Shifting Cost Won't Cut It | Eastern North Carolina Now

    Publisher's note: This article appeared on John Hood's daily column in the Carolina Journal, which, because of Author / Publisher Hood, is linked to the John Locke Foundation.

    RALEIGH  -  "Health care costs too much."

    That sounds like a simple statement, and one with which most people would readily agree. In reality, however, the statement has multiple meanings. How you read it can say a lot about your views on Obamacare, health insurance, and reform initiatives.

    For example, some people say that because "health care costs too much," their health insurance should pick up a greater share of the tab for their medical expenses. But health insurance is not manna from heaven. The money used to pay claims comes from a combination of customer premiums and investment returns on those premiums. If insurers decide to offer a plan that picks up a higher share of medical expenses for the average enrollee, then they will either have to raise premiums or take on greater financial risk themselves in an attempt to earn higher investment returns. Either way, the plan is likely to cost more, not less. Furthermore, because insurance reimbursement is more burdensome than paying cash, covering more services makes the real cost of those services higher, not lower.

    When other people say that "health care costs too much," they mean to suggest that government should pick up a greater share of the tab for their medical expenses. But, again, government revenues are not manna from heaven. What is really meant here is that some taxpayers should be compelled to pay a greater share of the tab for others' medical expenses.

    Usually, advocates of this view say they want the "wealthy" to shoulder the increased burden, although that's not always what they do in practice. For example, Obamacare's health exchanges are based on the premise that younger people with low medical expenses ought to pay more so that older people with high medical expenses pay less  -  even though young people have lower incomes and less wealth, on average, than older people do.

    Still another potential meaning of "health care costs too much" is that doctors, hospitals, pharmaceutical companies, and other providers receive income far in excess of the real value of the goods and services they sell. One possible response would be to impose wage and price controls on medical providers, as is commonly done on a de facto or de jure basis in other developed countries. Much of the apparent difference in medical spending between the United States and various European countries, for example, is that average salaries for physicians and nurses are significantly lower in Europe.

    Another possible response would be to encourage more comparison-shopping and cost-conscious consumption of medical services, which would also have the effect of reducing the revenue flows (but not necessarily the profit margins) of medical providers, albeit in a less heavy-handed way than wage and price controls would do. You could do this by requiring transparent pricing and eliminating limits on hospital competition and advertising. You could also give patients financial incentives (such as health savings accounts) to shop around for the best deals, or to take a pass on treatments or medicines that promise only modest benefits or low success rates. And you could reduce the potential demand for future medical services by encouraging better lifestyle choices by the currently healthy and better compliance with treatment regiments by those who have already contracted chronic diseases such as diabetes.

    In recent years, much of the political debate about health care reform has centered on the first two meanings of the phrase  -  which really have to do with shifting the cost of health care from one group to another, rather than actually reducing its cost. Even when Obamacare proponents seemed to talk about actual cost reduction, they chose to traffic in popular but discredited mythology such as promising huge savings from free preventive care or using Medicaid coverage to divert the uninsured from emergency rooms. Neither of those ideas pans out in practice.

    It's really not hard to understand why health care costs too much. We all place a high value on the quality and length of life. As long as we have little inkling of what medical services really cost, and don't perceive ourselves as bearing that cost even in the long run, demand will rise  -  as will cost.