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Health care: Creating real competition to lower costs

By Peter Morici
web posted August 3, 2009

U.S. health care is broken but President Obama's reforms would raise costs and subsidize the beast with taxes on small businesses and the successful.

Americans spend 18 percent of GDP on health care, and Obama's patches and plugs would push that above 20.

In Western Europe and Canada nearly everyone has health insurance, and the cost is 12 percent. Those nations pay less for drugs, administration and physicians, and don't have a predatory malpractice system.

Central to U.S. inefficiency are the big private insurers. They have sold employers on two abusive ideas. A few oligopolistic purchasing agents—to negotiate with drug companies and physicians, and ration care—and abusive co-payments.

Just like cable TV monopolists who charge exorbitant subscription fees and subject viewers to obnoxious commercials, health insurance executives grow rich by charging twice for the same service. Americans pay huge premiums for health insurance, which by themselves exceed the cost of comparable services in Western Europe and Canada, then shell out co-pays to see doctors and obtain drugs.

Insurance companies have become a shadow government. They broker support from the AMA, pharmaceutical companies and tort lawyers by maximizing revenue and dividing up the booty. Think of your mayor and his shills at City Hall that now require nine permits and eleven inspections to build a backyard deck.

President Obama cares about Americans, but a good Democrat, he cares as much about keeping his teammates elected. His "reforms" tax the wealthy to subsidize everyone else—class warfare is a winning strategy for Democrats—and impose very limited changes on a dysfunctional system.

The idea that Obama's government insurer would provide cost-saving competition for outfits like Aetna is a nonstarter for anyone who has stood in line at the Post Office or had a check lost by the IRS.

That said, the bipartisan compromise emerging in the Senate—a national network of private nonprofits—could make sense. Let individuals with private employer insurance select that option and pocket half of whatever premium savings those cooperatives could offer.

Require drug companies to charge those nonprofits no more than the Canadians pay. After all, those companies are making money up there, or they would not be supplying the drugs.

Subject all subscriber complaints to arbitration and limit malpractice awards to income replacement and true additional needs. Consumers wanting the option for hit-the-jackpot lawsuits in the event of tragedy could stay in the current system.

Finally, let those cooperatives negotiate rates with doctors, and pay general practitioners based on the number of patients on their rolls, not on a fee for service basis. Doctors could accept less, because they would be freed from much paperwork and defensive medicine—and huge malpractice insurance premiums would be cut dramatically.

In the end, the private insurers might end up like General Motors. Though very big, they could be let to fail, and medical costs would fall. ESR

Peter Morici is a professor at the Smith School of Business, University of Maryland School, and the former Chief Economist at the U.S. International Trade Commission.

 

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