The Health Care Debate

Wednesday evening I was one of three speakers, myself, Byron Schlomach, PhD, of the Goldwater Institute and Richard Dolinar, MD, of The Heartland Institute, in a panel discussion of a free market approach to the health care issue. All three of us agreed with what the problem in health care is and essentially, how to solve it. The problem with the U.S. healthcare system today involves the malincentives created by the third party payer system and the intervention of government in so many aspects. The third party system exists because the consumer does not purchase the medical care; that is what the employer provided insurance does. So, the doctors, hospitals, etc. provide care to patients but are reimbursed by another party -- Medicare, Medicaid, or private insurance. The patients get the services but have no idea how much they cost and does not, therefore, have to allocate a scarce budget among competing medical treatments. Medicare and Medicaid constitute about 45 percent of spending on health care, so the government is obviously a big player. The government distorts incentives by providing services to the elderly or poor who have no idea what the medical care they receive costs. In addition, the programs sete price ceilings on the services that get reiumbursed. And since so many of the reimbursements are specifically for procedures not outcomes, the incentive is to provide more procedures.

The simple way to resolve the problem is to change the system to a consumer purchased system. Healthcare expenditures in the U.S. constitute approximately 16% of GDP or around $2.24 trillion. Since there are around 300 million people in the U.S., that is a per person expenditure of around $7,300 per person per year. Suppose then that each individual was given a voucher worth $7000. They could do anything they wanted with the money as long as it pertained to health care. Any funds they did not spend would be carried over to the next year and would add on to the $7000 obtained in the following year. With the money, people could purchase insurance, in most cases, catastrophic insurance. Catastrophic insurance premiums would fall and be very low as competitors attempted to obtain customers (and companies must be able to compete across state boundaries). With people in charge of their own health care expenditures, people would select services that provided them the care they prefer; they would not buy unnecessary tests or unimportant office visits. Costs would fall significantly. Perhaps more importantly, there would be no government programs involved in the health care arena. It has been estimated that in the current system, see here http://http://www.pnhp.org/publications/nejmadmin.pdf
that about 20 % of all costs are administrative. Thus, the health care expenditures would decline almost 20 percent from eliminating government agencies. Why is the Obama - Baucus - et al., plan so much more complicated and so much more expensive?