Commentary

Fix Health Care by Making Americans Care About Costs

As it does every August, the Census Bureau has announced its latest estimate of how many people in the USA lack health insurance. The 47 million figure is higher than last year’s estimate of 44.8 million. But as also happens every August, health care reformers will soon misinterpret that estimate to push counterproductive reforms.

The truth is, there are not 47 million U.S. residents who can’t get health insurance. According to the Department of Health and Human Services, that Census estimate “appears to overstate the uninsured substantially compared to other surveys.”

Those other recent surveys put the number between 19 million and 36 million. And all those estimates include people who could obtain coverage.

As many as 20% of the “uninsured” are eligible for government health programs, so in effect they are insured. On top of that, economists Kate Bundorf of Stanford University and Mark Pauly estimate that as many as 75% of the uninsured can afford to buy insurance.

A real problem

Make no mistake, America has an uninsured problem. As journalist Jonathan Cohn documents in his book Sick, the high cost of coverage produces far too many avoidable tragedies. Nonetheless, most reformers, including Cohn, focus obsessively on expanding coverage, despite the fact that many economists can find no evidence that it is a cost-effective way to improve health.

Simply expanding coverage would have little effect on the quality of care, health disparities, or how long we live, nor would it stop free-riders from shifting costs to others. In fact, expanding coverage through government regulation or tax-and-transfer programs would make our problem worse.

Consider how we purchase health coverage. Every year, the average family of four spends thousands of dollars in taxes to fund care for others, and according to data from the Kaiser Family Foundation, that family spends $11,000 for its own employer-controlled coverage.

More than 200 million Americans have public or employer-controlled coverage, and all are essentially purchasing it with someone else’s money. And that’s the problem: Americans demand more coverage than they would if they were spending their own money. In fact, we demand as much coverage as Canadians, for whom health care is supposed to be free. Both American and Canadian patients pay only about 14 cents for every dollar of medical care they consume.

Premiums soar

It should come as no surprise that health insurance premiums have risen 87% since 2000. Doctors and insurance companies can get away with charging high prices because their customers don’t bear the costs directly.

This isn’t some inevitable result of market forces, but of government programs and tax preferences for employer-controlled insurance. By rewarding employer-controlled coverage — and penalizing plans that stay with you from job to job — the government strips people of their health insurance when they need it most.

President Bush and GOP presidential candidate Rudy Giuliani have endorsed reforms that would extend the tax break applying to employer-controlled coverage to individually purchased coverage as well. Those reforms would let families control the $11,000 that purchases their own coverage. The Congressional Budget Office estimates the Bush proposal would expand coverage to 7 million people.

If we want to increase access to health care, our first priority must be to contain costs. Nothing would help more than 200 million cost-conscious consumers.

Letting Americans own their health care dollars is the right thing to do. And as it happens, it would also cover a lot of the uninsured.

Michael F. Cannon is director of health policy studies at the Cato Institute and co-author of the forthcoming 2nd edition of Healthy Competition: What’s Holding Back Health Care and How to Free It.