Hidden snares in health care

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We are in the 11th hour of an epic health-care debate on Capitol Hill that could shape the health-care industry for years, even decades to come.

By all expectations, this new prescription drug bill for seniors will be the largest expansion in the federal role in health care in many moons. But if this bill carries with it a package of free-market reforms to the health-care system, all is not lost. In fact, the long-run efficiency of the health-care market may be radically improved.

A handful of Republican conservative crusaders in the House, led by Pat Toomey of Pennsylvania and Paul Ryan of Wisconsin are working to guarantee that free-market reforms like Health Care Savings Accounts (HSAs) are included in any prescription drug bill.

They are facing tough, but not impossible odds. The White House prefers a market-based system, but it also desperately wants a bill the president can sign into law before the next election. Meanwhile, Ted Kennedy-led Democrats have almost all pledged a blood oath to oppose any bill that even has the hint of free markets. They won't allow any initiatives that would collide with the left's grand vision of a socialized health-care system -- which is the liberal's loony notion of medical-care utopia.

Today, health care is arguably the most dysfunctional industry in America. Why? Because in health care the magic of markets are not permitted to operate efficiently, in fact, hardly at all. Government has ruined our health-care system; more government will not fix it.

One of the repercussions of the government's dominating role in health care has been to cause hyper-inflation in costs. In the last three years, according to the Labor Department, employer-covered health costs have risen by 14 percent, 12.5 percent, and 13.9 percent (see chart). This is in an era when overall inflation in the economy has not grown at all, and in fact most consumer-driven industries have been characterized by declining costs and prices.

Today, the average annual cost for health insurance for a family is an astonishing $9,068 for a family of four. In just five years, health costs have doubled for families. The cost increases are making medical services increasingly unaffordable for employers and for families. This is the reason the ranks of the uninsured is surging in America today. Health care is just unaffordable to a growing number of families. Soaring health-care costs are also a major reason why so many states are broke today (Medicaid expenses) and why the federal government is running huge deficits (Medicare).

The government-run health-care programs of Medicare and Medicaid operate on a monopoly basis with almost no forces of competition to drive down costs. Medicare and Medicaid exhibit all the efficiencies and consumer-driven innovation of the U.S. Postal Service.

Ironically, moving toward a free-market health-care system will do far more to reduce out-of-pocket costs for seniors than providing a subsidized drug benefit. In fact, the Medicare prescription drug bill may not be the political savior that Republicans and the Bush White House seem to think it is.