Unhealthy Debate

Amid all of the lunatic showmanship about the budget and finances, the true struggle for America’s future lies in healthcare. As our GDP has grown and our population has aged, citizens have demanded more and better healthcare, which has driven an unsustainable increase in medical costs. Without commenting on the wisdom of the legislation, we know that the Patient Protection and Affordable Care Act, President Obama’s historic healthcare overhaul, insures more people, but insuring these people will drive up costs—especially since many of the people who currently lack insurance are, according to the United States Census Bureau, the poorest among us. In other words, the people least able to pay will have to be subsidized. Yet when Wisconsin Congressman and Budget Committee Chairman Paul Ryan introduced his Path to Prosperity, which contains a plan to reform Medicare, Democrats hounded him for “ending Medicare as we know it.” Maybe that’s true. But the current system is unsustainable; change is necessary whether we like it or not.

The Path to Prosperity’s plan for Medicare is to transform it from fee-for-service into a premium support system in which consumers are forced to understand accrued costs. Medicare is currently structured so that elderly Americans pay the deductible at a doctor’s visit, giving them access to a huge variety of amazingly expensive tests while paying hardly anything for them. The tab instead goes to the government. Patients are not made to realize the costs. As in any market, when consumers and producers do not comprehend the cost of their behavior, there is inevitably market inefficiency. Healthcare in the United States is a $2.5 trillion industry, making the scale of the inefficiency even more exaggerated. As more people age into the system, they will create a bigger hole in the budget than is already there.

Under Congressman Ryan’s plan, seniors would receive a subsidy from the government that would allow them to go to a well-regulated marketplace to select a private healthcare plan. Any money not spent on the healthcare plan can be kept, and any expenditure beyond the government’s check comes from out-of-pocket. In other words, it incentivizes seniors to consume more efficiently and healthcare companies to lower costs in order to appeal to seniors who are looking for cheap and effective healthcare. It must be said that this plan makes a key assumption on which the entire success of the program rests: that “down-market” insurance companies can force “up-market” providers of care to control prices. Historically this has not been possible. The hope is that a more competitive and open market than the one we have now would be able to bring prices down more effectively. If a company can keep its costs down and quality up, patients will flock to it. The successful companies would be profitable, and the unsuccessful would be forced to reform or exit. Rather than have the government try to run a market, which is a notoriously bad idea, consumers should consciously begin to effect change through their purchasing decisions.

Regulation would have to correspond. It is true that some companies would find ways to abuse consumers, but the solution is not to turn over more control to government. The best regulation is tightly focused but limited in scope. The Ryan plan dictates that Medicare pay for a plan of the consumer’s choosing, so the government should use all means of oversight it has available, as it already does in every other instance in which it contracts out a service. In addition, the government would establish minimum care plans; all plans would have to include preventive care, primary care, and mental health services.

Healthcare is certainly a unique market. We become emotional when considering our own or a family member’s health, since the cost of a wrong decision is so high (up to and including death) that it  substantially impacts our decision-making abilities. We consume as much as possible in the health care sector because we fear the consequences of the alternatives, no matter how unlikely they may be. When the government pays for healthcare, the costs ultimately come back to everyone through higher taxes, whether in the present or the future. The Ryan plan that seniors consider their own circumstances and costs. By doing so, it provides a way of controlling the costs and consumption of a type of good that would otherwise very easily lend itself to overconsumption and inflation. Liberalizing markets to promote choice and control costs has worked in all manners of industries all across the globe, from communications to energy to transportation. It is time that we consider doing the same thing for healthcare. Even Democrats would agree that gut-wrenching change to Medicare today is better than its possible collapse tomorrow.