First Principles April 2006

Poison Pill

Big, politically ugly changes to America's health-care system are unavoidable—consumer-driven health care may be the least-bad option

In every rich country, it seems, people expect too much of their health-care systems. That is why, in their different ways, they are disappointed—and why they always will be. Citizens everywhere desire unrestricted access to state-of-the-art technologies. Increasingly, they insist on choice and control, too. Yet they are unwilling to pay what those things cost. People demand as a right the best health care money can buy, delivered in the way that best suits them, expense be damned. All that, and the price must be affordable.

Nowhere can this self-contradictory demand be satisfied. Everywhere, therefore, health care presents itself to governments as their most difficult nonsecurity challenge. In the United States, the costs are already staggering, and unless something changes, they will only get worse. Such is the sensitivity, though, that only the bravest or most reckless policy makers stride up to the issue with a genuine intention to act. Health care is a political death trap.

Consider this: the government increases its spending on Medicare by tens of billions of dollars a year (as the administration did with its recent prescription-drug reform) and the beneficiaries are up in arms about it. Yes, the execution of the scheme was botched. Still, where else could generosity on such a scale actually arouse hostility, to say nothing of its apparent failure to buy votes? When Americans are asked what they think about health care, most say they like the quality of service (the government must do nothing to compromise those high standards); they also complain that health care is far too costly (the government must act).

Wherever you look, you find no plainly superior system. Countless variants—from the mainly government-run, single-provider, single-payer model at one extreme to America's semi-private, multi-provider, multi-payer approach at the other—have been tried. None is widely popular. Canada, did somebody say? You must be joking. Rationing and gaps in coverage, necessary instruments of cost control in that system, are at the limit of what people will accept: they were an issue in the recent election, and helped get the previous government thrown out. Britain's National Health Service, once the country's pride, is today renowned for dirty hospitals that make you sicker than you were to begin with. (Private health insurance, with its higher costs and standards, is popular there; a two-tier system, one for haves and another for have-nots, quite at odds with the founding principles of the NHS, is firmly in place.)

Of course, the world's national health systems have more in common than you might think. Almost all of them are hybrids, mixing public and private. In statist Canada, some 30 percent of health spending is privately financed. In supposedly free-market America, well over 40 percent is taxpayer financed, and the privately financed part is intensely regulated—hardly a case of "leaving it to market forces." But the fact remains: many blueprints have been tried; all have drawbacks, and all leave users complaining about standards or costs, or both.

Here is a basic principle: if costs are to be better controlled, some medical services must be either forgone or denied. The key question: Who decides? Top-down rationing—as in Britain's health service—is one approach. Consumer-driven health care—where patients decide for themselves what they can afford—is another.

In the United States, where almost all privately financed health care is provided by employers through tax-sheltered insurance plans, neither of these curbing mechanisms is in place. There is no government monopoly, and, with employers paying for their insurance, most patients need not concern themselves much with the cost of their treatments. The result is that this country spends more per person on health care than any other—15 percent of the national income, compared with a rich-country average of 9 percent.

This enormous extra cost doubtless saves or significantly improves many lives. It supports a remarkable pace of innovation. And nothing is wrong in principle with a country spending proportionally more of its income on health care as it gets richer. But the system includes plenty of waste. It delivers services that cost more to provide than they would be worth to the patient if the patient were paying. And millions of Americans with low-paying jobs have no insurance: their employer does not provide it, they cannot afford to buy their own, and they are not poor enough to qualify for Medicaid. So America's health outcomes, in the aggregate, are only fair by international standards, and are not nearly as good as they should be, given what the country spends.

The administration and the economists it listens to want to control costs by mobilizing consumers. If the tax advantage for employer-provided insurance were removed or offset, and if more people bought their own policies, Americans would lean more toward plans with low premiums and plenty of cost-sharing (high deductibles and high co-payments). In this way, health insurance would be more like real insurance—a protection against serious financial risk—and less akin to a utility payment plan. Patient-consumers would have the incentive they lack at present to force costs down. The administration has proposed some reforms with this notion in mind.

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Clive Crook is a senior editor of The Atlantic.

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