President Obama and Senator Max Baucus are proposing a radical expansion of health insurance, but selling it as health care reform. Unfortunately, expanded insurance coverage is likely to worsen the real problem in health care: the high and rising prices of care.
Since World War II, Americans have become increasingly dependent on others to pay their medical bills. These third-party payers include Medicaid and Medicare, and employer-provided pre-paid health plans (what we call insurance). In 1954 federal tax law codified standard practice at the time and exempted benefits from taxation. This allows employers to avoid payroll taxes while employees avoid income taxes.
The last 50 years have shown us that neither patients nor providers are particularly frugal when others are paying the bill. In 1960 patients directly paid half the total health bill and medical prices were relatively the same as in 1935. By 2006 patients paid an eighth of the health care bill and medical prices had more than doubled in relative terms.
In this country, where health providers price as if cost is no object (and for patients with insurance, it mostly isn't), a heart bypass might cost $140,000. Travel overseas and you can get the same procedure for $24,000. It makes a difference when providers compete on the basis of price.
The goal in health care reform should be to find the least painful way to transition back to having patients be responsible for their own health care bills. Good policy would: 1) Put all health expenditures on an equal income tax footing, 2) Encourage people to save for health eventualities through expanded health savings accounts that allow for truly catastrophic health insurance policies, 3) Allow a nationwide insurance market without mandated coverage, and 4) Require posting of medical service prices so consumers can know the price of the services and procedures they want to buy before making the purchase.
To truly address this nation's health care cost crisis, we have to get at the root of the problem. These policy changes would help bring costs down by reversing the price is no object mentality and encouraging providers to compete for business.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
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