with subsequent savings of $78 billion thanks to “costcontainment”nrequirements. We eat our cake and have it,ntoo. The collapse of the Soviet Union as an active adversarynwill redouble the agitation for siphoning defense dollars intonhealth care.nThe Democrats start with an incontestable datum: millionsnof Americans (estimates range from thirty to thirtysevennmillion) lack health insurance, hence affordable accessnto medical care. This suggests, to those of a certain turn ofnmind, a federal solution: twist arms, bawl orders, tell peoplenwhat they’re going to do for their own good. Democratsnwould order employers to make health insurance available tontheir workers. This the employers could do by purchasingninsurance out of their own resources or paying a special taxnfor the purpose, a seductively cheap 7 percent of payroll costnhas been proposed. The obvious incentive, private plansnbeing much more expensive, is to confide the whole healthncare problem to Uncle Sam.nThe Democrats anticipate that health care will be anpivotal factor in the 1992 elections. A New York Times/CBSnNews poll released last October says Americans believe, 2 ton1, that a Democratic President would do more than GeorgenBush “to improve health care.” Why, say political oratorsnand op-ed writers, Canada is already doing what we shouldnbe doing. Actually, the Canadian health care “system,” asnEdmund F. Haislmaier of the Heritage Foundation explains,nis “a collection of separate, although very similar,nprovincial systems.” Each provides universal health care innaccordance with national guidelines. A recent poll by thenWall Street Journal and NBC News purported to show thatn69 percent of American voters favored the establishment ofnsuch a system here. There might have been less enthusiasmnhad it been widely known that such a system, applied here,nwould be grossly expensive (requiring an extra $189-339nbillion) and that the wait in Canada for major, nonemergencynsurgery can be long (an average of five months for heartnpatients in British Columbia).nH owninteresting all of this is. And how useless andnretrograde. Nothing very surprising is going on withnhealth care, given the way the system is organized. Thenproblem: a lack of marketplace incentives. The solution:nincentives. To see this we need only to don our spectacles.nIn the days of The Doctor, finance was no complicatednmatter. A small bill went from the individual doctor to thenindividual patient, who paid it out of household resources.nMuch has changed since then. This is not the same nation itnwas, medically speaking, any more than it is the same nationnculturally, politically, economically, or religiously. Since thenend of World War II, Americans have depended more onnhealth insurance and less on their own resources. For thisndevelopment, government policy, and the general bureaucrahzationnof American life, seem chiefly responsible.nPatients pay out of their own pockets only 28 cents of everyndollar charged by the doctor, 10 cents of every dollar on thenhospital bill. How wonderful! you exclaim. But wait.nEmployer-provided health insurance is a major workplacenbenefit. Many people stick to jobs they dislike for fear ofnlosing their health insurance. An old friend of mine, ancommunications industry executive, turned down an excellentnbusiness opportunity with more money and prestige.nHis wife suffered from breast cancer; no insurance carrier innthe world would have sought or accepted her business.nLayofiFs are sorely feared for just this reason.nThe tax code has contributed to this distortion of effortnand purpose. Since income taxes are steep compared tontwenty-five years ago, and health insurance is not taxable tonthe employee or the company, insurance can be treated asnan employee benefit — on a par somewhat with the Christmasnturkey of old. It is generally forgotten that the money sonspent is, like the Social Security deduction, money unavailablenfor salaries. Accepting it, the employee loses his freedomnof action. He has no incentive to shop around for medicalnbenefits. He takes, what the company offers, which increas-,ningly is a health maintenance organization (HMO), practicingnimpersonal if (in my own limited experience) decentnmedicine.nSo the health care industry escapes marketplace disciplines.nHospital “A” sends the bill, insurance carrier “B”nforks over. The carrier, to appease the stockholders, raises itsncharges to the company. The company, sensitive to its ownnstockholders’ reaction, raises employee premiijms and/or itsnown contribution; the latter remedy, which sounds lessnpainful, actually reduces money available for salary increases.nFor classic anticompetitiveness, you can’t beat this. Therenis no way to know the true marketplace cost of medical care,nbecause only the most limited kind of marketplace exists.nHow could there possibly be much incentive to hold downncosts?nIt is a curious thing: while the ex-communistnbloc struggles to throw off the incubus ofnstate control, American politicians andnbusinessmen rush to its fetid embrace.nAlarm bells should clang from every steeplenwhenever the breathless argument is madenthat bureaucracy can fix a problem whosenorigin is bureaucracy.nWhat goes for the private sector goes in spades for thenpublic sector. The two large government insurance programsnare Medicare for the elderly and Medicaid for thenpoor. Both are hideously expensive. Both, by fostering annartificial demand for medical services, have brought aboutngross and rapid overexpansion of medical facilities andnservices, just as the availability of loans, along with federalndeposit guarantees, created an artificial demand for newnbuildings in the 1980’s. Medicare costs are rising so sharply,nand the population aging so rapidly, that the federal HealthnCare Financing Administration has adopted a proposal,neffective the first of this year, designed to control costs bynlimiting reimbursement to the doctors. The governmentnitself stipulates what a given service is worth. The HeritagenFoundation predicts that the plan “will result in an increasingnnumber of doctors refusing to accept Medicare patients”nand in higher bills for non-Medicare patients. MeanwhilenMedicaid, painfully underfinanced, normally pays 50 centsnnnFEBRUARY 1992/19n