America's Coming Healthcare Debate

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Americans spend more than $2 trillion a year on healthcare. This is 16 percent of the gross domestic product of the United States, and four times more than America spends on national defense. By 2015, as the Baby Boom generation continues to age and assuming that medical costs continue to rise, healthcare spending is expected to double to $4 trillion.

At the same time, many Americans do not have any health insurance. According to the U.S. Census Bureau, 47 million U.S. citizens are not covered for a wide variety of reasons.1 If those people become ill, they either become a burden on emergency medical facilities or they have to absorb the unanticipated costs themselves.

For these reasons, healthcare is one of the most urgent challenges that America faces today. The major issue is whether the U.S. should provide universal health insurance.

For the reasons we will outline, the Trends editors believe that such a program would have disastrous long-term implications. In the October 2005 issue of Trends, we described the fundamental problem of insurance plans, whether they are privately funded, such as insurance policies paid by individuals or employers, or publicly funded, such as Medicare. Quite simply, once the premium is paid, there’s actually a powerful motivation to use as much healthcare as possible, whether we need it or not. That’s because a co-payment of 20 percent for a doctor’s visit means that the insurance company is paying 80 percent. The cost-benefit discipline inherent in free markets is neutralized.

Consider what would happen if people had “dining insurance” that covered all of their trips to restaurants. People would go out to eat for every meal, because it would be cheaper than eating at home. They would order lobster because the insurance company would pay for it. And nobody would compare the prices at one restaurant with the prices at another; in fact, few people would even know what an entree cost.

The same mindset is prevalent among people who are covered by U.S. healthcare plans. People see their physicians at the first sign of a cough or sniffle. They ask for prescription drugs that, after a co-payment, can cost them less than an over-the-counter remedy, yet cost the insurance company much more. Physicians routinely order X-rays and MRIs that can cost the insurance company that is paying the bill thousands of dollars. Patients have no sense of what the actual cost of these treatments is, nor do they have any way to shop around for a cheaper alternative, nor do they have any incentive to spend the insurance company’s money frugally...

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