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By Arnold Kling : BIO| 19 Oct 2020
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"The biggest problem with American health financing is not that employers sponsor coverage. It's that employers decide whether workers get coverage at all. So, why not give employers the option of providing low-cost coverage to their workers through a new public program modeled after Medicare? If employers want to provide comparable private coverage, they can. But if they don't provide basic insurance, their workers should be automatically enrolled in the new Medicare-like program."
-- Jacob S. Hacker, Better Medicine: Fixing the Left's Health Care Prescription

America's systems for financing health care are breaking down. Individuals are increasingly unwilling to pay for health insurance. The employer-provided health insurance system is fragile. But Jacob Hacker and others who want to expand Medicare are proposing that the most rickety part of the financial structure be used as the foundation.

According to the 2006 report of the Medicare Trustees, the unfunded liability in Medicare over the next 75 years is $11 trillion. This is the gap between the promises that the system makes to future beneficiaries and the taxes that will be collected under current law to pay for those benefits.

Medicare is the fiscal equivalent of the Titanic, and its unfunded liability is the iceberg that lies ahead. Proposals to increase government's role in funding health care amount to adding passengers to the Titanic. Until someone figures out how government is going to pay for its existing promises in health care, it is not realistic to make new promises.

For our health care finance system, pooling our spending on health care is the problem, not the solution. Today, consumers are insulated from about 85 percent of the cost of their medical procedures. Instead, consumers ought to be responsible for more like half the cost of their medical treatments, so that they take cost into account when making health care decisions.

In American health care today, we take advantage of procedures, such as medications for heart disease and treatments for high-risk newborns, that have benefits far in excess of costs. But we also waste huge amounts of money on defensive medicine, futile late-stage care, and other procedures that are not worth the cost.

The only way to reduce the stress on our health care finance system is by utilizing medical procedures more cost-effectively. This requires several changes to our current health care system.

1. We need rigorous cost-benefit analysis of medical protocols. For heart disease, when is bypass surgery the best solution, when are angioplasties the answer, and when is treatment with medication most cost-effective? Is screening for colon cancer using colonoscopy the best approach, or would other procedures be most cost-effective for lower-risk patients? The United Kingdom uses a commission of experts to undertake this sort of analysis, and perhaps we could use something similar.

2. We need to rethink what it means to have health insurance for people under 65. The real need is for insurance against really expensive illnesses, of the kind that require tens of thousands of dollars of spending over a period of years. Discretionary care and minor expenses ought not to be covered.

3. We need to examine options for putting Medicare on a sound financial footing. Ultimately, this will require changing to a system where people save more in personal accounts for the inevitable high medical expenses they will incur as they age.

In short, consumers have to be confronted more often with the cost of medical treatment. Some people object that consumers cannot make optimal decisions with regard to their medical care. However, the policy choice is not between making optimal decisions and sub-optimal decisions. The choice is between making health care decisions without regard to cost or taking cost into account more often.

The decisions that we are making regarding medical care today are far from optimal. Pooling 85 percent of our health care spending leads to extravagant use of medical procedures with high costs and low benefits. To correct this, we need to increase the share of personal responsibility for paying for medical care.

Regardless of what the left wants, in the future Medicare is bound to contract, not expand. Chances are, Medicare recipients will face more and more restrictions on the procedures that Medicare will pay for, and service providers will face cuts in fees paid for by Medicare. There may be a role in health policy for a government program that is a safety net for people who cannot obtain private insurance, but that program will probably be very unattractive in terms of what it offers to patients and doctors.

Arnold Kling is an adjunct scholar at the Cato Institute and the author of Crisis of Abundance: Rethinking How We Pay for Health Care, published by Cato.

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