July 15, 2012

LESS MONEY, LESS CHOICE, MORE MARKET FORCE:

BOOK REVIEW: PRICELESS: CURING THE HEALTH CARE CRISIS By John C. Goodman (David Hogberg, 7/11/12, The Washington Times)

[I]n the context of the current election, "Priceless"proves most useful in explaining why our private health care markets don't work properly and how to fix them. Because of federal tax law, health insurance provided by an employer is tax-free. This, Mr. Goodman, notes, has "favored third-party insurance against individual self-insurance." Because health insurance is tax-free and wages are taxed at the marginal rate, employees have an incentive to put as many dollars of benefits as possible into health insurance. This has led to the notion of "ideal heath insurance," which Mr. Goodman says is insurance "with no deductible or co-payment, making medical care essentially free at the point of delivery."

But if health insurance pays for all of a patient's health expenses, the patient has an incentive "to overuse the system, essentially consuming health care until the last amount obtained has a value that approaches zero." If patients aren't paying more of their health expenses with their own money, "they're not likely to shop around for the best buy."

When patients don't shop around, health care "providers will not compete for patients based on price. They will have no economic incentive to keep costs low the way producers do in other markets." Rather, with an insurance company - i.e., a third-party payer - paying their bills, "the incentive of providers will be to maximize against the payment formulas in order to enhance their incomes."

That, in turn, incentivizes insurance companies to interfere with the doctor-patient relationship in an effort to restrain the amount of care that is used. Ideally, they are able to eliminate primarily unnecessary care. In practice, they go after low-hanging fruit that may or may be not be necessary care. In the process, insurance companies anger both doctors and patients.

To get out of this mess, Mr. Goodman says no change in public policy is "more important than giving patients more control over health care dollars." But will Republicans follow this principle? Mitt Romney does not inspire confidence. He wants to give individuals the same tax break for health insurance that employees get for buying it through their employer. That only will encourage individuals to buy more insurance than they need, putting more of their dollars under the control of a third-party insurer. In short, it will only exacerbate the problems with the current system.



Posted by at July 15, 2012 6:50 AM
  

blog comments powered by Disqus
« ALONG THE AXIS OF GOOD: | Main | OTHER THAN THE MANDATE, DEATH PANELS WERE THE BEST PART OF THE BILL: »