Wednesday, December 06, 2006

The Market and Its Medicine

December 5, 2006

About 10 years ago, I broke my leg playing basketball. After I came out of surgery, with a cast stretching from my ankle to the top of my leg, an orderly asked me whether I had ever used crutches before. I hadn't, so he showed me what to do, swinging through them from one end of the room to the other. The whole lesson lasted about 90 seconds. When I got my hospital bill, I saw that I had been charged $150 for "gait training on crutches." I did what all insured Americans do: I forwarded the bill to my insurance company. Why should I care? I wasn't paying for it.

One of the problems with American health care, as David Gratzer notes in "The Cure," is precisely a payment system that takes the patient out of the equation. In the early 1960s, the average American paid out of pocket one of every two dollars that he spent on health care; today the figure is one dollar in seven. The inevitable effect is hugely wasteful spending (and inflated hospital bills like mine). In fact, per-patient costs have gone up almost exactly in inverse proportion to the share of spending borne by the consumer.
[Solving the health-care 'crisis' means not more government involvement but less.]
Solving the health-care 'crisis' means not more government involvement but less.

Dr. Gratzer cites a remarkable Rand Corp. study that tracked health-care spending by 2,000 families over eight years. The families who got free health care spent 40% more than the families with cost-sharing arrangements. And yet the health outcomes for the two groups were the same. The lesson: Market-based health insurance systems, such as health savings accounts, cut out inefficiencies and lower costs without compromising quality.

Dr. Gratzer, a physician from Canada and a fellow at the Manhattan Institute, is painfully aware, thanks to Canada's single-payer government system, of how inefficient and limited health care can be when the market is kept almost completely out of the calculation. He has seen the effects firsthand. In Canada, the average wait between a doctor visit and prescribed surgery is 17 weeks. American patients are twice as likely as Canadians to get life-saving treatments like dialysis, three times more likely to get a coronary bypass and four times more likely to get coronary angioplasty. The survival rate for leukemia, breast cancer, colon cancer and heart disease is much higher if you are treated in a U.S. hospital than in a Canadian one or, for that matter, in a European one.

And it isn't only health-care "delivery" that is affected by suppressing market forces. Dr. Gratzer rightly spends part of "The Cure" celebrating the medical marvels that a dynamic, capitalist economy has helped to make possible by allowing capital to flow in productive directions. "Death due to cardiac disease has fallen by nearly two-thirds in the past five decades," he writes. "Polio is confined to the history books. Childhood leukemia, once a death sentence, is now almost always curable. Depression and mental illness are now treatable....The death rate from heart attack and heart failure has fallen by more than half since 1950." In short, the medical progress of the past 50 years has been breathtaking.

For some, including Dr. Gratzer, the costs are breathtaking, too, even when they are corrected for the payment dysfunctions that he analyzes so well. Are we suffering from a kind of runaway health-care inflation, as Dr. Gratzer at times suggests? Perhaps. But it can easily be argued that medicine, because it is subject to hyper-technological change, is hard to gauge by traditional inflation measures. The current treatments for disease aren't really comparable with those of a quarter-century ago.

To complain about the cost of heart surgery or cancer treatment by comparing it to the inflation-adjusted price in the 1960s or '70s is to miss the point: You died 30 years ago, and you live today. The cost of my leg surgery would have been a lot cheaper in the 1960s, but I wouldn't be able to play tennis or even run after the surgical repair was done, as I can now. How much is it worth to a family with a child who has leukemia to be able to treat her and give her a full life? The families I know who have seen their children recover say that they would have given up everything they own for today's miracle cures. Yet it's become a great American pastime for patients and politicians to whine about the "high cost of drugs" and other treatments that save lives.

All of which can lead to demagoguery and calls for a nationalized health insurance system of the sort that Hillary Clinton and Howard Dean are always so keen to recommend. Such calls may grow louder soon: America is clearly at a crossroads in medical care. Within the next decade we will get either some version of Hillary-care or more free-market medicine, starting with universally available health savings accounts. Let's hope that our nation's policy makers read "The Cure" before they decide. They will learn that the government route flattens costs only by holding back the pace of technology, artificially controlling its price and rationing its use. That is not a prescription for better health.

Mr. Moore is senior economics writer for The Wall Street Journal editorial page.

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