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Monday

17

August 2009

Current Approach To Health Care Is Still Fundamentally Flawed

Written by , Posted in Free Markets, Government Meddling, Health Care, Welfare & Entitlements

The argument for a public option never really made sense.  If there’s an insurance model that could perform better than current models, there’s no reason it can’t be adopted in the private sector, perhaps financed by liberal billionaires like George Soros and Steve Bing, without government legislation.  If it’s really a better choice for consumers, and thus profitable, someone would step forward to do it. On the other hand, there are many obvious disadvantages to administering government insurance (the same disadvantages that plague all government activities), while the only real advantage is the availability of taxpayer money.

If the government is to use taxpayer dollars to run an insurance model at a loss, which is basically a redistribution from taxpayers to insurance consumers (two overlapping but not identical groups), then the same thing could be more easily accomplished without undermining existing insurance providers (food stamps, for instance, don’t undermine grocery stores).  In other words, the public option was always completely unnecessary no matter which side you looked at it from, and the White House may or may not be ceding ground on this issue, depending on who you listen to.   But while dropping the public option from the discussion would be a welcome development, the nature of the health care argument advanced by the White House is still fundamentally flawed.

The President’s approach has been driven by two politically powerful statistics. During the campaign he frequently cited the popular “48 million uninsured” statistic, along with the fact that the U.S. spends about 15% of its GDP on health care, a much higher figure than other countries.  While both potent on the campaign trail, neither of these statistics is useful for crafting policy.

While it may sound good at campaign rallies to decry the fact that 48 million people in America (which includes those here illegally) lack insurance, the relevant policy question is not about coverage, but access.  This is not to say that lack of coverage is irrelevant.  People who lack insurance often have less access to health care.  At the same time, extending coverage to all would not necessarily increase access, as evidenced by the long waiting lists common in universal coverage systems.

The President simplistically assumes that all uninsured people want insurance but cannot afford it.  This is not true.  A more sophisticated analysis is needed to understand why these people do not have insurance before the appropriate policy response can be devised.  To wit, many people can afford insurance but choose not to buy it. Around 9 million uninsured Americans, or about 20% of the total uninsured, make over $75,000 per year. This is a valid choice that should be respected in a free society.  Of those who can’t afford insurance, many are already eligible for existing programs.

Young people make up a disproportionate share of the uninsured (58% are under the age of 35 according to the Census Bureau) because they are healthier and less likely to be concerned about illness.  Others, such as those transitioning jobs, are uninsured only temporarily.  Almost half of the uninsured (45%) go without insurance for less than 6 months.  Once all these factors are considered, the figure of involuntarily uninsured Americans that lack other options is less than ten million – hardly an eye-popping figure that can only be solved through a massive government incursion in the insurance business.

Many of these people are uninsured because of poor state level policies.  The adoption of guaranteed issue, community rating and excessive coverage mandates have priced many people and insurance providers out of the market.  A lot of headway into reducing costs and increasing coverage can be made simply by repealing these laws.

The other statistic commonly used by the President to support his reform efforts is the amount spent by the U.S. on health care as a percentage of GDP (~15%).  This is not an illuminating statistic by itself.  America spends more on health care because Americans want to, and have both the means and freedom to, do so.  Much of this spending may well be frivolous from the perspective of health outcomes.  Many expensive screening tests, for instance, rarely identify problems in most people.  Yet because Americans can afford them and want the peace of mind, we get more such testing. This is not a problem needing political attention.

Certainly costs in health care are higher than they ought to be.  Burdensome government mandates, competition reducing rules and excessive malpractice lawsuits combine to raise prices above what would otherwise be necessary to provide the same level of care.  Reducing these costs should be one of our goals, but that’s not the same as reducing the percentage of GDP devoted to health care.  Focusing on the latter leads to the wrong-headed solution of trying to reduce total care, rather than simply lowering the cost of care Americans want.

The current health care reform effort has been dominated by these misused and misunderstood statistics.  Until lawmakers properly identify the problems needing correction and their causes, any legislation offered as a “solution” will be just as likely to make matters worse as better.