The Right Way to Reform Health Care

The forthcoming issue of the Atlantic includes one of the most sensible and pragmatic articles on the health care debate you’re likely to ever read. After his father died of a hospital-borne infection, business executive David Goldhill began examining the health-care industry.

I’m a Democrat, and have long been concerned about America’s lack of a health safety net. But based on my own work experience, I also believe that unless we fix the problems at the foundation of our health system—largely problems of incentives—our reforms won’t do much good, and may do harm. To achieve maximum coverage at acceptable cost with acceptable quality, health care will need to become subject to the same forces that have boosted efficiency and value throughout the economy. We will need to reduce, rather than expand, the role of insurance; focus the government’s role exclusively on things that only government can do (protect the poor, cover us against true catastrophe, enforce safety standards, and ensure provider competition); overcome our addiction to Ponzi-scheme financing, hidden subsidies, manipulated prices, and undisclosed results; and rely more on ourselves, the consumers, as the ultimate guarantors of good service, reasonable prices, and sensible trade-offs between health-care spending and spending on all the other good things money can buy.

President Obama should appoint Goldhill his healthcare czar.

For those who don’t have time to read this excellent, but extremely long article (10,974 words!), I recommend John Schwenkler’s superb summary . Excerpt:

2. We treat “health insurance” and “health care” as synonymous, but they shouldn’t be. Understanding the purpose of health insurance as that of paying for all of our health care expenses is a quite recent phenomenon, and it has a lot to do with the post-WWII policy of subsidizing employer-provided health benefits, which quickly became the norm (and was mimicked by Medicare and Medicaid) and crowded out alternative methods of payment. Among others, one consequence of this is the vast amount of money we spend - $500 per person, as of 2006 – just to staff the insurance bureaucracy.

3. There is a massive moral hazard problem. Patients have little direct financial incentive not to request whatever expensive treatments they see on TV, and doctors have clear financial incentives to provide them. Combine this with a massive informational asymmetry, and costs spiral perpetually upward; individuals with health insurance (or “insurance”; see #2 above) spend nearly four times as much of other people’s money on health care than do individuals without it, and in many instances the attendant benefits are marginal at best.

4. We’re the only ones who can pay. Not the health insurance or drug companies, whose profits would fund our appetite for health care for less than half a year. Not our employers, who just take it out of our salaries (and the would-be salaries of our would-be coworkers). And wouldn’t some of that money be better spent doing something else?