How to Replace Obamacare

[Geee]

American Spectator:

A COMMON LIBERAL REFRAIN is that conservatives have no real health care agenda of their own— other than, of course, opposing Obamacare. For instance, in the midst of debate over the president’s signature health “reform” bill, one progressive Florida congressman famously told the House that the GOP’s plan was for sick Americans to “die quickly.”

Baloney. Conservatives could probably stand to put more emphasis on the latter part of “repeal and replace,” but the fact is that many free-market health care reforms enjoy broad consensus on the right.

The Supreme Court is expected to rule on the constitutionality of Obamacare in late June—after this magazine hits the press. But while the court’s decision could be explosive politically, it will not change the need for conservatives to articulate a strong alternative to state-centered health care. The answer is patient power.

EXPLODING HEALTH CARE COSTS in America stem ultimately from what is known as the thirdparty payment problem—that is to say, the great majority of health costs are not paid by the patients themselves. There is almost always some third party, whether it be an insurance company, an HMO, or the government, footing the bills. Indeed, in 2008, 84 percent of health expenses were paid for by private health insurance or government programs such as Medicare, Medicaid, or CHIP.

Consequently, the consumer has no incentive to control costs. To put it in formal economic terms, the consumer has an incentive to spend until the marginal benefit of additional spending is zero. For instance, if a $1,000 procedure costs you nothing, it’s worth doing—at least in economic terms—for just $1 Of benefit. In an efficient market, consumers spend until the marginal benefit is equal to the marginal cost. That $1,000 procedure should only really be worth it for $1,001 of benefit.

In more colloquial terms, the problem is that consumers have an incentive to spend on health care until it hurts, and they have no incentive to shop around. Even worse, doctors and specialists not only have no incentive to control costs, but they actually have a direct financial interest in spending more. Health care providers have no incentive to compete on price, so they compete primarily on quality and secondarily on convenience.