Healthcare costs have risen over the last several decades in every sense of the word. Not only has the cost of coverage relative to other goods risen, but the healthcare industry as a share of the economy has exploded in the last fifty years. The overwhelming culprit is increasing lifespans due to medical progress, and the resultant aging of the population. The older someone is as an adult, the more healthcare they require to remain healthy and comfortable. That tends to put upward pressure on prices for everyone. The longer someone lives, the more care they require. The more elderly a population has relative to its overall population, the larger the presssure. Both tendencies have been at work in the United States for several decades running, with no end in sight. The problem is compounded because Medicare and Medicaid are already the largest and still the fastest growing portions of the federal budget. It is no exaggeration to say that the long term fiscal health of the US government depends directly on the trajectory of medical costs.
Health insurance has gotten significantly more expensive over time because the services it pays for have gotten more expensive. Insurance was originally meant to mitigate prohibitive costs, and still does, but if premiums are unaffordable then it has scarcely achieved its objective. For that reason, extending coverage alone cannot possibly solve the whole problem with healthcare. Access to care is meaningless if people cannot pay for it. Costs must be controlled. As any economist will tell you, that can only be done by increasing supply of care or reducing demand. More doctors and hospitals have been recruited and built over the last decades, but supply has not kept pace with the exploding demand from an aging population with a high rate of chronic illness. Reducing demand, meanwhile, is tricky to do if we are not to deny people essential care.
In an open market of the sort we participate in every day - for bread, oranges, and so on - costs are controlled through competition. That is, consumers are free to pick among various products, and firms attempt to lure them by providing them at a lower price than their competitors. In the end, if the market satisfies certain competitiveness conditions, the product is provided at the lowest reasonable cost. Many ideological conservatives favor applying this approach to medical care, and reducing the role of medical insurance to deal only with catastrophic care of the sort that families cannot possibly budget for. This will, they reason, reduce unnecessary consumption of doctor services, prescription medications, etc, and thereby reduce their prices at large. The problem with this approach is that markets, while squeezing efficiencies out of firms, also price out people who are unwilling or unable to pay for the good in question. If someone is able but unwilling to pay for their own medical care, that is their choice. On the other hand, pricing those unable to afford regular care out of the market is barbaric.
The reason that an insurance market is not as effective at controlling costs as a market in which each consumer pays directly for their own services is because once the premium/deductible is paid, any number of covered services can be used without significant concern for the costs involved. Doctors, meanwhile, are free to prescibe as many tests or medicatations as they please, and they have a number of incentives to do so knowing that insurance companies will pay for them. This system is called fee-for-service, for obvious reasons. There is no incentive for consumers to consider cost when recieving nonessential care. Yet, as already discussed, we cannot remove this unfortunate tendency without making medical care a product to be purchased instead of a human right. There is, I maintain, no possible way to avoid this conundrum. One must pick a side. If we are willing to take the position that care is not a human right, then the conservative solution has much to recommend it.
For me, I find the moral implications of that position repulsive.
The ideal solution would be to control use of care while maintaining the insurance system. But how can that be done? The solution proposed by the Left is a single-payer insurance system of the sort employed by Canada and Western Europe. That is such a can of worms that it will recieve its own post, and I propose to simply note that it has its own pros and cons and promptly ignore it for now.
The Affordable Care Act has taken a more subtle approach. It has used pilot programs to attempt to provide a template for eliminating fee-for-service, by tying payments to hospitals and doctors from federal programs - Medicare and Medicaid - to certain effectiveness and efficiency criteria. Medicare and Medicaid account for such an enormous proportion of medical expenditure that this gives the government significant leverage. In principle, if tied to appropriately produced scientific evidence, calibrating payments in such a way can squeeze efficiencies out of the medical system without compromising access to needed care. The jury remains out on whether this approach can be effective long term, though early results have shown some potential.
In sum, the issue of controlling medical costs is spectacularly complicated and no easy solution is possible. It is one of those unfortunate issues in public policy which is so important that it cannot be ignored, but also demands that we make difficult choices and recognize unpleasant realities. The first step, as ever, is acknowledging the scope and significance of the problem.
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