If you want to know what the solution to America’s health-care problems looks like, reach into your pocket: About 90 percent of Americans own cellular phones, up from less than 1 percent 20 years ago. The cell-phone market is a highly democratic one in that working-class and poor Americans have access to roughly the same range of products and services as middle-class and wealthy Americans, and practically everybody has access to products and services that 20 years ago were reserved to millionaires, to the extent that they were available at all. Remember those gigantic cellular bricks that Wall Street traders toted around in their briefcases back in the 1980s? Those were pricey status symbols in the Reagan era — Motorola’s two-pound DynaTAC 8000X cost the equivalent of $9,000 in today’s money, and the service fees were enormous — but using one today would get you laughed out of the poorest trailer park or housing project in America.
Americans are used to seeing some products and services getting better and cheaper all the time. But some services don’t, and they’re important ones: health care and education are the best examples. The market for health-care services is a lot like the market for cellular phones: It is driven by technology and innovation and, because the capital costs of building a cellular network or a hospital MRI clinic are substantial, the markets tend to be more efficient when there are larger numbers of participants. If you could take an iPhone back to 1982, it would seem like something out of science fiction. But a 2009 visit to the doctor’s office is depressingly similar to a 1982 visit to the doctor’s office, and in many ways is worse: It’s more expensive, the insurance and billing systems are even more frustrating, and the record-keeping is frequently defective. The system is plagued by fraud, waste, and malfeasance. There have been some great innovations in medical technology, but there has been regress when it comes to affordability, freedom of choice, and transparency. Why?
The most important difference between the market for cell phones and the markets for health care and education is this: who spends the money. If you buy a cell phone, you spend your own money to meet your own needs, and you have an incentive to get the best value for your dollar. It’s a pretty competitive market, so providers have to answer to you. AT&T may be a powerful corporation, but the lowliest consumer has the power to fire it and choose another provider. You are in control. In health care, you have to convince somebody else — either an insurance company or the government — to spend money on you, and other people don’t really want to spend money on you. The government has an incentive to ration or deny care, and health-insurance companies have an incentive to create impenetrable bureaucratic barriers between you and their money. There’s a reason why claims forms are so complicated, and it’s not that there aren’t enough English majors to go around. In return, you don’t care how much a particular medical treatment costs, only whether your insurance or government plan will cover it — but you’d never buy a $9,000 cell phone. Milton Friedman described the four ways to spend money, and the health-care system uses the worst of them. Economists call this a “third-party-payer problem,” and it is at the root of much of what ails our health-care system.
There is much to lament about that system, and real reform is needed. A meaningful body of reforms would do three things: 1) establish a real market for health-care services and health insurance, one that is fiercely competitive and driven by consumers who are not beholden to their employers, the government, or any concern other than their own needs; 2) take intelligent steps to reduce the expense of health care and health insurance, and the bureaucracy attached to them; 3) offer intelligently designed support for the poor, the sick, and other vulnerable participants in the market.
Here are ten things that would go a long way toward getting that done:
1) Insurance Choice. The third-party-payer problem isn’t limited to insurance companies and government programs. Every company says that its people are its most important asset, but you’ll notice that your name doesn’t show up on the balance sheet. Your employer’s motives in shopping for insurance are different from yours: For the boss, insurance is just another personnel expense, something to be included in wages. (Don’t worry, your salary is getting docked to offset the expense.) Most companies offer two or three options to their workers, and some only a single option, even though the 22-year-old kid in the mailroom has radically different needs from the 46-year-old mother of two. But you’re stuck getting your insurance through your employer, because the tax code makes it very difficult and very expensive to buy your own insurance. The first reform would be to give Americans refundable tax credits against the purchase of personal health insurance, thereby equalizing the tax treatments of individual and employer-based insurance spending. You don’t buy your groceries at the company store, and you shouldn’t have to buy your health insurance there, either. You buy it, you keep it, you take it from job to job and from city to city, and you don’t lose it if you lose your job.