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Commentary By David Gratzer

A Capitalism Prescription For Health Care

Everyone, it seems, is talking about health care. Hillary Clinton, Barack Obama, and John Edwards all have plans. Michael Moore has a documentary. No wonder — corporations fret rising health premiums, which have doubled since 2000, and families have seen their income stagnate in recent years because of rising costs. The situation will precipitously worsen in the next seven years as health spending is projected to rise to $4 trillion dollars a year, up from $2 trillion. What's to be done with American health care? Congress needs to administer a strong dose of capitalism.

For nearly four decades, the debate has been about 2 options for dealing with the cost crunch. First, embrace HMOs. The idea faltered in the late 1990s, but managed care held costs relatively stable in the mid-1990s (rising, for example, just 2 percent in 1996). But HMOs turn basic decisions over to bureaucrats, a paternalistic philosophy at odds with American values.

Second, convert to some type of government health care, an approach every other Western country has adopted. Though the idea grows in popularity — Michael Moore's documentary is essentially a love poem — socialized medicine is built on rationing care, forcing the sick and elderly to wait for even the most basic care in countries like Canada.

Is there another option? Look to capitalism, which governs the other five-sixth of the economy. Ultimately, we must choose market reforms.

That may sound easy enough, but for more than 60 years, government policy has drifted fitfully in the opposite direction. In the rest of the economy, we have moved away from regulations, price controls, and overreaching government agencies. Yet in health care, we have distorted the tax code, bulked up the Medicaid rolls, and let a million regulations bloom. How to employ market reforms?

Here are five simple steps.

Make health insurance more like other types of insurance. You don't buy car insurance to cover you for gas and tune-ups or home insurance for a quick paint job, but health insurance includes everything from a physical to cancer care — it covers too much. Health savings accounts, which passed as part of the Medicare reforms of 2003, were an important first step, separating smaller expenses from catastrophic events. However, the legislation is overly rigid. Congress must expand and revise the structure of HSAs.

Foster competition. American health care is the most regulated sector in the economy. The result? A health insurance policy for a 30-year old man costs four times more in New York than in neighboring Connecticut because of the multitude of regulations in the Empire State. Americans can shop out-of-state for a mortgage; they should be able to do so for health insurance.

Reform Medicaid, using welfare reform as the template. Like the old Aid to Families with Dependent Children, Medicaid is expensive and not very good. Part of the problem stems from the fact that the program is shared between both the federal and state government -- and is thus owned by neither. Congress should fund Medicaid with block grants to the states, and let them innovate.

Revisit Medicare. Back in the late 1990s, a bipartisan commission approved a reasonable starting point for Medicare: junking the price controls, and using the Federal Employees Health Benefits Plan as a model giving elderly Americans a choice among competing private plans. The time is right to experiment with this idea.

Address prescription drug prices by pruning the size and scope of the FDA. It costs nearly a billion dollars for a prescription drug to reach the market, and roughly 40% of that is due to safety requirements. This is effectively a massive tax on pharmaceuticals. With new technology and focus, it would be possible to update the FDA.

None of these steps would be dramatic but all are important. The patient is fading; Congress must act.