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The Fix-It Myth

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By Robert J. Samuelson
Thursday, January 26, 2006

Almost everyone agrees that we ought to "fix the health care system" -- a completely meaningless phrase despite its popularity with politicians, pundits and "experts." Indeed, it is popular precisely because it is meaningless. The people who proclaim it rarely tell you the discomforting choices it might involve. Instead, they focus on a few specific shortcomings of our $1.9 trillion health-industrial complex and imply that, if we correct these often serious flaws, we'll have "fixed" the system or at least made a good start. This is rarely true, and so most forays into "health reform" end with disillusion.

We are about to start the cycle again. By most accounts, President Bush plans to highlight health care in his forthcoming State of the Union address. His proposals may or may not have merit, but they surely won't fix the health system in any fundamental way. The reason is that most Americans don't want to fix the system in that sense. Most are satisfied with their care. Most don't see (or directly pay) the vast majority of their costs. Because politicians -- of both parties -- reflect public opinion, they won't do more than tinker.

Unfortunately, tinkering isn't enough. As everyone knows, health care spending has risen steadily. In 2004, it totaled 16 percent of national income, up from 7.2 percent in 1970. Spending will continue to rise, if for no other reasons than that the population is aging and the average annual health costs for someone 65 and older ($7,910 in 2003) are -- surprise -- more than twice those for someone 35 to 54 ($2,966). As health insurance becomes more costly, the number of uninsured, now about 46 million, may grow. Worse, health costs may depress wage gains, raise taxes and squeeze other government programs.

Here's the paradox: A health care system that satisfies most of us as individuals may hurt us as a society. Let me offer myself as an example. All my doctors are in small practices. I like it that way. It seems to make for closer personal connections. But I'm always stunned by how many people they employ for nonmedical chores -- appointments, recordkeeping, insurance collections. A bigger practice, though more impersonal, might be more efficient. Because insurance covers most of my medical bills, though, I don't have any stake in switching.

On a grander scale, that's our predicament. Americans generally want their health care system to do three things: (1) provide needed care to all people, regardless of income; (2) maintain our freedom to pick doctors and their freedom to recommend the best care for us; and (3) control costs. The trouble is that these laudable goals aren't compatible. We can have any two of them, but not all three. Everyone can get care with complete choice -- but costs will explode, because patients and doctors have no reason to control them. We can control costs but only by denying care or limiting choices.

Disliking the inconsistencies, we hide them -- to individuals. We subsidize employer-paid health insurance by excluding it from income taxes (the 2006 cost to government: an estimated $126 billion). Most workers don't see the full costs of their health care; a reported Bush proposal to add new tax subsidies would magnify the effect. A similar blindness applies to Medicare recipients, whose costs are paid mainly by other people's payroll taxes. Despite complaints about rising co-payments and deductibles, out-of-pocket costs are still falling as a share of all health spending. In 2004, they were 12.5 percent; in 1993, they were 15.8 percent.

We're living in a fantasy world. Given our inconsistent expectations, no health care system -- not one completely run by government or one following "market" principles -- can satisfy public opinion. Politicians and pundits can score cheap points by emphasizing one goal or another (insure the uninsured, cover drugs for Medicare recipients, expand "choice") without facing the harder job: finding a better balance among competing goals.

Every attempt to do so has failed. Consider the "managed care" experiment of the 1990s. The idea was simple: Herd patients into health maintenance organizations or large physician networks; impose "best practices" on doctors and patients to encourage preventive medicine and eliminate wasteful spending; and cut costs through administrative economies. For a while, it seemed to work. From 1993 to 1997, private insurance premiums rose only 2.6 percent annually. But managed care upset doctors and patients. It restricted personal choice. Some coverage denials seemed inhumane or inept. After a political backlash, managed-care organizations relaxed cost controls.

Now, some say that because the "market" has failed, greater government control is the answer. Private insurance has high overhead costs and generates too much paperwork. True. Still, there's not much evidence that over long periods government controls health spending any better. From 1970 to 2003, Medicare spending rose an average of 9 percent annually, reports the Kaiser Family Foundation. In the same years, private insurance costs rose 10.1 percent annually. Part of the gap reflected private insurance's greater generosity. It covered drugs while Medicare didn't.

Americans want more health care for less money, and when they don't get it, they indict drug companies, insurers, trial lawyers and bureaucrats. Although these familiar scapegoats may not be blameless, the real problem is us. We demand the impossible. The changes we truly need are political. We need to reconnect people with the public consequences of their private acts. We should curb the subsidization of private insurance. Medicare recipients, especially wealthier ones, should pay more of their bills. But these changes won't happen because people don't want to see the costs. We don't have the health care system we need, but we do have the one we deserve.


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