With Health Care, First Fix Terms of Engagement 1

[Guest guest]

With Health Care, First Fix Terms of Engagement

By Pearlstein

Wednesday, January 18, 2006; Page D01

In the coming weeks, President Bush intends to initiate a long-

overdue national debate on what do about health care. The sector

represents 16 percent of the economy and is growing twice as fast as

the incomes of the people who pay for it. Even at that level of

spending, however, 40 million Americans have no health insurance at

all, while the health of those who do is worse than in many other

industrialized countries where spending is considerably lower. If we

don't fix it, the health care " system " will render U.S. businesses

uncompetitive, require huge increases in taxes and eventually

bankrupt the country.

In other words, it's important to get it right this time, and a

president nearing the end of his second term who is willing and able

to take on the special interests is just the person to lead it.

Unfortunately, by framing the debate as an ideological choice between

individual control and more government, Bush is setting himself up

for another Social Security-like failure.

The White House line that we need to get government out of the health

care business, or that we'd have better, cheaper health care from an

unregulated market, is not only nonsense. It is also the kind of

ideologically charged rhetoric that will immediately ensure that

Democrats oppose anything that follows it.

Government -- in the form of Medicare, Medicaid and insurance

coverage for employees and veterans -- already pays half of the

nation's health bill. Those are among the most popular government

programs, cherished by Republicans and Democrats alike. So to think

government won't be heavily involved in health care is an economic

and political fantasy.

Moreover, we know that by its nature, health care is a highly

imperfect market.

It suffers from tremendous " information asymmetries " between sellers

(doctors, hospitals and insurers) and buyers (patients).

It is rife with what economists call " principal-agent problems " --

like the doctor who benefits financially by providing more medical

treatment than patients need, or health insurers that are always

trying to get them to consume less.

In rural areas, there are often few providers and little or no

competition.

And left alone, insurance markets will tend to lower costs for the

young and healthy and raise them for the sick and aged -- an outcome

that is as socially unacceptable as it is economically efficient.

We know from behavioral economics that people are particularly

irrational about health care risks, with a tendency to overconsume,

overpay and over-insure.

Moreover, threats like that posed by the Asian bird flu remind us

that public health is a public good in which private markets reliably

underinvest.

So, please, let's dispense with the free market, personal choice

rhetoric. Economically, its inappropriate. Politically, its just

stupid. It didn't work with Social Security and -- trust me on this

one -- it really won't work with health care.

Health savings accounts combined with higher-deductible catastrophic

insurance -- the centerpiece of the Bush consumer-driven health care

push -- are already gaining traction in the marketplace and show some

real promise.

And yes, preempt those crazy state laws mandating coverage of

chiropractors, podiatrists and massage therapists.

At the same time, the president must acknowledge that there can be no

credible reform without extending health insurance for every

American. In the context of our employer-based system, every employer

should be required to pay half the cost of basic health insurance for

every employee, with the government pitching in to help the

unemployed and working poor. We already do that for unemployment

insurance, worker's compensation and Social Security. Now its time

for the world's richest country to extend the approach to health care.

Both economic theory and recent experience tell us

that " universality " is an economic necessity. In a competitive

marketplace, the sick and poor tend to be priced out of the system

while an increasing number of employers and healthy workers try to

free-ride by getting others to pay for their emergency-room care.

Just as important, universality is a political necessity. Leave it

out and you can be sure that Democrats will mau-mau the issue and

refuse to participate in the discussion. On the other hand, include

it as a central purpose of health care reform and Democrats will have

no choice but to join in.

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