Friday, March 12, 2010

Will and Gratzer on the 12% Problem

In the March 11, 2010 Washington Post, George Will discusses some of the ideological underpinnings of Obama's political approach in "As a progressive, Obama hews to the Wilsonian tradition".

With respect to health care, Will also links to a nice piece by Dr. David Gratzer from 2/26/2010, "The Health Care Number You Didn't Hear".

Gratzer calls this "the 12% problem":
American health care is an accidental system. Private coverage -- the type most Americans have -- has its origins in the wage controls of the Second World War as employers offered rich health-insurance benefits in pre-tax dollars. Public coverage like Medicaid and Medicare, on the other hand, takes its inspiration from the Beveridge report in Britain, drafted in the early 1940s; Lord William Beveridge believed in zero-dollar health care -- that people ought to pay nothing at the point of use. Today's American health care fuses these two systems, but with a common economic flaw: people are overinsured, paying pennies directly on every dollar of health service they receive.

The end result: for every dollar spent on health care in the United States, just 12 cents comes out of the individuals' pockets. Imagine what food costs might be if your employer paid 88% of your grocery bill or what a trip to Saks might be like if your company covered the vast majority of the costs of the shopping spree.

Far from addressing the 12 cent problem, Obamacare would exacerbate it. With its rich subsidies, expansion of government programs, insistence that all insurance cover specific services (and some with no copayments at all), Obamacare would pour fuel on the fire of health inflation. It's one reason that even the chief actuary of the Centers for Medicare and Medicaid Services -- a federal employee -- predicts cost rises under the President's plan.
(Read the full text of "The Health Care Number You Didn't Hear".)

Gratzer is completely correct. Bad government policy creates perverse economic incentives, which give rise for yet more bad government controls to "fix" the problem.

This is why we need to take a step back and think about free-market reforms that repeal those prior bad laws. That's the only way we will get costs under control.

(Links via LT.)