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.
In fact, Becky will pay, over the course of her life, close to 50 percent of her total earnings “into the health care system for herself and her dependents.” That number is staggering, but Goldhill is happy to explain his calculations. Surely, he writes, there are better uses to which Becky and Uncle Sam could put such an enormous amount of money: a trip to Disney World, say, or an aircraft carrier battle group.
Insurance has so deranged American health care that our policy debate is framed in terms of increasing and standardizing coverage, not lowering cost and thereby improving access through competition and customer accountability. Goldhill is unsparing in his criticism of the 2010 Affordable Care Act (ACA), aka Obamacare, which mandates universal health coverage: “The ACA’s most obvious characteristic,” he writes, “is its continuity with our existing system: a continued reliance on insurance as the funding mechanism for all care.”
Obamacare is “fundamentally an exercise in Rube Goldberg-like financial engineering.” It is “profoundly old-fashioned,” which is just about the worst thing anyone can call a liberal program. It drastically expands Medicaid, “the most complicated program ever designed by the federal government.” It may even have the unintended consequence of reducing the number of Americans with insurance.
The legacy of Obamacare may not turn out to be what liberals expect, which is that it will guarantee health coverage for every American and, ultimately, lower costs. Obamacare’s expense and complexity may only sharpen the contradictions in the insurance-based health system and precipitate its collapse.
What would be the replacement? No doubt, egalitarians would prefer a system in which government pays for all health care and uses price controls and rationing to limit costs. But Goldhill has a different prescription:
Since we are unable to repeal the economic laws of gravity in health care, it’s time to embrace them, to build a more normal system of financing care—and a more normal system of weighing its value and holding its providers accountable.
The place to look for a model is Singapore. That Southeast Asian city-state is smaller than New York City, but its per-capita gross domestic product and life expectancy are similar to those of the United States. Singaporeans spend much less money on health care (4 percent of their economy) than we do (18 percent).
Goldhill identifies three major differences between the Singaporean health system and ours. In Singapore, individuals contribute much more money at the point of purchase. The payment mechanism varies according to treatment and patient. Government doctors and facilities compete with private health care workers. Singaporeans are required to contribute to health savings accounts and purchase a catastrophic insurance plan. There is an insurance pool for the severely disabled and a fund to pay their bills. There are subsidies to providers based on their level of service.
But the thrust of Singapore’s system is individual responsibility for a large portion of direct payment. And the results are positive. “Health care in Singapore is high quality, high-tech, and, by international standards, cheap,” writes Goldhill. “Genuinely cheap, not just misleadingly cheap at the point of service.”
A small group of policy intellectuals are attempting to apply the lessons of places like Singapore to the United States. They are advocates of consumer-driven health plans that combine high deductibles with health savings accounts. Goldhill favors the consumer-driven approach, but he also recognizes that the results, to date, have been mixed. Current tax law puts such plans at a disadvantage. The Democrats in power are obsessed with universal coverage and subsidies for every form of health consumption. The Republicans have been content simply to oppose the Democrats, and GOP proposals maintain the flawed insurance model.
There is also the problem of expectations: Americans are not used to behaving like health care consumers. They are sometimes shocked by the sticker price of doctor appointments.
Goldhill understands that the health system will not meet his goals of equality, efficiency, and rationality overnight. He says it may take as long as a generation to introduce consumer markets to health care, and that the process may not begin until the system reveals itself as bankrupt. But he is not a defeatist.
“As quickly as possible,” he writes, “we must divert as much of the resources spent on non-catastrophic care into individual accounts.” Turn health care into as much of a consumer market as possible, he writes, and “we all will see the benefits of an industry competing on price, quality, and service.” He proposes a “balanced” system of “health accounts, health loans, and catastrophic insurance with a very high deductible.”
Goldhill’s radical plan would require more activity, and more direct payment, from the individual consumer. People like Becky would cease to be passive recipients of insurance benefits from corporations or governments and would become decisive agents in the marketplace. Consumer-driven health care thus strikes a blow against Big Government and managerial experts. “Health care experts want us to believe that health care is too complicated for patients-consumers to serve as an effective disciplinary force,” he writes. “But what’s the alternative?”
My only criticism of this comprehensive, thought-provoking, empirical, and well-written book is that it was published only this past month. Goldhill first wrote about the death of his father and the idea of consumer-driven health care in a cover story for the Atlantic in the summer of 2009. He clearly took his time in researching the health care problem, the Affordable Care Act, and possible solutions before he committed his ideas to book form.
Yet I cannot help thinking that Catastrophic Care might have had a significant impact on the debate over Obamacare, even on the 2012 campaign, if it had been published in, say, 2010. But that did not happen, and we are left with imperfect options. We can try to persuade Republicans and Democrats of the virtues of consumer-driven care as America continues its insurance-driven slide into insolvency. Or we can move to Singapore.
Matthew Continetti is editor in chief of the Washington Free Beacon and a contributing editor to THE WEEKLY STANDARD.