- The Washington Times - Saturday, March 31, 2007

Alex Gerber, M.D., in the Sunday Commentary pages of The Washington Times two weeks ago (“The health-care crisis”) advocated a simplistic and ill-founded single-payer system for U.S. medical care.

To understand the long-run dynamics of the health sector, we must examine its history. The Gerber article tells us its genesis is “buried in history.” Unfortunately, the events set in motion are very alive.

Dr. Gerber rightly states the problem’s beginning: “During World War II, the War Labor froze wages and workers were in short supply. To lure them, employers picked up the tab, for complete health insurance.” However, he fails to note that this represented an exclusion of the compensation paid for health insurance from taxable income i.e. a government subsidy kept alive after the war.

As a result, for insured services costing a small fraction of the uninsured price, demand has grown dramatically much more than would have occurred without insurance. Economists call this “the moral hazard problem,” which says in effect, “Don’t worry, insurance covers it.” Needless to say, the number of subsidized insured services grew dramatically.

Because of continued growth of government-subsidized insurance, in 1948 health expenditures paid out-of-pocket averaged 70 percent of the total, while today it is only 14 percent. As coverage rises, demand increases, bidding up medical prices relative to other prices, disadvantaging those without insurance and leading to increased demand for insurance from employers, still greater insurance, and additional rounds of price increases.

Importantly, increased coverage also results in increasingly expensive medical technology, as the insured leverage out-of-pocket spending to pay for ever more sophisticated medical services; currently, $1 out-of-pocket buys $7 in services.

By the 1960s those without employer insurance were being left behind, crowded out of the market. Thus, in 1965 the federal government enacted Medicare for the aged, Medicaid for the poor, with later expansions to the disabled and others. This raised overall coverage still further with a further stimulus to demand. Medical spending and costly technology growth accelerated, and relative medical inflation increased. This disadvantaged other uninsured persons, prompting governments to expand insurance programs even more.

Yet the Gerber article tells us to trust the government whose policies created this wasteful health-spending-growth spiral. Be like Canada he says. But their system is one of government control and medical decisionmaking at the expense of individual patients and their physicians. The 2004 book by Canadian Sally C. Pipes, “Miracle Cure (How to Solve America’s Health Care Crisis and Why Canada Isn’t the Answer),” tells us Canada rations care through global budgets, lengthening waits for many types of medical care including orthopedics, diagnostic imaging, ophthalmology, and so forth According to Miss Pipes, in 1998 the Toronto Star found that St. Joseph’s Health Center in London, Ontario, “was renting access to its MRI machine to veterinarians for after-hours use while Canadian patients waited for diagnosis,” it being illegal to purchase an MRI scan and other care. “Take a number and wait in line.” Many patients escape to the United States where they pay for care rather than risk forgoing it for long periods. Obsolete medical equipment is not replaced to save money, and so forth.

Fortunately other options exist. Econometric work I and a colleague have done for the American Enterprise Institute shows high medical spending growth is caused by government subsidies that ironically, make health-care access harder for those least able to afford it.

Sebastian Mallaby, writing in The Washington Post (“Attacking inequality: Tax Reform has the greatest potential to narrow the gap,” Sept. 4, 2006, Page A-19.), argues, health insurance tax-subsidies discriminate against many it supposedly is meant to help: “Just over a quarter of subsidy is swallowed by households in the $100,000-plus bracket; far from promoting the wider dissemination of health insurance, it may even reduce it.”

The Washington Post’s Michael Kinsley (“Before we go ‘Single Payer,’ insurance reforms we should try,” March 17, 2006, Page A-19.) wrote: “If people were buying health care or insurance with their own money, they might or might not spend too much whatever “too much” is but no one else would need to care if they did.”

Government single-payer markets inevitably reflect shortsighted political interests, bureaucratic inertia and burdensome restrictions on what the medical sector is permitted to provide. We don’t need that.

Health care is too important to be left to the politicians.


Frederick, Md.

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