Government: Getting the Wrong Diagnosis

By January 13, 2007Health Care

The House passed H.R. 4 on Friday, getting Medicare into the business of negotiating prescription drug prices. The Washington Post’s editorialists think it’s a bad idea.

One of the key challenges in health policy is to understand which drugs, tests and therapies are most cost-effective; although it will take government pressure on doctors and hospitals to disclose the information necessary to figure out what works, solutions are most likely to be found by competing private entities. In drugs, for example, there needs to be a culture of paying handsomely for new ones that really do add value — and refusing to pay for pseudo-new drugs that merely mimic cheap generics. Striking the right balance is not easy, and it won’t be accomplished by government fiat. The better approach is to let each insurer offer its own version of the right balance, see whether it attracts customers — and then adapt flexibly.

Meanwhile, California Gov. Arnold Schwarzenegger has unveiled a plan to ensure “universal coverage” through a flood of new mandates, regulations and taxes. (Massachusetts Gov. Mitt Romney last year proposed a similar, heavy-handed approach.) The Wall Street Journal’s editorialists think it’s a bad idea.

The better alternative, as Milton Friedman understood, is to expand tax-advantaged health savings accounts and to improve access and affordability by creating a national market for private health insurance. Consumers in California and Massachusetts, especially, are going to need that safety valve when the bill comes due for their Governors’ attention-seeking but poorly considered plans.

The best editorial we’ve seen on the current boom in big-government strategies to “reform” health care was in the January 9 Investor’s Business Daily. State-controlled health care systems are killers, IBD observed:

A critique of the U.S. system, which indeed is badly in need of reform, often begins with the fact that the U.S. spends $2 trillion, or 16% of GDP, on health care, much more than other developed countries. (The average among OECD countries is 10% of GDP).

There are a couple of reasons others spend less: rationing and price controls. That might be good for the bottom line, but it can have deadly outcomes for patients. One look at survival rates for that most dreaded disease — cancer — shows why.

In the U.S., 83% of women who get breast cancer survive beyond five years; in England, it’s 67%, and in Germany 72%. For prostate cancer, 81% of Americans diagnosed live past five years. But that plunges to 44% in England, 41% in Denmark, 47% in Italy and 65% in Sweden. The U.S. survival rate for lung cancer — 12% — is nearly 40% higher than Europe’s average.

Indeed, evidence suggests that expanding the government control of health care is a bad idea. A really, really bad idea.

P.S. The NAM’s news release opposing H.R. 4 is available here, and Shopfloor.org had previously debunked the legislation here. Economist Greg Mankiw notes the failing economic rationale for the bill in this blog post, citing Robert Reich’s critique.

UPDATE (10:45 p.m.) Ronald Bailey of Reason considers the individual, free-market alternatives to Ahnoldcare, including Health Reimbursement Accounts (HRAs).