Who pays for health care? Everybody, in the least efficient way possible.

There's no such thing as a free lunch or free health care, a lesson my colleague Nicole Gelinas illustrates again in a City Journal article on, of all things, a European breast implant scandal.

It turns out that a French medical device company sold "tens of thousands" of breast implants filled with industrial grade silicon, in an effort to cut costs and boost profits. Replacing all of the implants, Gelinas reports, could cost hundreds of millions of dollars.

Hence the question: Who pays? Suing the manufacturer is one possibility, although it seems to have shut down. Eventually, Gelinas believes the bill will be paid, in whole or in part, by taxpayers:

Britain's National Health Service has said that it will pay to remove implants that women got after breast-cancer surgery. That sounds reasonable enough. But the French government has already said that it will pay to remove all victims' implants, putting pressure on Britain to do the same. ...

The NHS may pay for another reason: its medical experts could determine that doing so would avoid higher government costs later, as women suffer the ill effects of silicone seepage and come in for government-paid care. The NHS knows that it's likely to do a better job treating these women than would a clinic whose managers view them as people they will never see again. Indeed, national health officials have said that the government might pay for implant removal if women show a "clinical need," a standard they didn't define.

Clinical need is becoming an increasingly fuzzy concept in every health care system. If you're sixty years old, and want to keep jogging, should taxpayers pay for your new bionic knee? If it turns out that green tea prevents cancer, will insurance have to cover Lipton (or maybe Tazo)? How about gym memberships and yoga (regular excercise decreases stress, which is a risk factor for a number of bad health outcomes)?

The line between what's needed and what's wanted is fundamentally blurred by the third party schemes that we use to finance health care, either through taxes (as in much of Europe) or through combination of taxes and private funding (in the U.S.).

When other people pay for your health care, it creates a powerful incentive for small groups of highly motivated providers and special interest groups to demand that insurance cover everything from birth control pills to chiroprators' services. Insurance mandates lower cost for the people who use those products or services, but raises costs for everyone else (and as health insurance costs rise, more people become uninsured!).

Gelinas - and I agree with her - suggests that "government require all but the destitute to pay for their day-to-day healthcare", and that insurance (public or private) should return to its classic role paying for catastrophic costs.

This scheme wouldn't end all of our health care arguments. There'd still be plenty of debate about what constitutes catastrophic care. But that situation would be much preferable to our current system where the federal government is mandating Catholic Hospitals to pay for birth control pills - which sell for $4 for a $30 supply at Wal-Mart, to say nothing of the hundreds of additional mandates imposed on health insurance at the state level.

When insurance covers routine care it distorts how we use the the health care system (through overuse), drives up health care costs (subsidies raise prices), and shifts spending away from other public and private priorities (like education and defence).

The best defense of a catastrophic based insurance system is that it actually reflects demographic reality. Insuring the vast majority of healthy Americans against catastrophic costs would be far less expensive than the first dollar coverage for all medical expenses insurance offers today - as Chris Conover at AEI illustrates here.

The savings could then be funneled into subsidied coverage for the relatively small number of Americans with persistently high medical costs - through risk-adjusted vouchers, or high risk pools.

This would be a direct, simple, and sensible alternative to the Byzantine structure of the Affordable Care Act, which basically extends high cost insurance to the uninsured through massive government subsidies. If the Supreme Court strikes down the ACA, or if a fiscal crisis forces Congress to revisit the issue, universal catastrophic coverage should be the first market-based alternative on the table.

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