Where's the Paying Customer?

Health care reform isn't serious until the patient is at the center of the picture.


As someone under 60 with what passes for private health insurance and, far more important, access to actual health care (insurance and care are two very different things that are routinely and wrongly conflated in discussions of "reform"), I realize that I wasn't the primary audience of President Barack Obama's speech last night. In this, I am more representative than you might think. About 80 percent of people under 65 (who are covered by Medicare) have coverage and upwards of 80 percent of people with health care rate their service very favorably.

Yet as the father of two young kids whose backs are already bowing under the weight of the debt and future taxes our nation has wracked up in the past couple of decades, I'm more than a little concerned. Especially when Obama's speech failed to clarify even the most basic points for which he seemed to be reaching. Those of us who have coverage through existing private and public plans, he explained, can sit tight. Nothing will change. All uninsured people will be forced to get coverage, but precisely what that means is vague, to say the least (especially since half of them could either afford coverage now or qualify for existing programs). Then there's his claim that a plan which will cost almost $1 trillion dollars over the next 10 years will not only not cost us anything but will actually save us money in the long haul. No government official—and certainly not a president who came into office vowing to veto pork-barrel spending and implement a net spending cut and then did the exact opposite—has credibility on that score.

On a more basic level: Is the so-called public option in or out? Without saying it has to absolutely, definitely be part of any reform, Obama likened the mythopoetical public option to public universities that compete with private universities to increase choice for consumers. Leaving aside a host of questions about the analogy, college costs are among the few that have been rising with the speed and intensity of medical costs. So how would this sort of competition reduce costs, one of the main goals, says Obama, of any health care reform worth the name? Indeed, the obvious similarity between higher ed and health care is that both systems rely on a third-party payer system where expenses are heavily subsidized (by employers, tax breaks, parents, federal grants, special loans, you name it) and the end consumers (patients, students) are shielded from knowing the full cost of the services they consume.

And when we look at rising costs, what's to be done with Medicare, which Obama singled out for inviolable preservation (it's "a sacred trust" to him) yet denounced as spendthrift? Following a report by his own economic advisers that said around 30 percent of Medicare spending could be cut without any reduction in quality of service, Obama says we need to squeeze existing government programs for savings that will largely pay for the reforms, which include measures such as capping out of pocket costs and mandatory coverage of routine diagnostic tests such as mammograms that will certainly increase consumption of health care. It's a no-brainer to squeeze a program that wastes 30 percent of its budget, but it begs the question of why it has never been done. Not since Obama took office, and not since Bush expanded Medicare spending by hundreds of billions of dollars on prescription drugs (a plan whose price tag more than doubled in less than five years), and not since LBJ's actuaries underestimated the future cost of Medicare in 1990 by roughly 644 percent.

Obama proudly proclaimed that his plan would "cost around $900 billion over the next ten years" but that it would "not add to our deficit." This is simply not credible and, as my colleague Matt Welch points out with regularity, is exactly what Obama has promised regarding his overall spending plans, which most certainly have added to our deficits for as long as we dare look into the future.

One of the great problems with health care reform is that it always takes place, perhaps necessarily, either at the most grandiose level of abstraction ("Now," thundered Obama, "is the time to deliver on health care," as if it's an easily defined commodity) or the least insightful level of anecdote ("One man from Illinois," intoned the president, "lost his coverage in the middle of chemotherapy because his insurer found that he hadn't reported gallstones that he didn't even know about").

Here's a more basic question when it comes to controlling costs: The easiest way to do this is to make the person doing the buying actually pay the price. You haggle more when the change is coming out of your own pocket. Or, alternatively, you splurge because you're worth it. Earlier this year, my coverage changed from a conventional network preferred-provider plan with a standard co-pay for prescription drugs to a high-dollar deductible plan in which I essentially pay the first $2,000 dollars of medical care I consume in a year (any unused money rolls over in a Medical Savings Account that I can use in the following year). As my doctor prescribed me a brand-name drug, I thought about the cost and whether there were any possible alternatives. For the first time I can recall, I actually had a conversation with my doctor—right there, in the examination room—about medical costs. We settled on a generic alternative, saving me roughly $75 on that particular transaction. More recently, we had a similar conversation, in which he didn't know the costs of a name-brand drug and a generic alternative—a sign that the medical system has a long way to go in terms of customer service. Imagine going into an auto shop and the mechanic not being able to quote you the price difference between a new and refurbished part.

Yet exchanges such as the ones above are small examples of price signals being injected into a system that has consciously erected a series of mufflers, walls, and funhouse mirrors precisely to make it impossible for consumers to even know what they are paying, much less how to evaluate alternative plans of action. The blame here is shared by government policymakers, insurance bureaucrats, and medical providers, all of whom have some stake in a status quo that serves them tolerably well. Any reform that doesn't explicitly and transparently harness the same basic market forces that have driven down prices and improved quality throughout the economy over the past several decades simply will not work at containing costs and thus, expanding access (cheaper, better goods and services, whether we're talking about automobiles or plane tickets or gourmet coffee, have a way of leaching out into every level of society).

Doctors and other health professionals, who assiduously work to limit the number of health care providers in a given field, bitch and moan all the time about how Medicare, Medicaid, and private insurers are driving down reimbursements for basic procedures. Yet somehow the overall cost of health care goes up, up, up. It's because the system, including the vague reforms being championed by Barack Obama in a speech designed to lay out his plan in detail, really don't do anything to empower the person at the center of the drama—the patient, the customer—with the sort of choices that might actually trigger changes that will either curtail costs or, same thing, improve the range and quality of services so that we are happy with the money we're shoveling out.

Until that discussion gets underway, any so-called reform will fail to deliver on anything other than empty promises.

Nick Gillespie is the editor in chief of Reason.tv and Reason.com.