It's time to fix health care

By Dan Danford

Health care reform is high on the president’s agenda. I applaud him for putting it there, although I’m extremely cautious. Government intervention is a perilous thing, with unintended consequences, but there are powerful reasons for someone to do something.

And government is a logical choice. After all, they’re part of the health care problem (more below), so they should be part of the health care solution. The notion that “government should stay out of health care” is both naïve and misleading.

As a small business owner and advocate, I welcome anything with potential to cut employment costs. I’ve wrestled personally with health insurance, and other business owners confirm it’s a leading factor in hiring new help. For smaller companies, the cost of insuring a single new employee family can run over $1,000 per month.

That’s a lot of money and – truthfully - it doesn’t buy much. That’s minimal coverage with high deductibles. In our plan, it includes prescriptions, but with significant co-pays. It also covers preventative tests, which is very good, but there are co-pays for office calls and many emergency room visits. It does cover us for catastrophic injury or disease, but – as most of us know (and welcome) – those don’t occur often.

Employers and families are left to sort these variables and foot the bills. It’s a sad fact that both are so vulnerable, and both are so powerless.

I am a businessman, though, and I do understand insurance company issues, just like, in fact, I understand physician issues, hospital issues, and pharmaceutical company issues. Each provider faces a unique industry segment and some combination of extreme fixed and variable costs. Like any business venture, each seeks to maximize revenues while minimizing costs.

But – and here’s the rub – these combined-but-related industries create a national infrastructure that’s impossible to corral. Despite decades-old political rhetoric, health care is not a free-market economy, and it is not tempered by market pressure. In fact, the infrastructure itself imposes barriers that stymie competition and free-market activity.

Free market? Good luck starting a new hospital. Bringing a new medicine to market is legendarily tough, and patents assure a nice profit margin for years. Becoming a doctor is even tougher, and there aren’t enough digits on your calculator to compute the first year’s expense for starting a health insurance company. The fact is that each of these groups exercises monopoly power in their own segment of the marketplace.

One common characteristic among this unintended cartel is that rising prices benefit almost everyone. As long as prices increase at a moderate pace across the board, everyone is happy except the consumer.

Think about it. The price of meds or a hospital visit goes up by 5 percent. Who complains? Most of us are nearly ecstatic when medical price inflation keeps to a single digit (this is almost a clinical description of the term dysfunction). We’ve been conditioned to expect and fear so much more.

But, seriously, providers can keep almost everyone happy (shareholders, employees, patients, government officials) with modest-sounding increases. Unfortunately, modest annual increases grow into massive amounts in brief time. It’s like the old fable about doubling a penny on each successive spot on a chessboard – it sounds like a little, but it grows into a staggering sum. Quickly. Just like the costs of health care.

It’s a systemic problem. Everyone smiles and cooperates in cost-cutting discussions, while winking and blaming each other. No one is accountable and – again, truthfully – everyone likes it that way. They win. We lose.

Government is dramatically involved, too. Government regulations create some of those monopolies (part of the systemic issues), and Medicare is the single largest buyer of health care services. Actually, government is likely the only entity with enough clout to compel positive change.

Legislators also share some blame for maintaining a legal environment with outsize rewards for medical lawsuits. A big part of systemic cost traces to defensive medicine and malpractice premiums. Reasonable change might bring tremendous improvements.

Traditional approaches simply haven’t worked. Cutting costs by a percent or two isn’t enough to solve these problems. Systemic issues require brash new ideas. Old hierarchies fail and better ones step up. In a genuine free market, efficiency rises from chaos. There’s an ebb and flow that creates better value for consumers. No free markets, no steps forward.

Everyone justifies their own price increases and demonizes others. I’ve listened to physicians complain about hospitals. Hospitals complain about insurance companies. Almost everyone complains against pharmaceuticals. And they all face considerable pressure to raise their own prices while castigating others. It is a never-ending cycle.

It is time to break that costly cycle, and I’m pleased that President Obama wants to do it. I’m cautious, and uncomfortable, and decidedly skeptical. But I’m also convinced that we can’t let the existing infrastructure dictate our future. Left uncontrolled, health care costs will eventually overwhelm all the productivity in our economy.

Fix it now or fix it later, but fix it we must. I’m a cautious optimist that we’re finally stepping forward.