innovation

The American health care system is in crisis.  And the Obama administration and Democratic congressional leaders appear determined to make it worse.  How else to explain the backroom deals, midnight votes, and procedural legerdemain which senior Democrats have undertaken in order to enact  a health care bill that no one—not even its most ardent supporters—seems to like very much, and which large swaths of the American public viscerally oppose?

Nevertheless, in just a few hours, the House of Representatives will vote on the $940 billion Senate health care bill, followed by a reconciliation package of “fixes” that were needed to attract the support of enough congressional Democrats.

Set aside, for a moment, the procedural shenanigans and cost-shifting gimmicks involved in gaming the bill’s CBO score.  These sorry episodes will soon be forgotten by the American public even as today’s new low in American governance seems destined to become tomorrow’s standard operating procedure—there to be abused by both parties.  This is to be lamented.  But, today, our far bigger concern is for the future of American medical care.

Much has been written about this bill’s “takeover” of American health care.  But, the sad truth of the matter is that, for the past few decades, the federal and state governments have been in control of close to half of all health care resources, with Medicare, Medicaid, SCHIP, and other government health programs accounting for some 48 percent of all health care dollars spent in 2007.  In addition, private health insurance is already heavily regulated by state and federal laws governing who must be covered and how.  In a very meaningful sense, government took over health care long ago.

Still, despite copious amounts of government control, what kept American health care alive was the residue of market processes that enabled some semblance of choice, price signals, adaptability, and—perhaps most important—physician responsiveness to patients’ needs.  The great tragedy of today’s health care legislation is not simply that it seeks to exert more control over the provision of health insurance and medical services per se, but that by doing so, it takes us farther and farther into a future in which the relationship between physician and patient will be irreparably severed.

Most of the problems in America’s health care system—high and rising prices, lack of consistent and reliable access for millions, rampant cost shifting, and an inability to distinguish between effective and ineffective services or between high and low quality, to name just a few—stem not from some supposed market failure, but primarily from existing government interventions in the market for health care and health insurance.

Some people have had difficulty affording health care. But, because the public opposed the huge cost of directly subsidizing health care purchases, government regulations were implemented that hid most of the costs of those subsidies within the system—what my former colleague Tom Miller described as trying to have socialism’s benefits without socialism’s (overt) costs.  But each new round of regulatory fixes forced costs higher, leading to yet another round of regulations.  Thus, there’s nothing particularly new in today’s legislation.  And, as with all previous government interventions, this new regulatory regime will make the major problems in America’s health care system still worse.

Why?  Because the vast majority of Americans—those enrolled in government health programs and those who receive health insurance as an employment benefit—see no clear relationship between the services they receive and the cost of that care.  Therefore,  they have no incentive to make rational, cost-conscious decisions about what health services they consume, driving up expenses and straining budgets.  This new legislation will further shield patients from the true cost of their health care choices.

Over time, the need to restrain costs has made the third party in the doctor-patient-payer relationship increasingly more important than the second.  The present health care legislation seeks to cut hundreds of billions of dollars out of Medicare, while spending those “savings” and hundreds of billions more in new tax revenue to subsidize private sector health insurance coverage.  The inevitable end result will be less and less decision-making power in the hands of American health care consumers. 

There is no sustainable way for government to subsidize more and more of our health care spending without also controlling how much is spent or where that spending goes.  Government will shift ever more of our health care dollars away from those services we as consumers value to those government bureaucrats value.  As in Canada, the United Kingdom, and countless other countries with health care central planning, high minded panels and commissions and bureaus will be established to determine which services are worth paying for and which are not.  Health decision making will no longer lie with the patient and his doctor, but in a committee of bureaucrats in Washington.

Ultimately, central planning in health care is no more effective than central planning in any other economic activity.  Markets need a critical mass of individuals spending their own dollars in order to allocate resources efficiently.  That’s because only free individuals making their own spending decisions can reveal the aggregate value they place on various goods and services.  When government decides what to buy and at what price, the absence of aggregated individual price signals means that the central planner cannot know what consumers—or in the case of health care, patients—value most. 

The fatal conceit of health care central planners is their belief that they can use cost-benefit or comparative effectiveness analysis to determine, with precision, which patients ought to receive which treatments.  Is $50,000 too much to pay for a cancer drug that may cure just a small fraction of the patients who take it, or which, on average, will extend patients’ lives by less than a year?  There is no one “right” answer for every patient.  But, as in any kind of economic transaction, someone needs to determine what’s worth paying for.  When government picks up most of the tab, giving every patient every treatment that might possibly provide some benefit is a surefire way to bankrupt the public fisc. 

The Obama administration and its allies in Congress seem to know this, but their method of addressing this problem is so clumsy it would be laughable if the consequences weren’t so serious.  To keep costs low, today’s health care legislation will create a Patient-Centered Outcomes Research Institute and a Medicare Committee founded on the untenable premise that every patient is exactly average.  The clinical research on which these bodies will make their payment decisions is conducted on groups of patients who are as much alike as possible.  Such an approach is absurd on its face.  In the real world, patients respond differently to different treatments, so basing payment decisions on what’s best for the average patient would be a recipe for disaster. 

In the near term this means that, in order to cut costs, countless patients are likely to receive inappropriate treatments.  In the long run, this will put a drag on medical innovation, as R&D expenditures will shift to respond to the price signals sent by government.  We won’t have the treatment innovations that patients want and need, but those that government bureaucrats find most appropriate for the median voter.  Everybody else will be out of luck.