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Friday, January 27, 2006

The Economist Opposes Bush's Health Care Proposal

The Economist swallows hard, and then talks sensibly about health care reform:

America's headache, The Economist: Everyone , it seems, has a health problem. ... But nowhere has a bigger health problem than America. ... Pushed by polls that show health care is one of his main domestic problems ..., George Bush is expected to unveil a reform plan in next week's state-of-the-union address.

America's health system is unlike any other. The United States spends 16% of its GDP on health, around twice the rich-country average, equivalent to $6,280 for every American each year. Yet it is the only rich country that does not guarantee universal health coverage. ...[M]ost Americans receive health insurance through their employer, with the government picking up the bill for the poor (through Medicaid) and the elderly (Medicare).

This curious hybrid certainly has its strengths. Americans have more choice than anybody else, and their health-care system is much more innovative. Europeans' bills could be much higher if American medicine were not doing much of their R&D for them. But there are also huge weaknesses. The one most often cited ... is the army of uninsured. ... In many cases that is out of choice and, if they fall seriously ill, hospitals have to treat them. But it is still deeply unequal. And there are also appalling inefficiencies: by some measures, 30% of American health spending is wasted.

Then there is the question of state support. Many Americans decry the “socialised medicine” of Canada and Europe. In fact, ... around 60% of America's health-care bill ends up being met by the government (thanks in part to huge tax subsidies that prop up the employer-based system). Proportionately, the American state already spends as much on health as the OECD average, and that share is set to grow... America is, in effect, heading towards a version of socialised medicine by default.

Is there a better way? ...[T]here is no such thing as a perfect health-care system: every country treads an uneasy compromise between trying to harness market forces and using government cash to ensure some degree of equity. Health care is also ... where market forces have ... the most limited success: it is plagued by distorted incentives and information failures. To begin with, most health-care decisions are made by patients and doctors, but paid for by someone else. There is also the problem of selection: private-sector insurers may be tempted to weed out the chronically ill and the old, who account for most of the cost of health care.

In the longer term, America, like this adamantly pro-market newspaper, may have no choice other than to accept a more overtly European-style system. In such a scheme, the government would pay for a mandated insurance system, but leave the provision of care to a mix of public and private providers. Rather than copying Europe's distorting payroll taxes, the basic insurance package would be paid for directly by government...

Such a system would not be perfect but it could mitigate the worst inequities in America's health-care system, while retaining its strengths. In practice, however, it will not happen soon. American politicians are still scarred by the failure of Hillary Clinton's huge health-care plan .... Incremental change ... looks the only way forward...

[T]here is a flaw at the heart of his proposal. Mr Bush goes straight to one of the biggest distortions in American health care—the generous tax subsidies doled out to firms providing insurance. These help to promote a culture where costs do not matter. ...[T]he president wants to even things out by doling out yet more tax subsidies to others—for instance, letting individuals set more of their out-of-pocket medical expenses against taxes. Such hand-outs may have political appeal, but they will worsen the budget deficit and, most probably, drive up the pace of medical spending. America's health-care system could be improved in small steps. But those steps need to be in the right direction.

See The Economist's companion article "Desperate Measures" [free link] for more detail on these and other issues. It ends with:

Mr Bush's health-care philosophy has a certain political appeal. It suggests incremental change rather than a comprehensive solution. It reinforces existing industry trends. And it promises to be pain-free. Unfortunately, it will not work. The Bush agenda may speed the reform of American health care, but only by hastening the day the current system falls apart.

    Posted by on Friday, January 27, 2006 at 01:19 AM in Economics, Health Care | Permalink  TrackBack (0)  Comments (11)

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