A wasteful insurance system; distorted incentives; a bias toward treatment; moral hazard; hidden costs and a lack of transparency; curbed competition; service to the wrong customer. These are the problems at the foundation of our health-care system, resulting in a slow rot and requiring more and more money just to keep the system from collapsing.Health care doesn't work because it's not a market, and lacks the prices, cost-cutting, and consumer focus that dominate most markets (and even the more consumer-directed parts of the healthcare system, like elective surgery or vet care).
So how do the reforms being considered in Congress stack up? These are dominated by the "Orszag" principle--the idea that technocrats, on their own, can use the powers of modern statistics to identify and trim fat, at minimal political cost. This way, we can afford to give everyone full health coverage.
Maybe. But even if the entire cost-cutting brigade knew how to do their job, it's not clear that they could combat the various established interests and Congress and actually do so. People like to talk about cost cutting in theory, but become much more wary in practice. The "death panels" meme is obviously over the top; but they raise a point that any government plan will have to face--at what point do you say no to treatment?
Nor is it clear that government-mandated cost cutting could work even if it were politically possible. In the past, when Medicare has cut reimbursements, doctors responded by increasing the number of procedures and raising overall costs. As long as the entire healthcare system remains a bureaucratic mire, it's not clear how further government meddling with solve the problem.
So what should we do? Whenever faced with any public policy problem, my default response is to ask: What would Mitch Daniels do? He's expanded Health Savings Accounts to cut costs while expanding catastrophic coverage.
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