Cures for the Ailing U.S. Health Care System

Columbia University economics professor Glenn Hubbard has contributed an excellent analysis of the nation's ailing health-care system in today's issue of National Review Online. Hubbard makes the important point that the central problem with the U.S. health care system is the lack of consumer control over costs and treatment, which is caused by government impediments to private markets:

We found that many of the problems in our health-care system stem not from what happens in the doctor's office or hospital, but what happens in our tax code. If, on the one hand, an employer pays for an employee's health coverage, it is a tax-free cost for both the company and the individual, therefore allowing for generous health-care coverage in large companies — especially those with union-negotiated contracts. If, on the other hand an individual must pay for health-care costs out of pocket and these costs cannot be written-off, the medical expenses are more keenly felt and are, at times, hard to afford. This difference often results in the person avoiding to seek medical care until it is absolutely necessary — if at all.

Hubbard points out that the government's bias toward third-party payment systems is the crux of the problem:

Many policymakers are starting to see the problem. Last fall, the bipartisan President's Advisory Panel on Federal Tax Reform suggested capping the tax deductibility of health-insurance premiums so that employers could extend only so much coverage to their workers. And, if we could do so, removing all tax subsidies for health care would be the best answer. That outcome is most unlikely, and the key is to stop the tax bias against low-cost individually purchased health insurance. In our book, we propose making all health-care spending deductible. The difference in those policy suggestions is significant, but the effects would be similar. For once, all Americans would begin to manage the cost of their health care directly, instead of letting others worry about it.

A further problem, Hubbard notes, is the plethora of different state mandates regarding insurance, and the fact that insurance companies cannot compete across state lines. This lack of competition increases prices further, lowers acesss to insurance, suppresses productive investment, decreases the overall quality of services, and holds back innovation in service delivery:

A greater focus on consumer-driven health care requires further policy improvements: open and national health insurance markets, so that consumers have more choices in the kind of hospitals, doctors, and insurers they use; greater investments into health-information technology to identify and prevent errors before they occur; and reforms of medical-liability rules, so that good doctors and nurses can practice quality health care without being harassed by nuisance lawsuits.

Again, some conservative critics mistakenly think that federalization of our health-care insurance and regulatory markets would inherently be bad for health care. If one's default position is to fight national markets governed by national standards at all turns, I suppose there's no sense arguing the point. But let there be no doubt that national markets would work. Consider the state-by-state standards for gasoline admixtures — a mish-mash of formulas meant to satisfy environmentalists in California and the northeast, to the detriment of national gasoline supplies and refinery capacity. Think that's bad? Look at state-by-state health-insurance regulations. They are far more complex, and in effect create high insurance costs for captive consumers and benefits for some large insurers who alone can either lobby themselves out of trouble or maintain the product lines that each state requires. A few decades ago, banking was run this way, a situation remedied by national banking reform. Instead of the gargantuan national influence on banking that some feared, we have a true national market for a vital financial service — more choices, more products, and more usage. There are other ways to accomplish insurance-market reform, too, but the key is to promote the availability of low-cost insurance to individuals currently subject to costly state mandates.

This is just a sampling of what the article presents, and Hubbard's other writings on the subject provide further support for his approach. Enthusiastically recommended.