Book Review

The Cure: How Capitalism Can Save American Health Care
by Dr. David Gratzer
Encounter, 240 pp., $25.95

If the first step toward a cured addiction is to admit the problem, Dr. David Gratzer has given himself no small task: to convince politicians that their reliance on government interference in health care hurts more Americans than it helps.

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For four decades, politicians from Wilbur Mills (the sixties-era chairman of the House Ways and Means Committee who championed Medicare and Medicaid) to George W. Bush either unapologetically used command-and-control economics in health care (Mills) or rhetorically championed market solutions only to preside over an expansion of taxpayer-financed versions (Bush and drug coverage). Now, given a Democratic-controlled Congress, the political temptation to intervene will likely only grow. For some, the appeal of intervention exists because Canada and Europe seemingly provide universal coverage at a lower percentage of Gross Domestic Product, though that ignores whether their expenditures are effective, or are enough. In The Cure Gratzer cautions Americans to avoid those models, as they have their own warts. On Canada, for example, the Winnipeg-born-and-trained physician, who now practices in Toronto and New York, has observed our two systems in detail–and the medical system lauded by the Dean-Clinton-Pelosi axis doesn’t look so healthy under his microscope. In Canada, Soviet-style queues are the norm. The physician himself encountered horror stories familiar to any mildly informed Canadian: a middle-aged man with sleep problems booked to see a specialist–in three years; another patient with pain following a simple hernia repair referred to a pain clinic with a two-year waiting list; a woman with breast cancer asked to wait four months before beginning lifesaving radiation therapy.

Canada has universal government health insurance; Americans should not equate that with universally speedy treatment. And ironically, just as some U.S. politicians praise government-controlled and delivered health care, Canada and Europe are moving towards market-based remedies for what ails them. In Stockholm, laboratory and support staff costs fell by 30 percent after that city contracted out most primary care. Germany will put most hospitals in private hands (a reform started by the Red-Green coalition), and one Finnish municipality has privatized all health provision. As Gratzer observes, even Canada is opening up to more private care, in part because a 2005 Supreme Court judgment forced the issue.

Meanwhile, back in America, over-involved government has created 100,000-plus pages of regulations for the Medicare program, Medicaid benefits so generous in New York that recipients can buy a month’s supply of Viagra for just two dollars, and rampant abuse of the sort where 20 percent of Tennessee’s budget-busting TennCare enrolees are ineligible but yet in the program.

Then there are the unintended consequences. Thanks to government reforms in New Jersey, a lease on a Ferrari is cheaper than health insurance for the average family. In Vermont in the 1990s, courtesy of then-governor Howard Dean, regulations forced insurance companies not to discriminate based on age–countering the point of insurance: risk assessment. That meant 20-year-olds paid the same as 60-year-olds. Many companies left the state and many young dropped their insurance. If the interfering political class care to blame someone for millions of uninsured, they need only look in the mirror.

On one major cost driver–pharmaceuticals–Gratzer notes how the cocktail of overregulation, trial lawyers, and “meek Food and Drug Administration bureaucrats” combined to make research hyperexpensive. It now costs $900 million to bring a new prescription drug to market. Adjusted for inflation, that’s up from $138 million 30 years ago.

One suggested remedy (in addition to tort reform) is for the FDA to determine more quickly whether a drug is safe, approve it, and only then worry about how well or if it works. (After all, the author observes, it’s not as if governments require automobile companies to prove their cars are not lemons.) The winners would be the sick and dying who might find efficacious treatment quicker rather than wait while a new experimental drug works its way through a bureaucratic and potentially litigious maze.

At the roots, Gratzer spots a similar cause for health care failures in Europe, Canada, and the United States: state interference that severs the doctor-patient payment link. The result is that patients have no incentive to find the same treatment for less money. Instead, third parties pay much of the bill.

What would car insurance cost, asks Gratzer rhetorically, if people insisted on plans that had limited deductibles? Or policies that included not just major body work, but also oil changes and gas and a paint job every time your spouse got tired of the car’s color?

“If homeowners’ insurance were regulated the way Governor Dean regulated health care, residents could insure their houses after they caught fire,” he writes.

For the author of a policy book on health care, Gratzer (an occasional contributor to these pages) is an able storyteller, though he doesn’t rely only on analogies. One solid strength of The Cure,which sets it apart from the usual dry, health care policy wonk work, is how his recommendations build on success stories. So to explain the usefulness of Health Savings Accounts and how they work, he notes the success of a similar model at Whole Foods, the grocery chain that offers employees consumer-driven health insurance, a plan built with their input. At Whole Foods, employees have a stake in managing health care costs because they can roll over leftover cash in their employer-supported, health savings-style accounts. The approach is popular, provides excellent coverage, and is effective at cost containment: It resulted in a 13 percent reduction in claim costs in its first year, and below-average increases in subsequent years.

Further reforms Gratzer recommends include giving individuals the same tax treatment for health insurance now available only to employers, and allowing consumers to buy insurance from another state. While the 1945 McCarran-Ferguson Act empowers states to regulate the business of insurance, “nothing prevents Congress from permitting interstate insurance sales, an action consistent with the Constitution’s commerce clause.” Gratzer notes that too many Americans are now at the mercy of a small number of local health insurance carriers.

Not that Congress need look far for reform ideas. The nine-million-member Federal Employees Health Benefits Program (which members of Congress are in) is an effective, choice-based insurance model. That program, tagged a “perfect model” by Gratzer, allows members to choose from more than 240 competing plans and is competitive and lightly regulated, even though it more generously covers the big-ticket items most of us want covered by insurance: long-term care, catastrophic events, and prescription drugs. But, writes Gratzer, “unlike Medicare, the program is not run by Washington, but is rather a composite of private plans.”

Originally published in: The Weekly Standard, 06/11/2007, Volume 012, Issue 37.