[StBernard] The Myth Of Free Market Health Care In America

[Westley Annis]

The Myth Of Free Market Health Care In America
Shikha Dalmia, 07.29.09, 12:00 AM ET


ObamaCare is in retreat. That much was clear the moment the president
started springing B-grade Hollywood references to "blue pills and red pills"
in its defense during his news conference last week. But before ObamaCare
can be beaten back decisively, its critics need to answer this question: How
did his plan for a government takeover of roughly a fifth of the U.S.
economy get this far in the first place?

The answer is not that Democrats have a lock on Washington right
now--although they do. Nor that Republicans are intellectually
bereft--although they are. The answer is that both ObamaCare's supporters
and opponents believe that--unlike Europe--America has something called a
free market health care system. So long as this myth holds sway, it will be
exceedingly difficult to prescribe free market fixes to America's health
care woes--or, conversely, end the lure of big government remedies.

The fact of the matter is that America's health care system is like a free
market in the same way that Madonna is like a virgin--i.e. in fiction only.
If anything, the U.S. system has many more similarities than differences
with France and Germany. The only big outlier among European nations is
England, which, even in a post-communist world, has managed the impressive
feat of hanging on to a socialized, single-payer model. This means that the
U.K. government doesn't just pays for medical services but actually owns and
operates the hospitals that provide them. English doctors are government
employees!

But apart from England, most European countries have a public-private blend,
not unlike what we have in the U.S.

The major difference between America and Europe of course is that America
does not guarantee universal health insurance whereas Europe does. But this
is not as big a deal as it might seem. Uncle Sam, along with state
governments, still picks up nearly half of the country's $2.5 trillion
annual health care tab. 

More importantly, contrary to popular mythology, America does offer public
care of sorts. It directly covers about a third of all Americans through
Medicare (the public program for the elderly) and Medicaid (the public
program for the poor). But it also indirectly covers the uninsured by--at
least in part--paying for their emergency care. In effect, anyone in America
who does not have private insurance is on the government dole in one way or
another.

This is not radically different from France, where the government offers
everyone basic public coverage, of course--but a whopping 90% of the French
also buy supplemental private insurance to help pay for the 20% to 40% of
their tab that the public plan doesn't cover. 

Meanwhile, in Germany, about 12.5% of Germans who are civil employees or
above a certain income opt out of the public system altogether and rely
solely on private coverage--even though they know it is well nigh impossible
to return to the public system once they switch. And more Germans likely
would go private if they were not legally banned from doing so.

The most striking similarity between America, France and Germany, however,
is the model of "insurance" upon which their health care systems are based.
In other insurance markets, the more coverage you want, the more you have to
pay for it. Consider auto insurance, for instance. If you want
everything--from oil changes to collision protection--you'd have to pay more
than someone who wants just basic collision protection. That's not how it
works in health care. 

For the same flat fee--regardless of whether it is paid for primarily
through taxes as in France in Germany or through lost wages as in
America--patients in all three countries effectively get an ATM card on
which they can expense everything (barring co-pays) regardless of what the
final tab adds up to. (Catastrophic coverage plans are available in America,
but the market is extremely limited for a number of reasons, including the
fact that most states have issued Patients Bill of Rights mandating all
kinds of fancy benefits even in basic plans.)

Thus, in neither country do patients have much incentive to restrain
consumption or shop for cheaper providers. In America and Germany, patients
don't even know how much most medical services cost. In France, patients
know the prices because they have to pay up front and get reimbursed by
their insurer later--a lame attempt to ensure some price consciousness. But
since there is no cap on the reimbursed amount, the French sometimes shop
for doctors based on such things as office decor rather than prices,
according to a study by David Green and Benedict Irvine, researchers at
Civitas, a London-based think tank. (Green and Irvine reported this as a
good thing.)

So what are the consequences of this "insurance" model and how are the three
countries coping with it?

America, as Obama continuously reminds us, spends 16% of its gross domestic
product on health care--the highest percentage in the world. If current
trends persist, in 75 years health care will consume about 50% of the
GDP--and all of the federal budget. But France is not doing a whole lot
better. Its health care system is the third most expensive in the world with
over 11% of its GDP going toward health care--nearly three times more than
the amount in 1960. The French fork over more than 20% of their income in
taxes for public coverage (and another 2.5% to purchase supplemental private
coverage)--yet their public program suffers from chronic deficits. Germany,
similarly, spends about 11% of its GDP on health care with Germans
contributing more than 15% of their income toward buying health care.

If France and Germany are not spending even more on health care, one big
reason is rationing. Universal health care advocates pretend that there is
no rationing in France and Germany because these countries don't have long
waiting lines for MRIs, surgical procedures and other medical services as in
England and Canada. And patients have more or less unrestricted access to
specialists. 

But it is unclear how long this will last. Struggling with exploding costs,
the French government has tried several times--only to back off in the face
of a public outcry--to prod doctors into using only standardized treatments.
In 1994, it started imposing fines of up to roughly $4,000 on doctors who
deviated from "mandatory practice guidelines." It switched from this
"sticks" to a "carrots" approach four years later, and tried handing bonuses
to doctors who adhered to the guidelines. 

Meanwhile, in Germany, "sickness funds"--the equivalent of insurance
companies--have imposed strict budgets on doctors for prescription drugs.
Doctors who exceed their cap are simply denied reimbursement, something that
forces them to prescribe less effective invasive procedures for problems
that would have been better treated with drugs. But the most potent form of
rationing in France and Germany--and indeed much of Europe-is not overt, but
covert: delayed access to cutting-edge drugs and therapies that become
available to American patients years in advance.

The point is that there is no health care model, whether privately or
publicly financed, that can offer unlimited access to medical services while
containing costs. Ultimately, such a model arrives at a cross roads where it
has to either limit access in an arbitrary way, or face uncontrolled cost
increases. France and Germany, which are mostly publicly funded, are
increasingly marching down the first road. America, which is half publicly
and half privately funded, has so far taken the second path. Should America
offer even more people such unlimited access through universal coverage, it
too will end up rationing care or facing national bankruptcy.

The only sustainable system that avoids this Hobson's choice is one that is
based on a genuine free market in which there is some connection between
what patients pay for coverage and the services they receive. That is
emphatically not what America or any Western country has today. Looking to
these countries for solutions as Obama and other advocates of universal
health coverage are doing will lead to false diagnoses and false cures.

Shikha Dalmia is a senior analyst at Reason Foundation and writes a biweekly
column for Forbes.