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The Return of HillaryCare
Socialized medicine is still not a good idea.

David Gratzer
The Weekly Standard
May 23, 2005

Paul Krugman has been using his space on the New York Times op-ed page for weeks now to discuss America's "real crisis" - not Social Security but health care. Krugman deplores the horrid state of American medicine, the large number of uninsured, and the high cost of it all. He claims that "the private sector is often bloated and bureaucratic" and finds solace in the supposed outperformance of other countries' "universal" systems. Sound familiar? If the Princeton economist turned pundit is any indicator, HillaryCare is back on the radar.

Krugman is not alone in his nostalgia. The Los Angeles Times muses wistfully that HillaryCare may not have been such a bad idea. Arnold Relman, former editor of the New England Journal of Medicine, describes the problems of American medicine in a 7,500-word essay for the New Republic, concluding that markets don't work. Matt Miller, a centrist in the Clinton administration's OMB, argues in Fortune that government-financed health care is a winning political idea - for Republicans.

But government-run health care didn't make sense for America in 1994, and it still doesn't. Krugman's arguments are enticing. But they gloss over basic facts. Consider:

Americans tend to believe that we have the best health care system in the world. . . . But it isn't true. We spend far more per person on health care . . . yet rank near the bottom among industrial countries in indicators from life expectancy to infant mortality.

Krugman's error here is a common one: assuming that universal health insurance and good health go hand-in-hand. But life is not so simple. Take infant mortality. According to the National Center for Health Statistics, Mexican-American and white babies in the United States have a lower infant mortality rate (about 6 in a thousand live births) than Native Americans (9) or blacks (14). Yet Mexican Americans also have the least access to health insurance of any of these groups. In fact, it's even more complicated: A study in the Journal of the American Medical Association suggests that Mexican-American babies are twice as likely to be born outside a hospital as babies of all other groups.

Infant mortality statistics - like life expectancy - reflect a mosaic of factors, such as diet, marital status, drug use, and cultural values. Dismissing American health care on the basis of such statistics is like declaring Cuban democracy stronger than America's based on voter turnout.

Krugman again:

Amazing, isn't it? U.S. health care is so expensive that our government spends more on health care than the governments of other advanced countries, even though the private sector pays a far higher share of the bills. . . . What do we get for all that money? Not much.

Actually, if we measure a health care system by how well it serves its sick citizens, American medicine excels. Comparing breast cancer statistics in Germany, Britain, France, Spain, Italy, and the United States, market analyst Datamonitor finds that 95 percent of American women are diagnosed in early stages (I or II). In contrast, a full 20 percent of European women are diagnosed in late stages. WHO data on five-year survival rates for various types of cancers bear this out. For leukemia the American survival rate is almost 50 percent; the European rate, just 35 percent. Esophageal carcinoma: 12 percent in the United States, 6 percent in Europe. Say what you want about the problems of American health care, but for those stricken with disease, there's no better place to be than the United States.

Like many critics of American health care, Krugman argues that the costs are just too high: "In 2002 . . . the United States spent $5,267 on health care for each man, woman, and child." Health care spending in Canada and Britain, he observes, is a fraction of that. He also zeroes in on the troubles of General Motors, which spends $1,500 on health care for every car produced. Even more problematic: "Medical costs are once again rising rapidly."

No one would dispute that American health care is expensive. But a bargain isn't always a good deal. Britons spend a fraction of what Americans do - and wait for practically every test, surgery, or specialist consultation. This spring, the story of Margaret Dixon, an English pensioner awaiting a risky surgery, caused a political storm. She was prepped for the procedure and, expecting the worst, said goodbye to her family - only to be bumped by a more urgent case. Again she waited, again she was prepped, and again she said goodbye to her family - and she was bumped again. In all, she says, her surgery has been canceled seven times. (National Health Service officials dispute her account, arguing it's "only" been four times.)

Such stories are all too common under public systems. Data from the Commonwealth Fund show just 5 percent of American patients wait longer than four months for an elective procedure, as do 23 percent of Australians, 27 percent of Canadians, and 36 percent of Britons.

And GM? The automaker's problems aren't necessarily representative of corporate America. GM offers workers a gold-plated health plan that features no deductibles and minimal co-pays even for prescription drugs - George Will aptly dubbed GM "a welfare state." Were GM to offer a more typical plan, the Center for Automotive Research estimates that the company could save a billion dollars next year.

For Krugman and like-minded pundits, the solution is simple: junk "ideology" and the "obsession" with the private sector in favor of the Utopian ideal of socialized medicine - which, incidentally, can't be made to work in any country that has subscribed to it. But a better and less radical approach would start by asking: Why are health costs rising so dramatically in the first place?

The central problem is the way Americans pay for their care. Rather than paying directly, most people get their health insurance from their employers. Someone else foots the bill. This odd financing arrangement developed because of World War II wage controls. Employers began to provide health benefits as a disguised form of income, and their incentive to do so only increased when the IRS ruled that, unlike income, these employer-provided benefits would not be taxed.

The resulting accidental system is wasteful and bureaucratic. With Americans paying directly just 14 cents for every health dollar they spend, there is much incentive to spend first, and ask questions later. Health managers, meanwhile, create bureaucratic hurdles in an attempt to constrain patient choice (and thus costs). During the 1990s-heyday of managed care, for instance, HMOs attempted to dictate whether and when their patients were tested.

An answer to the predicament? American health care needs to evolve along a third way - not the rationing of public systems, or the bureaucracy of HMOs. Instead, Americans should be more involved in their health care decisions. Consumer-driven health care attempts to do exactly this. In 2003, Congress created health savings accounts (HSAs) in the Medicare Modernization Act, a major breakthrough. HSAs marry high-deductible insurance (that is, real insurance, for unusual, out-of-the-ordinary expenses) with a tax-free savings account for smaller health expenses. HSAs thereby encourage consumers to shop around and ask providers tough questions. The Miami Herald recently ran a story on a Fort Lauderdale woman who shopped around for physiotherapy - and saved herself a thousand dollars a session.

Krugman likes to cite General Motors as an example of the hopelessness of American health care. But there are countervailing examples of consumer-driven plans that work quite well. Whole Foods, the world's fastest growing grocery chain, has a health plan based on health savings accounts and spends about half of the national average for employee health care.

There is still much work for Congress to do. Health care is badly over-regulated. Some on the Hill have sought to address this; Rep. John Shadegg of Arizona, for example, has proposed legislation allowing people to buy health insurance from out-of-state providers, thereby fostering national competition in what is currently a badly Balkanized industry regulated state by state. President Bush and the Republican leadership have invested little political capital in such initiatives. The return of HillaryCare to the national debate should give them incentive to act.

David Gratzer, a physician, is a senior fellow at the Manhattan Institute.

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