TCS Daily


What Healthcare and Higher Education Have in Common

By Jon N. Hall - May 3, 2007 12:00 AM

Healthcare is notorious for runaway prices, which are due, in part, to this financing scheme: multiple payers. And these multiple payers have assured streams of revenue, which include:

  • Employer-provided health insurance
  • Health insurance purchased by the individual to comply with government mandates (as in Massachusetts' new healthcare system)
  • Direct government grants (Medicaid)
  • Dedicated taxes (Medicare)

If one payer doesn't pay a patient's tab entirely, then the provider just bills the other payers for the remainder. Out-of-pocket payments by patients get put on top of these other payments. A patient can have his medical bills paid by 3 or more parties. With multiple payers providing assured payments the market is subverted -- there is no pricing discipline. This leads inexorably to price inflation, which in the case of healthcare outruns the overall inflation rate big-time.

Another enterprise that depends on multiple payers, assured payment, and heavy government involvement is higher education. And it, too, has raging inflation.

Assured payment results in waste and fraud. It has caused an explosion in medically unnecessary tests and procedures. It is why universities can provide their professors with cushy sinecures for precious little work. (How else could the University of Colorado afford a 6-digit compensation package for the likes of a Ward Churchill?) The hospitals and universities don't have to economize and prioritize; they can have it all. The money will be there for them.

Despite healthcare's soaring inflation rate, healthcare reformers want to throw yet more money at it. How are you going to get prices under control by pouring even more money into those assured streams of revenue? The reformers think that by eliminating paperwork and through other administrative efficiencies that they can reduce costs. (If so, what's the need for more money?) But the healthcare industry would respond to any increased cash flows by simply raising their fees, just as higher education does.

In 10 years, healthcare spending is projected to top $4 trillion, double what it is today, and much more than all federal spending today. Healthcare's share of GDP will increase from 15% to 20%.

The cure for healthcare inflation—and a great many other things, for that matter—is competition. And the way to get competition is by withholding funds, not assuring them. That's why Health Savings Accounts are so attractive. HSAs keep money out of the healthcare pipeline until you need it. And HSAs are also a fine incentive to improve your health by changing your lifestyle and habits, so that you won't have to tap into your own money.

The solution to the problem of multiple-payers in healthcare is not "single-payer", the "universal" system preferred by some reformists. Not if it means another government-run monopoly. (Government hates monopolies, except, of course, for government monopolies.)

Speaking of "universal": Congress should enact a nationwide law that allows all workers to divert their share of their company's health insurance budget into HSAs. That way if a company goes bust, like Enron, or stops providing health insurance to its employees, employees who have chosen this opt-out will at least have some healthcare money set aside. And because they would be universal, such HSAs would be portable, making it easier to change jobs, thereby making for a more dynamic economy.

America has not had a real market in healthcare since the 1940s. If we really want to reform our healthcare system, let's start by reintroducing healthcare to the market.

Jon N. Hall was a programmer/analyst for the Kansas University Medical Center.


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7 Comments

portability
The author mentions the well know stupidity of some policies being non-portable because of the history dumb reason of tieing it to workplace since the war. But who out there knows if this is also true? I've read that people cannot just have a health care plan EVEN between states. I think it said that you can't just by a policy from some other state you're not living in at the moment. They said that this was oneof the reasons why there are so few health care companies in a big country like the states; whereas in a tiny, but freer country Switzerland apparently has about 90 companies competing for you health care dollar, and providing really good coverage.

WWII effect of education
The federal government jumped in big time after WWII and Korea funding university educations with the GI Bill.

There is even now a quasi government agency to lend money to students.

So now you're against the GI Bill?
Maybe the most cost effective and popular and effective government program in history?

Yeah...for two reasons
1) It works like vouchers proposed to fund public education do. So, much like HSAs, the individual has pretty much full control on what and when it is spent. Thanks for proving the author's point, Lemuel!

Which means that we should ban GI Bill recipients from attending religious seminaries or private colleges, I suppose. Funny how the Dems don't want to even touch that with a 10 ft pole when it comes to the GI Bill but do to save the uncompetitive rear-ends of their public education union masters.

1) Because people had to sacrifice for it (with their lives no less), so they tend make even better education-spending decisions as a result. It is also true compensation for serving in the military, just as the pay and other bennies are.

Also: 'effective government program' should always be judged against the most effective non-government equivalent out there. Usually (but not always) the 'effective' government program doesn't measure up. The GI Bill certainly does measure, as you seem to agree. Which is why is important to follow up on the next obvious question: Why? Answer: See points 1 & 2 in the above.

As a matter of fact...
I believe you can't use public money to study to become a priest, rabbi, etc. It is one of the exclusions. I seem to remember was just a test case on this.

Vouchers
Then you support vouchers for all private schools.

But only to veterans
The GI Bill was the right thing to reward service. The problems came later when increases in GI Bill payments did not keep up with inflation, but other federal financial aid programs blossomed becoming an entitlement for people who did not serve anyone but themselves.

The GI Bill was and is essentially a voucher program. There is no reason why the same principles (any major at any accredited degree granting institution: state run or private; secular or religious) could not be used for compulsory (K-12) education.

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