem? Well, it can be summed up very simply. Too many people in the system are spending other people’s money. What makes healthcare different is that the industry is already dominated by so many federal programs plus large corporations operating under exemptions provided by federal regulation that no one has any incentive to save money. Everything is covered by third parties. As long as everyone is spending other people’s money, the system will continue to spiral out of control.
You can see this everywhere. Union members with “Cadillac” ERISA plans offering first-dollar, no-deductible coverage are notorious for using the system up to the maximum. Why shouldn’t they, since it is all “free”? As anyone with health insurance knows, as long as a procedure is “covered,” there is little reason to worry about costs.
What is less often observed is that doctors, hospitals and other providers are playing the same game. Particularly with Medicaid and Medicare, they routinely pad bills with all kinds of unnecessary provisions. An elderly relative of mine recently looked at her hospital bill and found $2000 in services she had never received. When she complained to the hospital, she was told to keep quiet, Medicare would cover everything. When my elderly father lay dying in the hospital four years ago, he spent the last day of his life being visited by a bevy of specialists who arrived completely unbidden, offering physical therapy, rehabilitative treatment, and other services he obviously wasn’t going to need, all to pad the Medicare bill (which came to $12,000 for three days). When I visited my own doctor recently for one condition and then mentioned a second complaint, he told me to make a second appointment so he could bill the insurance company for both treatments.
The medical economy is replete with this kind of gamesmanship, all at the expense of third parties. In fact, the whole problem is this: Healthcare is already a “welfare-state-within-a-welfare-state,” with almost all direct exchange between doctors and patients completely eliminated. The problem with such systems, as Margaret Thatcher put it memorably, is that eventually you run out of other people’s money.
Will Obamacare solve any of this? Not a chance. The only practical solution is to restore some personal responsibility to the system. Health Savings Accounts (HSAs) are one obvious answer. Governor Mitch Daniels of Indiana recently recounted in the Wall Street Journal how his state has reduced medical benefits $8 million annually by giving state employees $2,750 each year to pay their own medical expenses and then covering the rest through catastrophic insurance. Seventy percent of state employees have chosen the system.
What makes healthcare a “problem” is that it already suffers from too much cost-shifting through government intervention. Obamacare will only make things worse. Any incentive to control spending will disappear completely, to be replaced by ham-handed government efforts to “bend down the cost curve.” There’s a simple word for this — government-run health care.
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