Monday, July 16, 2012

How to fix health care

There are many reasons why the monstrosity that is Obamacare will not fix our health care problems.  The obsession of late has been the individual mandate, which presents an interesting constitutional issue that was screwed up to no one's satisfaction by the silliness of Chief Justice Roberts's opinion.  John Cochrane has an excellent article advising that we need to move on from the individual mandate and actually fix health care.
Fix health care, not just health insurance. Where are the health-care equivalents of Southwest Airlines Co., Wal-Mart Stores Inc. (WMT) and Apple Inc. -- innovating, dramatically lowering costs and bringing everyday low prices to health care? They have been kept out of the market by anti-competitive regulation. As one small example, in my state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a “certificate of need” from a state board. “Need” explicitly means that it doesn’t undermine incumbents’ profits.
Insurance should be insurance, reserved for unpredictable and catastrophic expenses. Car insurance doesn’t pay for oil changes, and you shouldn’t pay for checkups through health- insurance premiums. Such insurance would be a lot cheaper, and more people would buy it.
Insurance should be individual, portable from job to job and state to state, and guaranteed renewable for people who get sick. That neatly solves the pre-existing-condition nightmare. Insurance companies would be happy to sell such coverage. The government stands in the way, by subsidizing employer-based group plans at the expense of individual insurance. (My “Health status insurance” proposal is one example among many that describe functional private health insurance.)
Cost control is achieved in only one way. Competition. Not price controls.
Innovation comes from competition, too, and from innovators’ ability to initially charge rich people more -- and their ability to pay it -- make great profits, and then commoditize. You cannot have innovation in a government cost- controlled system.
The key to the whole solution is to no longer use employers as the means for subsidizing health insurance. The convoluted way we do it now creates many of the biggest problems.  Get rid of the tax advantages to employer-provided health care and subsidize the purchase of insurance directly by giving vouchers to individuals.