California's Health Care Costs

Denver Post columnist Al Knight recently wrote this opinion piece in which he argued that the problem with California's health care plan is that people want more health care than they're willing to pay for. In other words, he attributed the problem to too much demand.

I wrote the following online response:

One major reason that health care costs are so high is not because of demand but because of onerous government regulations. Plus, bad tax laws encourage the current perverse system of employer-based insurance, which means that people aren't spending their own money, and aren't incentivized to seek out the best value for their dollar.

It's been proven that a system where patients pay for their own basic expenses from a Health Savings Account (HSA) and supplement this with catastrophic insurance for expensive but rare conditions can result in major cost savings with no decrease in patient outcomes. If we adopted such a system, overall health care costs would go down significantly due to the workings of the marketplace.

Anyone who's bought a DVD player recently knows that the free market results in increased quality and decreased costs of goods and services. We've also seen this in the portions of the medical sector where patients are spending their own money, such as LASIK procedures - the costs continue to decrease whereas the quality continues to improve due to the competition and innovation. Increased demand is not inherently bad, but instead drives this sort of desirable innovation in a virtuous cycle.

In contrast, states like California, Massachusetts, and Tennessee which have adopted "solutions" which involve more government interference in medicine will not be able to cut costs precisely because they bypass the proven benefits of the free market. Then they'll be faced with the unpalatable choice of either skyrocketing costs or rationing, as is happening right now in Tennessee. This is the wrong way to go.

Colorado should learn from those other states' experiences, and adopt market-based health care reforms.

Brian Schwartz also got the following Letter To The Editor published, which is a shorter version of this longer response:

Al Knight (Feb 27) attributes growing health care costs to advances in medical technology. Yet, if this were true, why have cosmetic surgery and corrective eye surgery costs decreased compared to similar services? According to the National Center for Policy Analysis, costs of medical services increased by 77%, almost twice that of the Consumer Price Index between 1992 and 2005. Yet, cosmetic surgery costs increased by just 22% and the cost of corrective eye surgery has actually decreased.

The difference? Customers are prudent when spending their own money, but are big spenders when spending someone else's. Patients pay for cosmetic and eye surgery themselves, and to attract customers, providers must innovate to both lower costs and improve quality.

Health care costs so much because patients pay so little for it - just 14% out-of-pocket. Tax laws, Medicare, and Medicaid have made health care like a subsidized buffet-style restaurant. Legitimately concerned patients seek expensive MRIs and CAT scans, regardless of their cost and necessity. Yet, the RAND Health Insurance Experiment has shown that high-deductible policies reduce patient spending -- with no measurable effect on their health. Policy-makers should repeal laws that discourage such policies and expand access to Health Savings Accounts.