You Know What Your Car Costs, But Not Your Heart Exam
Posted on March 4 2010 8:00 am
The health care “debate” is made most irritating by the obvious things ignored. As we have grown accustomed to hearing ad nauseam, health care represents 17% of our economy. I have no idea if that number is accurate. Perhaps one day I will look into it. Whatever the number, we know it is big. Yet health care consumers have no idea what anything related to health care actually costs. For all practical purposes it may as well be free. Consequently, we consume too much of it and will continue to do so unless some simple changes are made.
We pay an upfront cost for insurance (or are given a tax free benefit from an employer or the government) and in exchange we get a plastic card with an insurance company’s name on it. When we go to the doctor, the hospital, or the pharmacy we simply hand them the card upon entering. Whether we fill a prescription for fish oil or get brain surgery we simply hand in the same card. Some administrator fills out forms and that’s that. We don’t even have to sign a form in recognition of the cost of the procedure. How is it remotely possible that such a system can function efficiently? There is no other part of our economy that operates this way. Milton Friedman has written about this topic. Thomas Sowell has written about this (Alice in Health Care) as has John Stossel. Even I have written about this What Next: “Universal Food Insurance”?.
There are three changes that can be made to the health care system that would improve it greatly without any permanent Government involvement. These are not the only three changes that can be made of course. But these seem pretty simple. First, all prices for all products and services should be printed and required to be given to all patients prior to treatment. If a provider has a multi-tiered pricing system (one for Medicare, one for private insurance and one for persons willing to pay directly themselves) then that should be disclosed as well. Second, all health care benefits paid to employees or Medicare beneficiaries should be taxed at the same rate all other income is taxed (all tax rates should be lowered, but that is a different topic). There is no rational purpose for health care to get tax preferential treatment. It was an accident of WWII (see Friedman article). We all would die much quicker without food or water than without health insurance. Yet we do not receive tax benefits for consuming food or water, but do for getting a blood test. Finally, there should be freedom of insurance companies to offer any kind of coverage in any state without restriction. If individuals are willing to pay out of pocket for minor procedures and insure themselves for just major operations and expensive medicines then they should be able to purchase any offering of such insurance.
Before a market can become efficient, first it must become a market. Price transparency and freedom to offer services are the first condition for any market based system. We don’t really have a health care market with few exceptions. Two areas of medicine for which there is a market are the “plastic surgery” and vision enhancement fields. As John Stossel has pointed out before, technology has advanced rapidly and prices have declined dramatically in both. They also are outside of the insurance system with a transparent pricing system.
Before we write 3000 pages of legislation to be interpreted by 100,000 bureaucrats 20 years from now, lets try some simple things first.