The Magazine

The Return of HillaryCare

Socialized medicine is still not a good idea.

May 23, 2005, Vol. 10, No. 34 • By DAVID GRATZER
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Such stories are all too common under public systems. Data from the Commonwealth Fund show just 5 percent of American patients wait longer than four months for an elective procedure, as do 23 percent of Australians, 27 percent of Canadians, and 36 percent of Britons.

And GM? The automaker's problems aren't necessarily representative of corporate America. GM offers workers a gold-plated health plan that features no deductibles and minimal co-pays even for prescription drugs--George Will aptly dubbed GM "a welfare state." Were GM to offer a more typical plan, the Center for Automotive Research estimates that the company could save a billion dollars next year.

For Krugman and like-minded pundits, the solution is simple: junk "ideology" and the "obsession" with the private sector in favor of the Utopian ideal of socialized medicine--which, incidentally, can't be made to work in any country that has subscribed to it. But a better and less radical approach would start by asking: Why are health costs rising so dramatically in the first place?

The central problem is the way Americans pay for their care. Rather than paying directly, most people get their health insurance from their employers. Someone else foots the bill. This odd financing arrangement developed because of World War II wage controls. Employers began to provide health benefits as a disguised form of income, and their incentive to do so only increased when the IRS ruled that, unlike income, these employer-provided benefits would not be taxed.

The resulting accidental system is wasteful and bureaucratic. With Americans paying directly just 14 cents for every health dollar they spend, there is much incentive to spend first, and ask questions later. Health managers, meanwhile, create bureaucratic hurdles in an attempt to constrain patient choice (and thus costs). During the 1990s-heyday of managed care, for instance, HMOs attempted to dictate whether and when their patients were tested.

An answer to the predicament? American health care needs to evolve along a third way--not the rationing of public systems, or the bureaucracy of HMOs. Instead, Americans should be more involved in their health care decisions. Consumer-driven health care attempts to do exactly this. In 2003, Congress created health savings accounts (HSAs) in the Medicare Modernization Act, a major breakthrough. HSAs marry high-deductible insurance (that is, real insurance, for unusual, out-of-the-ordinary expenses) with a tax-free savings account for smaller health expenses. HSAs thereby encourage consumers to shop around and ask providers tough questions. The Miami Herald recently ran a story on a Fort Lauderdale woman who shopped around for physiotherapy--and saved herself a thousand dollars a session.

Krugman likes to cite General Motors as an example of the hopelessness of American health care. But there are countervailing examples of consumer-driven plans that work quite well. Whole Foods, the world's fastest growing grocery chain, has a health plan based on health savings accounts and spends about half of the national average for employee health care.

There is still much work for Congress to do. Health care is badly over-regulated. Some on the Hill have sought to address this; Rep. John Shadegg of Arizona, for example, has proposed legislation allowing people to buy health insurance from out-of-state providers, thereby fostering national competition in what is currently a badly Balkanized industry regulated state by state. President Bush and the Republican leadership have invested little political capital in such initiatives. The return of HillaryCare to the national debate should give them incentive to act.

David Gratzer, a physician, is a senior fellow at the Manhattan Institute.