Solutions to high health costs

In my last two columns, I discussed four major causes of high health care costs in the United States, two that restrict the supply of care and two that drive up demand for care.

Today, I’d like to discuss some potential solutions to these problems, starting with ways of loosening restrictions on supply.

The first major restriction on supply I discussed is the Food and Drug Administration’s policy of prohibiting the sale of prescription medications it has not approved, and the second is the 50 states’ common policy of restricting the practice of medicine to those licensed by the state.

A drastic solution to these problems would be to completely eliminate the regulations in question, but there are intriguing and innovative intermediate steps we could take that might have an easier time of gaining popular support.

For the FDA problem, Sam Kazman of the Competitive Enterprise Institute has proposed that we allow the FDA to continue testing and evaluating drugs but that we remove the ban on prescribing drugs the agency has not approved.

This would allow those who consider FDA approval important to continue acting as though nothing has changed, and it would allow those who disagree with the FDA’s judgment to go ahead and prescribe drugs it has not approved or is taking too long to approve.

A similar solution to the licensure problem would be to change the system doctors go through from one of licensure to one of certification. This would mean doctors could still be evaluated by the states they wish to practice in if they or their patients considered state approval important, but it would allow them to practice without approval from the state if they so chose.

This would make doctors similar to accountants, who don’t need to have state  approval to do what they do but who do need state approval to call themselves Certified Public Accountants.

Now, on to the policies that inflate demand. The first is the collection of tax policies that favor the use of insurance for financing health care even when using insurance makes little sense. The second is the use of insurance for many problems that are not technically insurable because they are too predictable or not sufficiently catastrophic, such as annual physicals and tooth cavities.

The best solution to the first problem would be to eliminate the tax break employers get for offering their employees health care, as well as the recently enacted mandate that all Americans purchase health insurance or face an Internal Revenue Service “fine.”

Although these steps would probably not strike most people as too drastic, potential short-term improvements would include reducing the amount of tax employers can avoid paying and lessening the fines imposed on those who flout the individual mandate.

The ideal solution to the second problem would be for states to eliminate their mandates on what kinds of procedures must be covered by insurance.

This would allow people to shop around more easily to find a plan that fits their needs and doesn’t contain coverage for all of the obscure procedures special interest groups have conspired with state governments to include.

Short of that, we could eliminate the restriction on purchasing insurance across state lines, which would allow people in states where the law requires far too many treatments to be covered to shop for coverage offered in a state with lighter regulations.

As the debate over health care continues in the coming years, I hope market-oriented solutions such as these will be given a fair hearing alongside the failed, government-driven solutions of the past.

­— jarlower@indiana.edu