The Health Care Crisis and What to Do About It

The good news is that we know more about the economics of health care than we did when Clinton tried and failed to remake the system. There’s now a large body of evidence on what works and what doesn’t work in health care, and it’s not hard to see how to make dramatic improvements in US practice. As we’ll see, the evidence clearly shows that the key problem with the US health care system is its fragmentation. A history of failed attempts to introduce universal health insurance has left us with a system in which the government pays directly or indirectly for more than half of the nation’s health care, but the actual delivery both of insurance and of care is undertaken by a crazy quilt of private insurers, for-profit hospitals, and other players who add cost without adding value. A Canadian-style single-payer system, in which the government directly provides insurance, would almost surely be both cheaper and more effective than what we now have. And we could do even better if we learned from “integrated” systems, like the Veterans Administration, that directly provide some health care as well as medical insurance.

The bad news is that Washington currently seems incapable of accepting what the evidence on health care says. In particular, the Bush administration is under the influence of both industry lobbyists, especially those representing the drug companies, and a free-market ideology that is wholly inappropriate to health care issues. As a result, it seems determined to pursue policies that will increase the fragmentation of our system and swell the ranks of the uninsured.

Before we talk about reform, however, let’s talk about the current state of the US health care system. Let us begin by asking a seemingly naive question: What’s wrong with spending ever more on health care?

1.

Is health care spending a problem?

In 1960 the United States spent only 5.2 percent of GDP on health care. By 2004 that number had risen to 16 percent. At this point America spends more on health care than it does on food. But what’s wrong with that?

The starting point for any discussion of rising health care costs has to be the realization that these rising costs are, in an important sense, a sign of progress. Here’s how the Congressional Budget Office puts it, in the latest edition of its annual publication The Long-Term Budget Outlook:

Growth in health care spending has outstripped economic growth regardless of the source of its funding…. The major factor associated with that growth has been the development and increasing use of new medical technology…. In the health care field, unlike in many sectors of the economy, technological advances have generally raised costs rather than lowered them.

Notice the three points in that quote. First, health care spending is rising rapidly “regardless of the source of its funding.” Translation: although much health care is paid for by the government, this isn’t a simple case of runaway government spending, because private…


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