Thursday, October 04, 2007

How Not to Fix Health Care

Health care will loom large in the coming election campaign. A couple of principles are worth remembering as we decide how to “fix” it:

1. We need to care about future patients too. Health-care systems are dynamic. But the degree of dynamism depends on the payoff to innovators of innovating. When thinking about the health-care system patients in the future ought to loom almost as large as patients now. Expanding the existing health-care system to provide more health care to people (poor and/or uninsured) who get the least now may well come at the expense of lost opportunities for better health care for people not even born yet. When the British set up the NHS they probably weren’t thinking about future Britons who would not receive cancer treatment because the queue was too long, but ethically, they should have. We need to preserve the incentive for health care to continue to improve. (And anyone who thinks the health-care system in total is not vastly better than it was 25 years ago, no matter how many “uninsured” we have, is delusional.) Anything that limits medical innovation – not just new medicines or procedures, but the process of delivering and paying for health care – is a problem.

2. Health care is not free; people should pay for the consequences of their health-care decisions. Health care requires scarce resources with competing uses. People who want to claim them need to take account of the full consequences of their choices for others. Most proposals on the table fail in this respect. Mitt Romney wants to give people tax deductions to buy health insurance, Hillary Clinton wants to shift the burden to employers by making them nominally pay for it (although these costs will be passed on to workers, through lower compensation elsewhere and fewer jobs, and customers, through higher product prices) but giving them a tax break.

All of this furthers the gold-plating problem, the tendency to get every procedure and make every doctor visit if someone else is paying the cost. As I have said before, homeowners’ insurance doesn’t cover plumbing clogs, and auto insurance doesn’t cover oil changes; people pay cash out of pocket for these things. Much medical care is of this kind. Making people pay out of pocket seems like an immense financial burden, but for most of our history this is how it was done. The arbitrary decision to treat health insurance as nontaxable income gives employers an incentive to offer, and employees an incentive to take, more of their compensation as health insurance rather than cash. Portions of the health-care system not covered by insurance, such as cosmetic surgery or laser eye surgery, often see declining costs and improving quality and amenities, something many patients would kill for. Most health care would function this way if health insurance were only for catastrophes such as cancer or an appendectomy.

3. The system in many ways is not broken. Conditions that could not be treated now can be, new medicines are constantly being developed, cancer life expectancies are increasing, etc. We mess with this at our peril.

As politicians propose to more and more divorce health-care buyers from direct incentive contact with health-care sellers through insurance mandates, subsidized care and the like, expect complaints about the system to get worse.



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