A reminder that American health care has strayed too far from market processes

Amid all the debates about Medicaid expansion and state- or federal-based health insurance exchanges, the latest Weekly Standard article from Matthew Continetti examines a more basic issue: fundamental flaws in the existing American heath care system.

[I]n their interactions with the health care sector, Americans have been willing to tolerate inefficiencies and insults and egregious prices that would spark riots at car dealers, electronics stores, or coffee shops. Medical errors kill at least 98,000 Americans annually. The increasing cost of health care is responsible for stagnant wages and higher taxes, and threatens to crowd out all other forms of federal spending. The “essential service” of diagnosis and treatment of illness has been utterly deformed. Health care has become a “Beast” that devours everything in its path.

The main problem, Goldhill concludes, is the way we pay for health care. “For every hundred dollars spent on health care in the United States,” he writes, “the patient acting as consumer pays only eleven dollars; an intermediary pays the rest.” Having a third-party assume most of the cost of medical services encourages overconsumption, waste, fraud, and inflation. It generates the perverse incentives of moral hazard. The price mechanism is not allowed to function.

Insurance is meant to be a hedge against the risk of an unexpected and improbable contingency, such as property theft, house fire, car wreck, or premature death. But it is neither unexpected nor improbable that you or I will interact with the health care system. Quite the opposite: Visiting doctors’ offices for checkups or treatment is inevitable and often routine.

So what happens when the insurance model collides with the provision of health care? Insurance premiums rise because insurance companies cannot make money without encouraging the insured to spend more on health care. Meanwhile, patients are shunted aside. …

… Americans encounter horrible service and indecipherable hospital bills precisely because they are not the hospitals’ customers. Health insurers and governments are.