We won’t fix health care costs until we let the market limit demand. That’s the takeaway of a new piece by David Goldhill in Bloomberg on America’s health care cost problem. Goldhill is known for his much-discussed 2009 piece in the Atlantic, “How American Health Care Killed My Father,” in which he argues that the comprehensive insurance mechanism that America relies on to fund its health care system distorts incentives and drives up spending. In this latest piece, he makes a related case that policy wonks are approaching cost control from the wrong end.They assume, he argues, that we can bring down health care costs by controlling the supply side of the system—by mandating which treatments doctors provide, as well as when, how, and with what tools they provide them. But the real problem is not supply but demand: Americans want all the health care they can get and until that demand is brought under control, supply will continue to rise no matter what actions federal regulators take, in whack-a-mole fashion. If you use government tools to cut costs in one area, for example by reducing reimbursements for doctors, doctors will simply perform more services to make up the difference. The costs always pop back up again somewhere else because the demand persists. Here’s his conclusion:
Since Medicare’s inception, government and health insurers have tried to control health-care prices; 50 years later, it’s time to admit failure. If America’s health-care politics are unique in refusing to accept limits on demand, then we need a solution tailored to our reality. Let’s reduce the role of the big intermediaries who have allowed our system to become so expensive and opaque and increase that of the one force that can drive good behavior: the consumer. After all, America’s fully employed army of health-care cost experts knows a lot about an extraordinary range of small things — the prices of literally millions of individual medical goods and services in every nook and cranny of the industry. But they don’t know baseball.
Read the whole thing. “Increasing the consumer force” means giving consumers the information and incentives they need to make smart decisions. In other words, it means creating a genuine health care market. It also means facilitating the market’s ability both to produce new innovations that will make care cheaper and to limit demand for services. If we do both of those, we just might find that much of the cost crisis is surprisingly fixable.