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


A Private Obsession
Paul Krugman, The New York Times, 4-29-05

For Krugman, America’s woes health care woes are driven by a blind obsession with private enterprise:

American health care is unique among advanced countries in its heavy reliance on the private sector. It’s also uniquely inefficient. We spend far more per person on health care than any other country, yet many Americans lack health insurance and don’t receive essential care….Our system is desperately in need of reform. Yet it will be very hard to get useful reform, for two reasons, vested interests and ideology….a lot of big companies are essentially in the business of wasting health care resources. The most striking inefficiency of our health system is our huge medical bureaucracy, which is mainly occupied in trying to get someone else to pay the bills. A good guess is that two million to three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck to other people.

Krugman overlooks some essential points.

For instance, health care is among the most heavily regulated industries in America, at both the state and federal levels. This means that insurers and doctors must spend an awful lot of time—and money—navigating bureaucratic rules. Government should, therefore, bear some of the blame for wasting scarce resources.

Secondly, America’s health care costs began ballooning out of control in the early 1990s, when fee-for-service insurance—not bureaucratic HMO’s—were the rule, not the exception, as they are today. HMO’s may be loathed in the popular imagination, but studies have generally found that they provide care about as well as their predecessors did at less cost (at least until recently). They are not in the business of taking money without delivering value.

The model Krugman holds up for emulation is the European or Canadian model. What he doesn’t mention is that overall health care costs are rising in those nations at about the same rate as in the U.S. (No reverse gear, The Economist, 7-15-04) The fundamental force driving health care expenditures is consumer demand for advancing medical technologies, from MRIs to Gleevec.

The U.S. pays more for health care as a percentage of GNP than Europeans or Canadians do because we create, and embrace, those technologies sooner--and don’t ration their use by doctors and patients. Ultimately, however, Europeans are in a worse crunch than we are because their economies can’t sustain their rapidly aging populations and extremely generous entitlements.

Still the U.S. isn’t a health care utopia. Health care costs and access are real problems. How can we address them?

First, we need to face the reality that consumers will eventually get their way, no matter where the funding comes from. Congress can embrace the European model of “free health care,” but if it does, the economy will be strangled by increasingly high tax burdens.

The best solution is to continue to encourage the adoption of Health Savings Accounts, which give individuals more responsibility for their own routine health care expenses - and powerful incentives to minimize costs. Then we can target the rest of our public resources on our poorest citizens, subsidizing the purchase of basic insurance plans. Finally, government can drive quality improvements across the health care sector, by developing and disseminating basic standards for measuring health care outcomes, and by ensuring that purchasers drive dollars towards the most efficient health care providers.

The more that American health care becomes a real market, as opposed to an ersatz one, the better it will work.

Project FDA.
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