The Bottom Line on Health Care

Speaking of surreal, did Rudy Giuliani’s health insurance reform plan strike you as surreal as it did me?

Charging that Democrats’ health care proposals would lead to “socialized medicine,” Republican presidential candidate Rudy Giuliani said Tuesday he wants to give American citizens more control over their health care.

“We’ve got to do it the American way,” Giuliani said during a town hall forum in Rochester, New Hampshire. “The American way is not single-payer, government-controlled anything. That’s a European way of doing something; that’s frankly a socialist way of doing something.”

“That’s why when you hear Democrats in particular talk about single-mandated health care, universal health care, what they’re talking about is socialized medicine.”

Giuliani’s health care plan, unveiled at the forum, includes giving taxpayers tax credits to purchase private health insurance. The highlight of Giuliani’s plan: a $15,000 tax deduction for each family to buy private health insurance.

Of the many ways that I find that discussion surreal one is that I can’t reasonably deem a system in which 50-60% of the costs of healthcare are paid out of the public purse (ours) as a market system while a system in which 70-80% of the costs of healthcare are paid out of the public purse (France’s) as a socialist one. Both, like any sensible system, are hybrids and whatever reforms are actually adopted we will continue to have a hybrid system for the foreseeable future.

Before we can begin discussing solutions sensibly it might help to consider what our health care system is intended to do and what’s wrong with what we’re doing now.

It’s hard to give a one sentence summary of something as complex as our healthcare system but let me give it a try. What we’re trying to do is produce the greatest amount of healthcare products and services that are safe and effective, consistent with reasonable levels of public health, and to avoid having the elderly become pauperized as a consequence of paying for health care.

Market-based solutions alone only address the first clause of that sentence. A completely market-based healthcare system would, likely, maximize the production of healthcare goods and services. Unfortunately, such a system would neither ensure that the goods and services produced were safe or effective, produce reasonable levels of public health, nor would it prevent seniors from becoming pauperized (and they would become dependent on public relief). We used to have such a system. We’ve progressed beyond it because it didn’t produce the needed outomes. Going back to it would not be a good thing.

Our present system has many deficiencies. It’s producing a lot of healthcare goods and services but it’s not producing a reasonable level of public health and, worst of all, the measures we have in place to prevent the pauperization of the elderly are not sustainable.

The measures currently being proposed by many Democrats emphasizing universal coverage which increase demand without expanding supply make the present system even less sustainable since it can only raise costs. The statistics I’ve managed to cobble together suggest that something between 20% and 30% of the total healthcare budget is attributable to the administrative costs of insurance companies. Does anyone predict that transition to a single-payer system in which insurance companies are removed from the equation will reduce total healthcare costs by more than 10%? At the present rate of increase that would be absorbed in a year or two. Then what do we do? The political pain of healthcare reform is substantial—we’ve only managed major reforms once a generation or so and we need to make reforms that have a greater horizon of usefulness than a year or so.

The measures currently being proposed by Republicans tend, like Giuliani’s, to emphasize market-based reforms. This would be more convincing if there actually were a market in healthcare. Under our present system in which the supply of healthcare is severely constrained both by public laws and regulations and private cartels, I believe that market forces are unlikely to work the way the exponents of such reforms hope. Nor would they produce acceptable outcomes in public health but, worst of all, they do little about the sustainability of Medicare, Medicaid, and the various other federal and state health programs.

The bottom line on healthcare is that because of that problem of sustainability healthcare reform is in your future. In my opinion it would be the height of profligacy is whatever reforms are adopted don’t consider both the demand and supply sides of the healthcare equation. The only force that will dramatically reduce the cost of healthcare in this country is a substantial increase in the supply of healthcare. Lower cost healthcare will of itself solve many of the problems we see with our current system. Our problems multiply with higher healthcare costs.

8 comments… add one
  • I’ve (reluctantly) started paying some attention to this issue. You’ve obviously paid a great deal of attention.

    Is it the case that the high pay of Americn doctors — particularly specialists, whose pay can be 2 or 3 times what a European counterpart makes — is a major contributing factor to high costs?

    Is it the case that increasing the number of medical schools and graduating more MD’s, or attracting more foreign MD’s, would lower costs?

    And is it the case that paying specialists on some basis other than a pay-per-procedure basis might lower costs and improve health in the process?

  • American doctors make three times what French doctors do with comparable training. The French pay about a third of what we do for health care. I think there’s a direct, causal relationship.

    While I think that educating and graduating, say, three times the number of doctors would have a substantial impact, I don’t think that educating 25% more will do much. Note that in some places as much as 40% of the doctors are what are called IMG’s (international medical graduates). We’re already sucking in a huge proportion of the world’s doctors. My take is that we need to change the entire delivery system.

    I’ve never thought about your third suggestion. I see no way other than a command economy system to implement it. Your thoughts?

  • Dave:
    I am nowhere near having an intelligent opinion on this. I’m just starting the ‘asking questions’ phase.

  • I propose, for your consideration, this thought: until the cartelization of healthcare is ended, no reform of any kind will have a significant positive impact. That includes mandating coverage, moving to single payer and any other reform I can recall having been proposed recently. None of them (ironically, not even the “market oriented” ones) look at the actual market characteristics of our healthcare system; they are all focused on the political impacts. Adding doctors might help somewhat, but not, I suspect, significantly.

    As others have noted, you’ve paid way more attention to the issue. I’m curious what your thoughts are on that proposition.

  • We’re in agreement, Jeff. Basically, I consider greatly expanding the number of doctors (or, more broadly, expanding the supply of health care) and breaking the cartel equivalent propositions.

    The last increase in the number of doctors graduated from U. S. medical school resulted in the system we have now under which Medicare pays roughly $80,000 per year for each medical resident. I think that well is dry now.

  • Before we can begin discussing solutions sensibly it might help to consider what our health care system is intended to do and what’s wrong with what we’re doing now.

    You want to start by looking at first principles? It’ll never work!

  • Fletcher Christian Link

    What is the American healthcare system supposed to do? Make enormous amounts of cash for the doctors, healthcare providers and drug companies of course!

    What’s wrong with what is being done now? A just-about-complete stranglehold by the pharmaceutical industry, backed up by astronomical amounts of lobbying money, over healthcare; leading to gross lack of preventative work and vicious suppression of any alternatives – leading in extreme cases to such things as alternative health clinics being raided by half a platoon of SWAT goons with SMGs.

    I rather like the principle of Chinese medicine, whereby a healer is paid regularly by his clients – but only while they are well; if they get ill they stop paying.

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