“Here I come to save the day!”
Harvard’s Regina Herzlinger
So, can we control health-care costs by slimming down this sector, without rationing care, and thus make health care available to all? (You bet your bippy!)
The only viable health care cost cure is to reform public policy so that we create a consumer-driven health care market that motivates and rewards productive innovations in supply.
On the demand side, most health insurance beneficiaries do not behave like real consumers: employer-insured consumers are not motivated to shop carefully because they do not recognize that their health insurance benefits are essentially taken from what would otherwise be their wages, and those insured by the government have someone else footing the bill.
When people use their own money to purchase health care, they drive costs down without compromising their health.
For example, Switzerland, where health insurance is totally purchased by consumers (the poor and sick are subsidized), has costs that are 40 percent lower than those in the United States, as well as excellent care and universal coverage.
Similarly, high-deductible health insurance policies demonstrate that middle-class consumers who pay a meaningful fraction of their health care expenditures out of pocket reduce spending without damaging their health.
On the supply side …
Effective cost control would motivate consumers to shop carefully for insurance policies that offer the best value for the money while giving providers incentives to supply the best value for the money.
There are two reforms that can make this happen:
For example, my employer, Harvard University, could offer me a tax-free raise for the $15,000 of my income that it currently spends to purchase my health insurance.
Like me, many of Harvard’s employees would opt to take the money and buy their own insurance, creating a genuine consumer-driven market.
Insurers would then compete for customers with policies that offer better value for the money.
Their most important innovation would be the creation of integrated networks of producers paid for providing the total care needed by victims of chronic diseases and disabilities. (The payment reform would be led by changes in Medicare’s payment formulas.)
These networks would offer better and cheaper care because of their integration.
The combination of invigorated supply and demand is the only health care reform plan that will avert the economic disaster that otherwise awaits us and, simultaneously, make health care available to all.
Sadly, it is a solution that the Washington, DC, establishment, which doubts the wisdom of consumers and the competence of entrepreneurs, is most reluctant to effect.
Switzerland Mountain Lake
The Swiss Way
Q: You mentioned the Swiss model. Is that a country Congress should look to as a role model?
A: Yeah. They have universal coverage. They don’t have rationing, unlike the Brits in the UK. You can get transplants. You can get dialyzed.
People who are sick get good health care in Switzerland and they spend 40 percent less as a percentage of GDP than we do. The reason is, the Swiss buy their own health insurance.
Actually, Switzerland has no Medicare and has no Medicaid.
February 27, 2008