Speeches

Affecting the Demand Side of the Equation

By Greg Scandlen
December 6, 1999

Thank you. It’s a very great honor to be here today. I’m going to be brief because I know you have a busy schedule.

I’ve been asked to represent the Right Wing — the “vast conspiracy” I guess — on this panel today. I’m not sure my conservative friends would appreciate a libertarian taking that role, given Cato’s views on issues like medical marijuana and corporate welfare.

But the ideological lines are blurring in any case. While we were listening to Kathy Swartz’s “Left Wing” presentation, Jeff Lemiuex leaned over and told me, “she could have been giving your speech.” And that’s true. She was speaking about the clear need to return insurance to what insurance is supposed to do. That is, cover people for unexpected and financially devastating occurances. All she need do is add a Medical Savings Account to that formula and we’d be all set.

But I want to step back a few paces and look at the bigger picture. Libertarians generally believe in a maximum of freedom and a minimum of coercion in all areas of life. This is all an extension of the thinking of Thomas Jefferson and Adam Smith but it is even more appropriate today than it was 250 years ago. People today are better educated and have much better access to the tools of information and communications needed to make informed decisions

It is quite an achievement that we have gotten to this point today — at the sunset of the 20th Century. This entire century has been a bloody struggle between freedom and totalitarianism in all its forms — fascism, socialism, and personal dictatorships. For the most part freedom has won. Command and control economies have failed everywhere, to be replaced with the discipline and innovation of market economies.

Everywhere, that is, except in health care. Whether in the United States or other industrialized countries, people have come to view health care as either a right or an entitlement that should be provided freely and on demand. Costs don’t matter because someone else always pays the bill.

I don’t have to tell you where this kind of thinking leads. Because there is no restraint on the demand for services, the people who pay the bills, usually the government or employers, have to control the supply of those services. There are many ways to reduce supply — reduce the number of service providers, ration the amount of services allowed, create long waiting lines, direct denial of care — but they all amount to the same thing — preventing people from getting services they want to have and feel they need.

This phenomenon is not confined to the United States. A recent article in Health Affairs reviewed public opinion surveys in five different English-speaking countires — the United States, the United Kingdom, Canada, Australia and New Zealand. Each of these countries has its own unique health care system, but in every case the level of popular discontent with health care was roughly the same.

Whether the system is employer-sponsored, single-payer, nationalized health services, mandated coverage, or any combination of these, the essential message to the people is the same. They are being told that, when it comes to health care, they have a right to whatever they want, whenever they want it, and it will all be free or nearly so.

This is, of course, a bald-faced lie. And the people are beginning to figure that out. And the people are becoming furious that they’ve been lied to.

Now that we’ve tried every imaginable way to limit the supply of services, there is only one strategy left — change the demand side of the equation.

We have to tell people the truth for a change. We have to say, “Here is what our system can afford to spend on health care. We will try to allocate these funds fairly among the population. But if you want more, you will have to pay for it yourself.”

People are then free to make their own value judgements about what is and is not important to them, rather than simply accepting the judgements of a third party. There will be trade-offs, of course. We don’t all get to send our kids to Harvard, but we don’t feel that life is unfair because of it. We gather our resources and do the best we can with what we have. Some people may be willing to sacrifice a new car in order to pay for Harvard, others are not. But this is a judgement that can be made only by the family involved. And so it must be in health care.

Every country is facing the same dilemma and each needs to look at its own traditions and resources in changing the entitlement mind-set.

At the Cato Institute, I’m developing a whole program for reforming the American system. We can go into detail later, but briefly it includes:

  • Individual Choice and Ownership of Health Plan. Workers get to select their own plan and keep it with them as they change jobs. If they don’t like the plan they’re in, they can “vote with their feet” and leave it behind.
  • Vouchers or Defined Contributions from the Government and Employers. Employers have a legitimate interest in helping their workforce obtain coverage. It keeps productivity up if workers can get treatment when they fall ill. So employers can continue to fund the plan, they just don’t have to choose or manage it.
  • Tax Reform. The states and federal government currently spend $140 billion a year on subsidizing employer-sponsored health care, but it does so in a regressive way. It needs to be made at least neutral so that all Americans get the same subsidy.
  • Expand Medical Savings Accounts. MSAs rationalize spending on routine services. They are the best tool currently available for affecting the demand side of the equation. They should be made available to everybody.
  • Reform the Insurance Market. There are far too many nit-picky rules in the individual market, including mandated benefits and restrictions on non-employment groups. We need innovation and a period of creativity in this market.
  • Transition Issues. Making the change to an individually-owned system will take a while and there are a number of safeguards that need to be built in. These include state high-risk pools, for instance, and continuation of Medicare for those already on the program.

This is a very big agenda, but it has to be moved quickly. The current system is close to collapse:

  • Employers have had it up to here with paying all this money and getting nothing but grief for it. They may spend $4,000 - $6,000 per worker on health coverage, and all they hear are complaints that Viagra isn’t covered.
  • Employees are fed up with being forced into a plan the boss selected. For most workers, the employer is the last party they would turn to for help with medical issues. If their daughter has an abortion or if they want more benefits for mental health care, the boss is about the last person they would talk to.
  • Physicians are sick of health plans second-guessing their medical judgement. The reality is that medicine is still as much art as science. Doctors have to take a lot of subtle factors into consideration, including the look of fear in the patient’s eyes or the love of a family member.
  • Politicians are weary of the unending growth of the uninsured and the complaints they hear from all the other groups.They know that something must be done — but they have no idea what.

We are about one more big regulation, or one economic downturn, away from having the whole house of cards collapse.

We must have an alternative in place before that happens. And the AMA must be in the forefront of making sure we do.

Thank you.

Greg Scandlen is the Director of Health Policy at the Cato Institute.

Delivered to the Meeting of the House of Delegates, American Medical Association, San Diego, California