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Commentary

What price health?
Investor's Business Daily, 2-23-07

The editors at IBD point out that recent reports bemoaning the high cost of American health care have fixated on the costs of services (the costs of drugs, doctors, and hospitals) while ignoring one central feature of our health care system that exacerbates health inflation: third-party payers.

It's been known for some time that the U.S. spends vast amounts on health care. At last reckoning, our outlays to stay healthy equaled 15% of GDP, or roughly $2 trillion. That compares to average spending of 9% of GDP in other industrial nations. Since 1972, health spending in the U.S. has grown 9.8% annually, a third higher than the 7.4% growth rate for the overall economy. There are some good reasons for this. One is that we're the richest nation on Earth, with the highest incomes. So rather than buying a third car or a second home or some other luxury, we spend more on our health. Nothing wrong with that.

Another reason is technology. New machines—high-resolution MRIs, cutting-edge laparoscopy tools and the like—have improved the quality of care. But they don't come cheap.

Finally, new drugs, which cost an average of $802 million each to develop, help lengthen lives—but, again, at a price.

One factor, however, drives up health spending more than any other: having a third party pay for it. In other words, we don't directly pay for our care; an insurance company does.

This has long been the Achilles' heel of our health system. Those of us who consume health care services don't know the real price. And because insurers foot the bill, we really don't care. This dynamic is comparable to handing someone a credit card and saying, "Here, go buy what you need. It's on me." Those who worry about the current level of inflation insist that the Federal Reserve do something about it. But the Fed can't do anything do about health care.

The president and Congress can, however, and just last month, President Bush took an important first step by proposing that people be given more direct control over their health care decisions.

By providing a tax benefit for health care directly, rather than giving it to their employers, more people would have more coverage at a lower cost. They would also have an incentive to keep prices in check, since the tax deduction will be limited to $15,000 per family and $7,500 per individual.

Is it a perfect plan? No. Improvements could be made. But it's a start toward controlling runaway health care costs—and keeping inflation in check.



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