Pouring Oil on the Health-Care Fire

by Jason D. Fodeman

In the NY Times blog, Prof. Uwe Reinhardt today discusses the costs of health reform.

One can’t discuss the cost of health-care reform without first examining the etiology of rising health-care costs. In 2008 the United States spent $2.4 trillion on health care and the Congressional Budget Office predicts health-care costs will continue to escalate precipitously — accounting for 25% of GDP by 2025, 37% of GDP by 2050, and 49% of GDP by 2082.

What’s the diagnosis for rising costs? Liberal scholars find solace blaming technology, but common sense would dictate that the problem is slightly more complicated. After all, normally as technology improves and becomes more commonplace, costs go down. The price of computers, flat-screen televisions, and DVD players have all decreased. Why is an MRI different?

It’s the corollary of a third-party payment system. Today’s health-care system is replete with perverse incentives culminating in exponentially increasing costs. The provider and insurance company nexus leaves the patient as the odd man out. The copayment patients incur at purchase time fails to represent real cost and thus artificially increases demand for services with little medical benefit. Yet no one cares. When costs rise, the insurance company can always raise the entry fee to the employer. Meanwhile, the employer simply passes the cost on to the worker by taking the money out of wage increases. The insured public views it as an employer expense and not theirs. No one in the health-care industry has a stake in controlling health-care costs, so costs soar.

Mr. Obama included a $634 billion down payment for health-care reform in his budget. Independent estimates peg the actual cost of ObamaCare closer to twice that. Only in Washington could someone recommend treating a spending explosion with more spending.

Mr. Obama’s reform efforts have thus far failed to address the distorted incentives that have led to ballooning costs. Instead, Mr. Obama would prefer to pour oil on the health-care fire. Throwing dollars at the problem will not “bend the cost curve.” It will heighten it!

– Jason Fodeman, MD is a recent graduate of Albert Einstein College of Medicine.

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