Crisis of Abundance: Rethinking How We Pay for Health Care

The United States pays more for health care, both relatively and absolutely, than any other country in the planet. According to the Department of Health and Human Services, in 2004, the country spent almost $1.9 trillion on health care. OECD Health Data 2006 indicates this was 15.3% of the GDP. In comparison, other advanced countries spent much less as a percentage of GDP: Switzerland, the next highest-spending country, dedicated 11.6% of its GDP to health care. And then Germany spent 10.9%, and France spent 10.5%.

Crisis of Abundance: Rethinking How We Pay for Health Care by economist Arnold Kling examines why American health care spending is shockingly high. Refreshingly, as per his vocation, remembers health care is an industry as subject to the laws of economics as any other one. On that basis does Kling's analysis proceed.

Kling finds modern health insurance largely to blame for America's skyrocketing health prices. No, health providers aren't gouging their customers. Instead, they shield consumers from health care costs, allowing doctors and patients to seek procedures without regard to cost-effectiveness. To illustrate, Kling divides health care into three zones:

White zone. Care is necessary for health and survival. Would include, for example, "treatment for a broken arm or a heart attack."
Gray zone. The potential benefits can vary; sometimes they outweigh costs, and sometimes they don't. Determining the answer requires judicious thought. Kling gives the examples of new but expensive glasses that would improve vision slightly, how often one should visit the doctor after a surgery, and precautionary screenings for unlikely ailments.
Black zone. Treatment is unnecessary, wasteful, and maybe harmful.

The gray zone serves as the accordion by which health care spending could expand or contract. With insulation from costs, doctors and patients have no reason to think economically within the gray zone; they just take everything available that might be of the slightest utility. In Star Trek, that would be fine, but in the real world with limited resources, such a high demand jacks up prices considerably.

Because of the world's limited resources, Kling notes a "perfect" health care system--with unfettered access, insulation from costs, and low prices--cannot emerge. Any health care system must sacrifice one of these principles. American health care today embraces unfettered access and insulation from costs at the expense of low prices. Socialist health care controls access to preserve low prices and insulation from costs.

Kling suggests another approach: Reduce insulation from costs to foster lower prices, while retaining unfettered access. To accomplish that objective, Kling envisions consumers using health savings accounts to pay for most of their health care, while using insurance--purchased from businesses competing in a free marketplace, not subject to government regulation--to pay for emergency treatment. Patients and doctors would therefore need to account for cost-effectiveness when devising treatment plans.

Essentially, Kling offers the free market as an alternative to the quasi-socialist health care of the US and the socialist health care of other Western countries. Government would only fund health care for the very poor.
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In light of economics and history, I must agree with Kling's approach. America's current health care system, with its sky-high prices that lock out the poor and strain the nation's finances, is untenable. But socialism isn't the answer, either (for reasons I state in quite a few Soap Box threads).