Commentary Magazine


Gore One Ox at a Time

President Obama’s health-care reform appears to be in increasing trouble. The costs, as scored by the Congressional Budget Office, would be horrendous, public support is collapsing, and Congressional Democrats are at each other’s throats over the issue. It appears increasingly unlikely that either house will hold a vote before the August recess, and that recess is likely to be a time when members of Congress will get an earful from the home folks telling them they hate the whole idea.

Congressional Republicans should probably follow Woodrow Wilson’s admirable advice to “never murder a man who is committing suicide.” But once ObamaCare implodes, the loyal opposition will likely be ready with an alternative. I don’t mean an alternative overarching, comprehensive, fix-everything-instantly plan that’s impossible for the layman to get a handle on (that’s what’s wrong with ObamaCare). Rather, we need a set of reforms that will each help mightily to fix what is really wrong with the American health-care system: the fact that no one — doctors and patients alike — has any incentive to care what things cost. Because they can be enacted independently, only one ox would be gored at a time and thus only one set of lobbyists would be fighting each reform instead of banding together to fight for the status quo.

A few suggestions:

1) Fix the fee-for-service structure of compensation for hospitals and doctors. When you get paid for every procedure you perform and every test you order, there is, obviously, a big incentive to do more procedures and more tests. But when doctors are on salary, as at Bassett Hospital in upstate New York, costs are much lower. At Bassett, costs are below those of 90 percent of hospitals in New York State, while care is in the top 10 percent nationwide. The famous Mayo and Cleveland clinics are structured the same way. The AMA loves fee-for-service.

2) Fix the malpractice system. The whole system of tort law in this country has been corrupted by a small segment of the American bar while the ABA has stood by and done nothing. (Check out Walter Olson’s Huge malpractice-insurance costs are passed on to patients and insurance companies while doctors and hospitals are forced to practice “defensive medicine,” ordering unnecessary tests and procedures to avoid being second-guessed by medically ignorant juries happy to spend other people’s money. Special federal health courts, modeled on bankruptcy courts, would be a big improvement. But nothing would help more than getting rid of the “American rule,” in which each side pays its own court costs regardless of outcome. This creates a heads-I-win-tails-you-lose situation in which the American legal system is used as a means of extortion (“pay us $100,000 to go away or spend a million to successfully defend the lawsuit”). Adopting the so-called English rule (which is actually the rest-of-the-world rule), where the loser pays court costs, would save billions that now go into the pockets of lawyers and expert witnesses for hire. Tort lawyers love the legal status quo.

3) Immunize drug companies from lawsuits if the drug companies have met all FDA requirements (and no fraud is involved, of course). If the FDA fails to do its regulatory job to uncover problems before a drug is licensed, those injured should be compensated from a trust fund funded by a small tax on prescription drugs. Those injured are now compensated by a large tax on prescription drugs disguised as malpractice insurance premiums for drug companies. And a large percentage of the compensation goes to lawyers and expenses, not the victims. Tort lawyers love this one too.

4) Federalize insurance regulation. Insurance is regulated by the 50 states, although we have had national insurance markets for over a hundred years. Having one set of regulations instead of 50 would lower costs dramatically. Requiring insurance companies to offer a defined set of policies, from high-deductible, catastrophic policies designed for those at low risk (such as the healthy young, who make up a large percentage of the uninsured), to medical-savings-account policies, to all-the-bells-and-whistles policies for those older and more affluent. People buying insurance would then be able to compare prices, forcing insurance companies to compete on the basis of price. When there’s price competition, prices go down. State governments and insurance companies will hate this one.

5) Eliminate the deductibility of health-insurance costs for companies and provide tax credits for individuals to buy insurance instead. This was John McCain’s excellent suggestion last year, and Barack Obama shamelessly demagogued it. But making people ask the magic question “How much is this going to cost?” will drain billions out of the cost of insurance. Those used to gold-plated policies at someone else’s expense won’t like this one bit.

6) Incentivize people to watch costs. Safeway, the large supermarket chain, has brought health-care costs under control by making it in the interest of their employees to, once again, ask the magic question “How much will this cost?” while making sure the cost doesn’t bankrupt them if it’s inherently high. Safeway found that the cost of a standard colonoscopy in medical facilities within 30 miles of the corporate headquarters varied from $700 to $7,000. Only in an economic situation where no one cares what things cost is such a disparity possible. Give people a reason to care (such as the use of medical savings accounts) and require facilities to publish prices, and those prices will quickly converge toward the low end of the range. Hospitals and out-patient clinics will oppose this, as will people who have been used to not caring. It is estimated that waste, fraud, legal costs, overcharging, and cost-shifting add about $700 billion a year to the country’s medical costs. If we could eliminate half that, it would be equal to buying every uninsured person in the United States a $7,500-a-year medical insurance policy. And it wouldn’t destroy the most innovative and accessible medical system in the world by turning it over to bureaucrats who don’t care about either patients or costs.

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