Robert Luddy is the founder and president of CaptiveAire Systems, Inc., and a member of the Job Creators Alliance.
American politicians imposed Prohibition thinking it would eliminate unhealthy and lawless behavior associated with drinking. Instead, it created a black market for booze, turbo-charging the money and violence of organized crime. The law empowered hoodlums whose influence stretched decades beyond repeal of the mistake.
Radical government solutions often aggravate problems they are intended to resolve. That’s where we are with the Affordable Care law today: Sold as the antidote for health care cost hikes, Obamacare must be reformed because it will make the problem much worse.
We cannot wait so long to change course, like we did with Prohibition. Now is the time to leave politics aside, fix our mistake — and really fix the underlying problem.
Before the health care “reform” law kicks in, the price problem with American medical insurance is too much coverage being purchased, not too little. Most Americans pay only a small fraction of the cost of a routine office visit, a test, a minor procedure, and so forth. And often, it’s a flat fee — for many, just a $10 co-pay for office visits.
If your doctor charges $250 for that visit, the physician across the hall may be willing to diagnose your illness for $100. It doesn’t matter to you; you pay $10 either way. So it doesn’t matter to the doctors either: they each charge $250 because a higher price is of no consequence in their marketplace.
The problem: This is not insurance; it’s a subsidy. It’s as if car insurance covered tire purchases, rather than just catastrophically costly accidents. If you paid just a $10 co-pay for each tire, you’d get a new set every year. Rather than shop for good tires at good prices, you’d buy the absolute best tires, in the most convenient location for you, regardless of price.
And that’s exactly what all the tire stores would offer: only the priciest tires. The cost of car insurance would swiftly spiral out of control.
Welcome to the mess we’re in with health insurance. This subsidy exists because somebody else usually pays most of the bills. Employers foot the bill for most Americans because business owners can deduct the cost of medical insurance from business income taxes, like wages.
This all started because of another messy subsidy. During World War Two, the federal government decreed that wages would be frozen in place. Unable to compete for workers based on price, employers began offering fringe benefits — like medical insurance — that were not covered by the wage freeze. You couldn’t get a raise, but the boss could pay for your doctor visits. Just like the gangsters who thrived long after Prohibition, an overly comprehensive form of employer-provided medical insurance has outlived the peacetime repeal of the War-era wage freeze.
Putting patients in control of their medical insurance — and more personally responsible for achieving cost savings with routine health care — is the solution.
Health insurance, like car insurance, should be coverage for financially ruinous catastrophes: Major diseases and injuries, hospitalizations, and so forth. This real insurance would be far cheaper, and more affordable for more Americans. And when every American is forced to comparison-shop for routine medicine, like they do for tenderloins and tires, the medical marketplace would compete to provide better services at lower cost.
Instead, Washington has created a new system of more subsidies — and new taxes to pay for them. The debate about mandatory birth control coverage is a perfect example. Lost in the drama of the religious dispute was the fact that contraception — like tires — should be something an insured person pays for out-of-pocket. A system that encourages more consumption of anything is not insurance. It’s a subsidy.
The old health care subsidy problem was bankrupting us, and we certainly cannot afford more of it, with more people involved. At Job Creators Alliance, we want Congress and the President to clean up the old health insurance mess — and the bigger one they just created.