Hoover Daily Report

Whose Health Care Is It Anyway?

Wednesday, May 11, 2005

In the debate over health-care reform in this country, it seems that one vitally important question is too often left out of the equation: Why should we expect the government to be responsible for providing medical care in the first place?

Food, housing, and clothing are no less basic to our daily lives, and yet citizens don't want government bureaucrats to tell us what kind of cereal we can buy or how much it will cost. When it comes to health care, however, the assumption that government needs to be involved ignores the virtual stranglehold the government already exerts on health-care prices in this country and the failure of that system.

Despite the presence of private insurers in our health-care marketplace, it is the government that to a great extent controls the price of health care. It is bureaucrats who set the reimbursement rates that doctors and health-care providers use to set their pricing, rather than relying on the actual costs and profit margins for their services. The most overt example is in Medicare-covered health services, where bureaucrats set "rates of reimbursement." Some multiple of these Medicare-determined rates also serves as the basis for a significant percentage of payments by private insurers. And it is the federal control of the health-care dollar that has led to increased costs, delays in patient care, and frustrations for both doctors and patients.

Christopher Conover of Duke University has estimated the cost of excessive regulation in the health-care market to exceed $339 billion, with a net cost of $169 billion—more than U.S. consumers spend every year on gasoline and oil. His figures show that the cost of the medical legal system alone, including litigation costs, court expenses, and defensive medicine, exceeds $80 billion.

This artificial pricing structure that our government imposes on consumers and doctors is unique to health care, and it has done little to rein in costs or improve care. The real cure for rising health-care costs is direct payment from patient to doctor, eliminating the third-party-payer system that shelters patients from making cost-conscious decisions and results in massive administrative costs and the artificial pricing of medical care. Prices come down when the patient is the customer—not the government or other third-party payer. Patients consider cost when they spend their own money: refractive eye surgery, whole-body-screening CT scans, and other procedures have come down in price when market forces are allowed to operate without third-party interference.

The isolation of the consumer from paying for health care and the inordinate amount of control that government exerts over health-care costs represent a startling exception to the free market system that has served us so well in every other major service industry. This should lead us to ask the question, on what basis does "government" become the solution for escalating health-care costs? And why, when it has failed to rein in those costs in the past, should we expect even more government control to be the answer today?