h/t Liberty Point
Posted in NewsObserver.com by Michael Munger:
DURHAM — I hear people complain they can’t afford insurance. They need to realize that the real problem is they can’t afford health care.
The U.S. has the world’s most expensive health care, $8,000 per person per year, eating up 16 percent of our GDP. There are many ways of paying these costs, ranging from private insurance such as Blue Cross to public insurance such as Medicare. Many people pay out of their pockets; local and state taxpayers pick up the rest.
The problem is that health care costs have increased at an annual rate double, or more than double, the rate of inflation for the last two decades. Right now, our attempts at reform are doomed, by a law of accounting physics: insurance can’t cost less than the health care it insures. But subsidizing insurance isn’t the answer; in fact, it only makes the problem worse.
Look, I have car insurance. But my insurance doesn’t pay for oil changes. My friend from the UK was telling me about their great insurance quote from One Sure Insurance. They provide some really great benefits for their policy holders.
And because of this ever evolving landscape of insurance, its a good idea to compare quotes quickly and efficiently. I was recommended some price comparison websites a lot of them were helpful but not as helpful as Money Expert, they saved me so much money and I can’t believe I didn’t use them before. If you’re interested, learn more here.
Instead, I go down to the Slinky Lube, without an appointment, have my car’s needs diagnosed and choose services based on a published price list. Some of these services are complex and require large expensive machines and equipment. But I don’t have to pay a separate bill, or go wait in another line, at another office or lab.
Now, suppose that I don’t change my car’s oil and that I fail to perform other needed services. The engine will blow up. That’s expensive to fix, and my insurance does not cover the costs. So I get an oil change at Slinky Lube.
Health care is a little different. Many of us have “engines,” or other parts, that may not work very well, especially as we grow older. Things happen that may not be our fault, and even if they are we’d like to be able to buy some insurance against the worst consequences, the catastrophic injuries or illnesses that are part of every human society. The problem is that how we pay affects how much we pay.
Again, compare it to car insurance, for two people. Imagine neither of us has to pay for our car repairs, from accidents or engine wear. We can go to the garage as often as we like and get whatever service we want, free. The car repair shop can charge our insurance whatever it wants, because insurance pays everything. An oil change would bill out at $600; an alignment would bill our insurance $2,200, with another $800 tacked on to pay for micro-digital wheel axis imaging.
Of course, the services aren’t really free. At the end of every year, we sum the total repair costs for both people, and each of us pays half of that total. That would be really expensive. But if the government could subsidize the final bill, that would help us, right? The answer is no, for two clear reasons.
First, having the government pay would do nothing to reduce costs. Buyers won’t shop around if government pays, and there is no saving from being frugal.
Second, let’s expand the example from two people (each paying half) to 300 million people getting free care (but paying an equal share of total costs). Once we are all paying ourselves, there is no one else to hit up to help with the costs. We are simply taking each person’s money in taxes, then giving some of it back in subsidies. There is no saving, even to individuals. We have met the public option, and it is us!
The solution is out there, but will require a fundamental change in the way we think. Competition among insurers, without decreases in underlying medical costs, may actually harm people through bad service and arbitrary denial of claims. Instead, we need competition among medical providers, just like oil change services now.
LASIK surgery, one of the few areas of medical services open to competition and listed prices, has fallen in cost by 70 percent or more in the last 15 years. And quality has gone up dramatically. Walk-in clinics and fee-for-service arrangements for check-ups, or simple diagnoses like strep throat or infected thumbs, are already widely available, cost relatively little and require no appointment.
Subsidizing insurance is a terrible idea. But that is the main focus of the health care reform bills passed by the House and now being considered in the Senate. Why pin all our hopes on an approach that can’t possibly succeed?
Michael Munger is a professor of economics and chair of the Department of Political Science at Duke University. He was the N.C. Libertarian Party’s candidate for governor in 2008.