July 22 2009
No Surprise: More Spending Doesn't Mean Better Care
Proponents of radical health care reform frequently point out the flaws in our current system. One primary critique is that American health care is expensive and, worse, all that spending doesn't necessarily result in better care.
To make this point, Atul Gawande, a physician and writer, profiles the small Texas town of McAllen, which is one of the most expensive health care markets in the country. Gawande claims that health care costs in McAllen are a result of doctors practicing bad medicine - over prescribing tests, procedures and treatments.
Gawande's article apparently had a big impact on President Obama, and the White House frequently makes this argument about the system as a whole: "Today, we are spending over $2 trillion a year on health care - almost 50 percent more per person than the next most costly nation," the president told the Annual Conference of the American Medical Association in June.
"And yet...for all of this spending, more of our citizens are uninsured, the quality of our care is often lower and we aren't any healthier. In fact, citizens in some countries that spend substantially less than we do are actually living longer than we do."
It shouldn't be a surprise that there is little correlation between spending and quality in our health care system. That's what one should expect when government interferes in a marketplace, distorts competition and shields consumers from the price of a product or service.
Consider the case of public education. Some of the highest per-pupil spending occurs in the worst school districts. Washington D.C. blows through about $24,600 per pupil every year, yet it consistently remains on the bottom of the chart.
To put this number in perspective, President Obama sends his children to an exclusive private school where tuition begins at $28,442. The Obama's pay that money because they know that their daughters will receive a high quality education. But you can be sure no parent would pay $20,000 a year to send her child to the average public school in D.C. Yet that's how much taxpayers are paying for year after year of failure.
The difference is clear: in the private sector, there is a clear relationship between price and quality. Without this correlation, private schools would not have any students. But when government picks up the tab - and normal market forces and competition subside - rudimentary economic principles like the relationship between cost and quality go out the window. Government schools embroiled in waste and inefficiencies stay in business because parents have no choice.
While the government doesn't control the health care industry to the same degree as public schools, government is currently the single largest purchaser of medical care. The federal government buys nearly 46 percent of all health care and controls nearly 60 percent of health spending. Government regulations further distort the health care market, encouraging individuals to obtain health insurance through their employers and divorcing them from the cost of the care they consume. In this type of government-dominated system, the relationship between medical care and pricing is terribly distorted.
President Obama and his allies want to solve this problem through more government involvement. Yet greater government interference in the health care sector will only make this problem worse - and create new ones. And what's more concerning than what this intrusion will do to the cost is what it will mean for the quality of service. Undoubtedly, a public health care system would seek to control costs - and restore the balance of supply and demand - by rationing services. Is that really what we want?
The government has a role to play in reforming our health care system, but it is not in replacing our current structure with a government-run program. Instead government ought to empower consumers in order to make price relevant again. This is the best way to spur competition, reduce costs and ultimately improve care.
And policymakers have plenty of reforms to consider. For starters, Washington can move the current tax deduction for health insurance from employers to individuals, in order to encourage greater - rather than less - patient involvement in their choice of care. They can promote the expansion of health savings accounts, and allow the sale of health insurance across state lines.
Consumer-driven markets have brought us the wonders of massively increasing computer power and declining prices. It has brought us cheaper, more reliable, and safer cars. Consumer-driven health care is the route to an efficient and effective medical system.