FAPPAF Bucket

Education, public safety, environment, infrastructure—all other public priorities are being slowly devoured by the health-care beast.

By what mechanism does society determine that an extra, say, $100 billion for health care will make us healthier than even $10 billion for cleaner air or water, or $25 billion for better nutrition, or $5 billion for parks, or $10 billion for recreation, or $50 billion in additional vacation time—or all of those alternatives combined?

The answer is, no mechanism at all. Health care simply keeps gobbling up national resources, seemingly without regard to other societal needs; it’s treated as an island that doesn’t touch or affect the rest of the economy.

The housing bubble offers some important lessons for health-care policy. The claim that something—whether housing or health care—is an undersupplied social good is commonly used to justify government intervention, and policy makers have long striven to make housing more affordable. But by making housing investments eligible for special tax benefits and subsidized borrowing rates, the government has stimulated not only the construction of more houses but also the willingness of people to borrow and spend more on houses than they otherwise would have. The result is now tragically clear.

health-care insurance is just like all other forms of insurance—life, property, liability—where the many who face a risk share the cost incurred by the few who actually suffer a loss.

But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses.

We all believe we need comprehensive health insurance because the cost of care—even routine care—appears too high to bear on our own. But the use of insurance to fund virtually all care is itself a major cause of health care’s high expense.

Well, for every two doctors in the U.S., there is now one health-insurance employee

Society’s excess cost from health insurance’s administrative expense pales next to the damage caused by “moral hazard”—the tendency we all have to change our behavior, becoming spendthrifts and otherwise taking less care with our decisions, when someone else is covering the costs.

For almost all our health-care needs, the current system allows us as consumers to ask providers, “What’s my share?” instead of “How much does this cost?”—a question we ask before buying any other good or service. And the subtle difference between those two questions is costing us all a fortune.

If it’s true that the insurance system leads us to focus on only our direct share of costs—rather than the total cost to society—it’s not surprising that insured families and uninsured ones would make similar decisions as to how much of their own money to spend on care, but very different decisions on the total amount to consume.

Perhaps the greatest problem posed by our health-insurance-driven regime is the sense it creates that someone else is actually paying for most of our health care—and that the costs of new benefits can also be borne by someone else. Somebody else always seems to be paying for at least part of our health care. But that’s just an illusion. At $2.4 trillion and growing, our nation’s health-care bill is too big to be paid by anyone other than all of us.

In 2007, employer-based health insurance cost, on average, more than $12,000 per family, up 78 percent since 2001. I’ve run several companies and company divisions of various sizes over the course of my career, so I can confidently tell you that raises (and even entry-level hiring) are tightly limited by rising health-care costs. You may think your employer is paying for your health care, but in fact your company’s share of the insurance premium comes out of your potential wage increase. Where else could it come from?

The government regularly tries to cap costs by limiting the reimbursement rates paid to providers by Medicare and Medicaid, and generally pays much less for each service than private insurers. But as we’ve seen, that can lead providers to perform more services, and to steer patients toward higher-priced, more lightly regulated treatments. The government’s efforts to expand “access” to care while limiting costs are like blowing up a balloon while simultaneously squeezing it. The balloon continues to inflate, but in misshapen form.

Whatever their histories, nearly all developed countries are now struggling with rapidly rising health-care costs, including those with single-payer systems. From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U.K. by 47 percent—all comparable to the 40 percent growth experienced by the U.S. in that period. Cost control by way of bureaucratic price controls has its limits.

Since charity care, which is often performed in the ER, is one justification for hospitals’ protected place in law and regulation, it’s in hospitals’ interest to shift costs from overhead and other parts of the hospital to the ER, so that the costs of charity care—the public service that hospitals are providing—will appear to be high.

A wasteful insurance system; distorted incentives; a bias toward treatment; moral hazard; hidden costs and a lack of transparency; curbed competition; service to the wrong customer. These are the problems at the foundation of our health-care system, resulting in a slow rot and requiring more and more money just to keep the system from collapsing.

Politics is, of course, the art of the possible. If our health-care crisis does not abate, the possibilities for reform may expand beyond their current, tight limits.

Would our health-care system be so outrageously expensive if each American family directly spent even half of that $1.77 million that it will contribute to health insurance and Medicare over a lifetime, instead of entrusting care to massive government and private intermediaries? (both gov and priv intermediaries drive up cost; the notiont hat private insurers are so much more ‘efficient’ is bogus)