Jewish World Review June 23, 1999 /9 Tamuz, 5759
How to avoid Mediscare
THE FINANCING OF health care has not gone away as a political issue. It isn't just the probable Senate run by Hillary Clinton
that will give the matter new life. The political reality is that health care is just too tempting a target for Democrats to leave
alone for long.
Writing in the July/August issue of The American Enterprise, Dr. William C. Waters III offers a lucid
explanation of medical costs and how we came to be where we are today. Before the government began permitting
companies to deduct the cost of providing medical insurance (and before the government began paying the bills of the elderly
outright), individuals either purchased their own insurance or paid for medical expenses out of pocket. In either case, they
had an incentive to use medical services prudently.
But after medical insurance became a fringe benefit -- after a third-party payer forked over 80 percent or 100 percent
of the price of a visit to the dermatologist or psychiatrist or podiatrist -- the individual had little or no incentive to curb his
appetite for medicine. If the same system applied to food expenses, who wouldn't choose filet mignon and caviar every night?
Food sellers would have every incentive to raise prices and to offer ever more enticing specialties. Those with food
insurance would dine on lobster and champagne while those lacking food insurance would find prices prohibitively high.
That's what has happened in the realm of medical care. In 1960, medical spending amounted to 5 percent of gross domestic
product. By 1997, it was 14 percent, and unreformed, federal spending on Medicare and Medicaid are expected to triple as
a percentage of GDP over the next 40 years. Dr. Waters, one of three generations of doctors in his family, summarizes this
way: "My father and his patients were prudent; my patients and I were spendthrift; my son and his patients will be told what
to do by people without training or knowledge of the individual consumer's situation."
The Democrats have used the threat that "Republicans want to take away your Medicare" to good effect in countless
election contests. The difficult but necessary task for Republicans is to explain that Medicare isn't free, and neither is
employer-provided health insurance. Medicare is paid for in taxes, and employer-provided insurance is paid for in forgone
The typical head of household with a wife and child, Waters explains, currently earns $36,000. But when his
employer calculates the cost of hiring him, he figures his cost as $39,600. The $3,600 difference is used to purchase a hybrid
-- part pays for catastrophic insurance, and another part pays for ordinary office visits and other medical expenses. An
excellent reform would be to give the tax deduction to individuals instead of employers. Employers would then pay higher
salaries in place of offering the medical benefit. With the extra cash, the employee could purchase catastrophic insurance for
between $800 and $1,200 per year. He could use the remainder to purchase more insurance (depending on his family's
needs), or he could pay for medical expenses out of pocket as they arose. The consumer would then have an incentive to
shop around for bargains and to use his funds carefully, as he would keep anything he didn't spend.
This would be a dramatic departure from our current system, which suffers from too much regulation and too little
competition. We are chasing our tails now: The high costs encourage HMOs. HMOs then ration care in ways we dislike.
Legislatures in turn pass laws invalidating the actions of HMOs, and medical inflation continues apace. (Medical costs have
risen faster than inflation for the past 30 years.)
Reform would have to entail a system for the uninsured. Waters suggests
government subsidies or vouchers for the poor to buy catastrophic insurance. This is more economical than paying big bucks,
as we now do (it's a hidden part of all medical bills), for the uninsured to be treated in hospital emergency rooms.
Economics is not easy to explain or sell politically. But it does sink in over time. New Democrats proudly proclaim their
conversion to belief in markets. Republicans should remind themselves that they were the ones who never
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©1999, Creators Syndicate