Smith Faculty Opinion Article

By Dr. Peter Morici, Professor of International Business E-MAIL WEB SITE

May 18, 2009

Fixing Health Care

American health care is broken.

At 16 percent, the United States spends a much larger share of GDP on health care than Western European economies. Yet the United States has about 45 million uninsured, while its peers do not.

Many Americans between 50 and 65 cling to jobs they don’t want simply to keep health benefits. Their European cohorts are not so constrained.

Simply, European systems ration and control prices more effectively than do U.S. private insurers.

Americans can see a specialist quicker than patients elsewhere; however, U.S. private insurers impose endless paperwork and multiple trips to tawdry, inconvenient locations for blood work, x-rays and other tests that should be conducted simultaneously and under one roof with the specialist.

After your internist finds blood in your urine, it takes many absences from work and visits to moribund waiting rooms to locate the kidney stones, and finally schedule surgery.

In Britain, the National Health Service just makes you wait—it’s cheaper.

Instead of formal rationing, U.S. insurance companies harass patients with processes reminiscent of queuing procedures for a Black Sea vacation in the old Soviet Union. They chisel down physician fees and hospitals stays and lavish the savings on insurance executives who become wealthy in the bargain.

Prescription drugs are another issues altogether—pharmaceutical companies set prices arbitrarily and well beyond the reach of even the tough guys at insurance companies.

President Obama has some good ideas and some bad ones. He proposes a government run program that uninsured Americans may join if they can afford; however, since most of the uninsured can’t pay full price for coverage, he plans to subsidize their membership with tax dollars. In addition, he wants to pay doctors to use computers and software, and establish a national data bank on best medical practices.

Hence, he aims to fix the system by creating a massive new entitlement, subsidizing doctors to buy technologies other businesses already purchase to increase efficiency and profitability, and compile information doctors and insurance companies already collect when they prescribe and approve treatments. Those will drive costs up more than lower them.

Republicans reflexively oppose another government health agency, and this is to the detriment of genuine reform. Medicare has proven more effective at providing doctor and hospital services to the elderly than private-managed-care alternatives.

My plan is simple. Establish an optional plan, similar to Medicare, for Americans between 50 and 65. Let those Americans subscribe, if they choose, by transferring their employers’ payments to that system or keep their existing coverage. That would create needed competition for private insurers and drive down prices, and permit statist Democrats to prove the government can do better or fail.

Require drug companies to charge Americans no more than they charge in the regulated markets of Canada, Britain, France and Germany. Drug prices would rise abroad as those systems would no longer be able to free ride on Americans paying for drug company research, but U.S. prices would fall to a lot less than current levels.

Finally, the government already pays for about 45 percent of U.S. health care. President Obama has promised to weed out waste. Fine—cap spending at its present share of GDP, and find the money there to pay for the uninsured with the savings.

Obama believes in international competition for business—let him show that U.S. government health care can be as efficient as government systems abroad in providing universal coverage.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.