Second Opinions: Principles for Health Care Reform in a Free Society

By Niskanen, William A.; Butler, Stuart M. | Policy Review, Winter 1995 | Go to article overview

Second Opinions: Principles for Health Care Reform in a Free Society


Niskanen, William A., Butler, Stuart M., Policy Review


President Clinton's Health Security Act is dead--the consequence of a misunderstanding of the popular concerns, a misdiagnosis of the major problems, the arrogance of the technocrats, and Bill Clinton's own overreaching. Unfortunately, many of the plan's supporters have not learned the real lessons of the debacle, while many opponents of the Clinton plan still do not fully understand what is wrong with the U.S. health-care system and what is needed to correct it.

Before Congress reconsiders health policy, all those concerned should consider the following questions:

1) What are the major problems with our health care system?

2) What are the major causes of these problems?

3) What principles should guide the selection among the competing health policy reform proposals? And

4) What are the necessary and appropriate changes in health policy that only the federal government can make?

All of us--inside and outside Congress--should reflect on these questions before we jump back into the process of proposing or legislating specific health policy reforms.

NO CRISIS

Most of the health reform plans considered to date focused on reducing the number of the uninsured, with little attention or with inappropriate means to control costs. The number or percentage of people who do not have health insurance, however, is not, by itself, a problem. We did not have a health care crisis in 1940 when few people had health insurance. We do not now have a crisis when few people have insurance against earth-quakes, floods, and asteroids. Contrary to the Clintons' rhetoric, the employers that do not provide health insurance and their employees are not free riders; for the same labor skills, employers in a competitive labor market must pay higher wages if they do not provide insurance and the employees pay higher taxes. Universal health insurance coverage is not necessary to control health care costs; broader insurance coverage, in contrast, would almost surely increase costs.

Those without health insurance present two quite different, rather small problems.

Some of the uninsured do not receive some types of medical care that the rest of us, if necessary, would be willing to help finance. But those who are both uninsured and uninsurable are a very small fraction of the population under 65. While there is some disagreement between the authors as to how best to address the problems of this group, we agree that they can and should be solved at the state level. Most of the uninsured are a quite healthy lot and will be insured again within a few months--and most would never be uninsured in the first place with the reforms we propose later.

The uninsured, in fact, receive a substantial amount of medical care, for some of which the providers are not compensated. And the distribution of the costs of this uncompensated care is quite arbitrary. But again, this is a surprisingly small problem. As of 1991, the net amount of uncompensated care to the uninsured was around $20 billion, far less than the amount by which providers are undercompensated by Medicare and Medicaid. To the extent that these costs are shifted to privately insured patients, most of the cost shifting is due to undercompensation by the public insurance plans, not the uncompensated care to the uninsured.

TWO REAL PROBLEMS

The primary economic problem of our health care system is the continuing rapid increase in the relative price and real expenditures for medical care. Since 1965, the relative price of medical care has increased at a 2.5 percent annual rate, and real expenditures per capita have increased at a 5.2 percent annual rate. Payments for health insurance are now the most rapidly growing component of both private payrolls and government budgets. The rapid increase in health insurance premiums is a major reason for the increase in the percentage of uninsured Americans.

To be sure, the fact that the relative price of medical care, and the per capita spending level, is rising faster than the average for other products and services in the economy is not, by itself, a problem. …

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