Hoover Institution - Hoover Digest - Managing the Health Care Myth

If it’s a free market, why does the U.S. health care system keep its patients in the dark about costs? By Scott W. Atlas.

Politicians, academic leaders, the media, and a host of self-anointed experts churn out “facts” about the American health care system. It is time to sort truth from myth:

Critics of the escalating spending on U.S. health care and the absence of universal insurance maintain that the problems of our system are evidence of the “failure of the free market.”

A free market exists when a business is governed by the laws of supply and demand and is not restrained by government interference, regulation, or subsidy. In a free market, the buyer makes value-conscious purchasing decisions and the price is a reflection of consumer demand, relative to supply of the good.

Consider that about 83 million Americans have health care coverage through Medicare, Medicaid, and the State Children’s Health Care Program (SCHIP), federal and state programs that account for almost half of the $2 trillion spent on U.S. health care.

Government regulation further imposes more than $330 billion on our health care system, making it the most highly regulated industry in America.

Little known by the public is that reimbursement rates to doctors and other health care providers are set by Medicare. In the end, a remarkable 80 percent or more of medical care pricing is based on government decree.

Worse, the government and the third-party-payer system have completely interfered with any consideration of cost by the patient.

Because “someone else is paying,” why would patients even bother to consider that hospital and doctor prices vary wildly among providers? If patients did want such information, they wouldn’t easily find it.

Patients have no idea what their doctor visits, surgeries, diagnostic studies, or other medical services—whether urgent or elective—will cost until the bill comes weeks later.

Moreover, information about the quality of doctors, such as experience and training, is rarely readily available.

Although a badge of national pride, Canada’s health care system is becoming an embarrassment. Canada is one of two countries where it is illegal to compete with the government; the other is North Korea.

Substantial data document the alarming lack of access to timely medical care in Canada, a problem declared unacceptable by Ontario’s Supreme Court.

Recently published data from the New England Journal of Medicine and even the Canadian government itself reveal that Canadians typically wait months for lifesaving procedures such as heart, brain, and hip-replacement surgery.

Likewise, patients wait months for diagnostic imaging and appointments to see a specialist. What percentage of U.S. patients waits months for critical medical interventions or access to specialists?

In a free market, a business is governed by the laws of supply and demand and is not restrained by government interference, regulation, or subsidy. Does that sound like our health care system?

The world’s most tightly controlled government-based health care system has also failed miserably to contain costs. Canada’s high public health spending is on pace to consume more than half of total government revenue by the year 2020, two-thirds by the year 2035, and all of it by 2050.

Americans are unaware that the distinct and growing trend across Europe is a move away from centralized, government-controlled health care.

In the Netherlands, where health care is a basic public right, the Dutch are adopting a system of private health insurance. Even Sweden, the mother of all welfare states, has moved toward privatization in an effort to reduce wait times and increase access, in the face of ever-increasing costs.

“Reimbursement rates” to doctors and other health care providers are set by Medicare. A remarkable 80 percent or more of medical care pricing is based on government decree. Worse, the government and the third-party payment system interfere with any consideration of cost by the patient.

Although all health care systems should empower patients with information, the data from the Euro Health Consumer Index show a lack of health care information for patients throughout Europe. Although there is also a lack of such information in the United States, we are still far ahead of centrally dominated European systems in this regard.

A successful policy in Washington should be based on certain fundamentals:
1. Empower the individual, not the government, with control of the health care dollar, so that value-conscious purchasing of medical care becomes a reality.
2. Force transparency on the system.
3. Uncouple employers and employment from health insurance coverage.
4. Create insurance affordability for all, by deregulation and generating a national health insurance market and providing tax relief, including refundable tax credits for poor families.

While the rest of the developed world is seeking privatization and competition, many leaders in the United States persist in pinning their hopes on more mandates and more government control of our medical care.

Available from the Hoover Press is Power to the Patient: Selected Health Care Issues and Policy Solutions, edited by Scott W. Atlas. To order, call 800.935.2882 or visit www. hooverpress.org.

Scott W. Atlas is a senior fellow at the Hoover Institution and a professor of radiology and chief of neuroradiology at Stanford University Medical School.