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Leading policy-makers and scholars explain how market forces, deregulation, and consumer choice can work to improve health care for all Americans.

Commentary

Bismark's Health Plan
Wall Street Journal, 7-7-06

In an analysis of German Chancellor Angela Merkel’s efforts to reform the German economy, the Journal offers a concise exposition of why state run health care systems are not the best option for national consumers or government budgets.

The health–care system's exploding costs have much to do with the fact that it is completely isolated from market forces. Little wonder then that this universal coverage is far from being "free," as socialized health care is so often misnamed. At the moment, it costs 14.2% of a worker's gross pay (14.7% after Ms. Merkel's "reform"), half of it presumably paid by the employer. We say "presumably" because companies keep those payroll taxes in mind when they sit down for wage negotiations.

The system is as arbitrary as it is wasteful. Civil servants, the self–employed and wage earners who make €4,000 or more a month can opt out of the public system and switch to private insurers, which typically offer better and cheaper service. The benefits of free choice and efficiency that only the private market can offer are foreclosed to the rest of the population. Average wage earners are locked into a system where their monthly contributions are automatically deducted from their paychecks. With no control over the level of contributions or service they get, patients have no incentive to behave responsibly and reduce costs. In no other European country do so many people consider themselves to be chronically ill as in Germany, according to surveys.

On the other side of the equation are the 270 publicly administered health insurers, quasi state bureaucracies. These monopoly health–care providers are shielded from competitive pressure. No matter how inefficient they are, they can always count on rising contributions to make up for shortfalls.

It's not that there isn't enough money going into the system. Germany already spends around 11.1% of GDP on health care. Only the U.S. and Switzerland spend a larger share of their national output, 15% and 11.5% of GDP respectively. It's the inefficiency that's the problem. An independent government advisory group concluded five years ago that patients are simultaneously "over–, under– and mistreated." Not much has changed since then.

The reforms announced this week include a few market elements, which are being hyped by the Merkel government as major achievements. But if Ms. Merkel acknowledges that competition can improve the health–care system, why not go all the way? Trying to keep the system largely unchanged but sprinkling it with a few market ideas won't work.



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