What About Health Care Costs?

If someone magically came up with a way to run a health insurance company for free (no employee costs, no building rent, no supplies, no software licensing fees) everyone with health insurance under that company would see something like a 15% discount (13% if you believe health insurers' numbers, 25% if you believe the U.S. Senate Commerce Committee numbers) for the first year. That would be the extent of the reduction.

Health care costs, on the other hand, rise 4% each year. So somewhere between three and six years, whatever gains had been got by running the health plan for free would be eliminated. And yet the medical inflation trend would continue unabated. Health care consumers would be right back to unsustainable costs, with no help in sight and another 4% price hike on the horizon each successive year.

That is why Obama called health care costs the biggest threat to our nation's balance sheet. Eliminating health insurers entirely makes for nice theatrics but in reality accomplishes little to benefit health care consumers.

In an article in the Salt Lake Tribune, two researchers from the Heritage Foundation point out that:

Today's health-care system is fraught with perverse incentives that generate artificially increased spending. But nothing in the House- and Senate-passed health bills, or in the president's plan, would reduce these incentives. And some provisions would make them worse.

In most fields, such as computers and cell phones, new technology usually increases quality and reduces prices. Health care prices, though, often go the opposite way. Not always; drug prices drop when generics replace brand-name drugs, and expensive drugs sometimes replace even-more-expensive surgical interventions. But often, new health technologies increase prices. Why? Health-care prices are determined by a bureaucratic process that prevents competition from driving prices down.

They conclude that the current proposals would bend the health care cost curve, but in the wrong direction.

Advocates of the current reform proposals say that free markets are what got us into the current health care crisis. I say phooey. Our current state is nothing of a free market.

A successful "up" vote on health reform would be a pyhrric victory for Americans who actually work and pay for their health care. They will feel momentarily better for having struck a blow against "evil" health insurers. They will soon find the gains erased and subsumed in the inexorable rise of health care costs. More importantly, lawmakers will have squandered the opportunity to address health reform in a meaningful way while the attention and will to do so were in place.