Up to 100,000 people die due in part to infections they picked up while staying in a hospital. David Goldhill’s father was one of them. That sad fact led him on a quest to understand American health care, which he writes about in The Atlantic.

From there Goldhill looks for structural problems: “There needs to be a business reason why an industry, year in and year out, would be able to get away with poor customer service, unaffordable prices, and uneven results—a reason my father and so many others are unnecessarily killed.”

The problem isn’t lack of regulation or of bad actors, but incentives:

All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results.

Goldhill then calls for changing incentives and the structure of health care by taking measures such as reducing the role of insurance, scaling back the ambitions of government in health care, make pricing more transparent, and “rely more on ourselves, the consumers,” rather than regulations, to bring about good service and reasonable prices.

Goldhill makes some provocative statements along the way, comparing our spending on health care to the housing bubble. Further, “We’ve become so used to health insurance we don’t realize how absurd it is.”

As long as we think someone else is going to pay the bill, the demand for health care is infinite. There’s simply not enough money to pay for it all:

For fun, let’s imagine confiscating all the profits of all the famously greedy health-insurance companies. That would pay for four days of health care for all Americans. Let’s add in the profits of the 10 biggest rapacious U.S. drug companies. Another 7 days. Indeed, confiscating all the profits of all American companies, in every industry, wouldn’t cover even five months of our health-care expenses.

Today’s government programs don’t provide the right incentives: Geriatricians (physicians who focus on aging-related conditions) are few and far between, even though the baby boomer generation is swelling the ranks of the aged. Why? Blame Medicare’s payment scheme. Worse yet, for the nation’s finances, it “is a Ponzi scheme.”

It’s easy to beat up on pharmaceutical companies, and Goldhill does point out their oversized profits, and credits (or blames) incentives laid down by public policy: “as long as our government shovels ever-greater resources into health care with one hand, while with the other restricting competition that would ensure those resources are used efficiently, sustained high profits will be the rule.” The same is true of “non-profit” hospitals, whose “net income” is profit by another name.

Other features of the article: What happens when you try to pay cash for an MRI? How can you judge the quality of a hospital? Why does technology lower costs in other industries but increase it in (some areas of) health care?

Goldhill offers several proposals as a way out, some of more worth than others: Impose a personal mandate to buy catastrophic insurance whose premiums are based only on age. Require every person to devote a specific amount of income to health savings account (shades of Singapore) out of which they will pay for non-catastrophic care. Let people borrow against their HSA for certain expenses. Abolish Medicaid but buy catastrophic insurance policies for the needy. Have government buy a biannual physical for everyone.

Goldhill is at his best, though, when describing our troubles (in his father’s case, his father wasn’t the customer, Medicare was), the amount of money we spend on health care ($1.7 to $4 million for a person whose working career starts at age 22 with a salary of $30,000), and of course the perverse and unintended consequences of our approach to paying for health care.

(Cross-posted from State House Call.)

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