David Goldhill is a liberal Democratic business executive whose father was killed by a hospital-borne infection several years ago. The experience drove him to study the American health care system in search of an explanation. “How is it possible,” he writes, “that my father’s death was an avoidable accident with no one to blame?” The answer shocked him.
Goldhill discovered that health care is unlike any other industry:
Everything about health care—how we pay for it, how we regulate it, how we judge its effectiveness, how we’re willing to accept low standards from it, even how we talk about it—exists on a separate island from the mainland of every other service or product in our economy.
Americans are marooned on that island. And in their interactions with the health care sector, Americans have been willing to tolerate inefficiencies and insults and egregious prices that would spark riots at car dealers, electronics stores, or coffee shops. Medical errors kill at least 98,000 Americans annually. The increasing cost of health care is responsible for stagnant wages and higher taxes, and threatens to crowd out all other forms of federal spending. The “essential service” of diagnosis and treatment of illness has been utterly deformed. Health care has become a “Beast” that devours everything in its path.
The main problem, Goldhill concludes, is the way we pay for health care. “For every hundred dollars spent on health care in the United States,” he writes, “the patient acting as consumer pays only eleven dollars; an intermediary pays the rest.” Having a third-party assume most of the cost of medical services encourages overconsumption, waste, fraud, and inflation. It generates the perverse incentives of moral hazard. The price mechanism is not allowed to function.
Insurance is meant to be a hedge against the risk of an unexpected and improbable contingency, such as property theft, house fire, car wreck, or premature death. But it is neither unexpected nor improbable that you or I will interact with the health care system. Quite the opposite: Visiting doctors’ offices for checkups or treatment is inevitable and often routine.
So what happens when the insurance model collides with the provision of health care? Insurance premiums rise because insurance companies cannot make money without encouraging the insured to spend more on health care. Meanwhile, patients are shunted aside:
Health insurers are essentially giant intermediaries between consumers and the health care system, negotiating charges, checking bills, assuring payment—basically shifting money around from consumers and taxpayers to providers.
Americans encounter horrible service and indecipherable hospital bills precisely because they are not the hospitals’ customers. Health insurers and governments are.
Goldhill invents a character, Becky, who illustrates the cost of this distorted system. Becky is paying for health care all the time. She pays through her premiums and co-pays. She pays through lowered wages (her employer bears the cost of some of her premiums). She pays through payroll and federal and state income taxes that fund Medicare and Medicaid along with other government health care programs.