Commentary

Give Market Forces Room to Breathe, and Costs Will Decrease

This article is the third of a three part series.
Part I | Part II | Part III

The dirty little secret is that “Obama-care” isn’t about reducing healthcare costs or making coverage more secure. It’s about robbing Peter to pay Paul.

How many young and elderly people can we rob to subsidize coverage for the uninsured? How can we leverage the 50% of health spending that government already controls to push payments below costs among the other 50%? How many special interests should we bribe along the way? (Answer: all of them.)

Supporters from President Obama right down to you assure us that consumers will come out ahead. The only losers, you assure us, will be the insurance industry.

The opposite is true: Democrats in Congress are taxing workers to pay off insurance companies. Democratic Sen. Max Baucus (D-Mont.) just proposed $774 billion in subsidies for private insurers. (Somehow, that’s supposed to be more moderate than House Democrats’ $773 billion in subsidies.)

The outrage at the August town halls came from voters realizing that under Obama-care, they’re not Paul — they’re Peter.

“Almost every political pronouncement now emphasizes cost reduction as a central object of healthcare reform,” writes Stanford health economist Victor Fuchs. “The policy recommendations that follow, however, frequently aim at cost shifting rather than cost reduction.” Cost shifting, Fuchs reminds us, “does nothing to reduce the real cost of care.”

Real reform would reduce costs by letting individual consumers control their healthcare dollars and choose their health plans.

Eliminating the tax preference for job-based coverage would let workers control the $4,000 to $10,000 of their earnings that employers now control and choose secure coverage that stays with them between jobs. Converting Medicare to a voucher program, with larger vouchers for the poor and the sick, would protect seniors from government rationing.

Consumers will spend that money more wisely than employers or government ever could. They will drive costs down because they will personally reap the rewards.

Real reform would further reduce the cost of coverage by letting workers purchase coverage from other states. As Cal State Northridge economist Shirley Svorny suggests, real reform would also make medical services more affordable by eliminating barriers to competition by nurse practitioners and other mid-level clinicians.

Those two steps would not only increase competition and reduce costs. They would improve many dimensions of quality by helping the Kaiser Permanente model spread to other states. That sounds better than summarily kicking Kaiser out of Medicare Advantage, doesn’t it?

Our healthcare sector is a mess. Countless Americans are suffering and dying — yes, dying — because well-intentioned government interventions are driving costs higher, blocking innovation and leaving us with insecure coverage.

Yet the greatest strength of America’s healthcare sector is that it shows what competition can do when market forces are given room to breathe. What do you say we give market forces a little more breathing room?

But first, let’s stop the kleptocrats and kill this insurance-company bailout.

Michael F. Cannon is director of health policy studies at the Cato Institute and coauthor of Healthy Competition: What’s Holding Back Health Care and How to Free It.