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Controlling the cost of cost control

By Richard E. Ralston
web posted June 6, 2005

The cost of health care will continue to rise for a number of good reasons. We are living longer, and the retirement of the baby boom generation will increase demand on health care. Cutting-edge technology and new drugs will improve the quality and length of life-but at high cost. The irony, however, is that the efforts to limit costs will actually increase them more rapidly. We have created a bureaucratic monster that none of us can afford.

This is the inevitable result of any "third party" payment system. When payment is separated from those receiving a service, demand expands much faster than supply. Insurance companies receiving health insurance premiums from individuals or employers can't pay for everyone's health care no matter what it costs. They have to establish limits on the nature and amount of health care provided. High deductibles for coverage, aggressively negotiated group rates for services, and usage restrictions on the most expensive drugs and procedure can only slow the hemorrhage, not stop it.

When government intervenes in health care it makes the problem much worse. Medicare regulations currently exceed 130,000 pages. No hospital, physician, or patient can read or understand them. It is probably impossible for any health care provider to comply with some provisions of these regulations without violating other provisions.

A couple of years ago, ABC News reported that the Duke University hospital system had more employees in their billing department than they had doctors and nurses. If your hospital bill includes a charge of $25.00 for an aspirin, it's not because they have to pay that to a drug company. Nor does your doctor get a commission on aspirin sales. It's because of the system's administrative costs, which exist as a vain effort to control costs.

Hundreds of thousands of administrators must certify that you've acknowledged that they're protecting your privacy as they place your health records on government computers. They must also decide what procedures are allowed, what can be charged for those procedures, how to ration them, which facilities are allowed to order new equipment, how many unnecessary medical tests to order to cover themselves against frivolous litigation, how much liability insurance they need and how to add it to their overhead, and how to protect themselves from prosecution if they code Medicare forms incorrectly.

Fearful of producing too many doctors, one of the greatest recent successes of regulators has been a deliberate reduction in the number of graduates from medical schools and teaching hospitals. Unfortunately, as it turns out, there are not enough doctors. And people wonder why the increase in health care costs in the last forty years is in direct proportion to increased government intervention in health care.

All of this is the necessary result when an illusion comes into contact with reality. We may all wish that someone else would provide us with all of the health care we desire. But no employer, no insurance company, and no government can afford to do that. Each individual and each family must place a priority on providing themselves with the highest quality health care they can afford. (What, after all, should have a higher priority?) Decent government policy can make this affordable for the maximum number of people through Health Savings Accounts and tax deductions for high-deductible insurance policies. Policymakers can also eliminate the tremendous administrative expenses that have been created by the heavy hand of government. That will do more to keep the cost of health care within reach than any regulation, law, or bureaucracy. But the ultimate responsibility is our own.

The only real alternative is the most likely one-to force everyone into a uniform system tightly controlled by the government. Paul Krugman, writing in The New York Times, denounces the only obstacle to this as "ideology." He defines ideology as "competition and personal choice." He is quite correct. All we need to do is jettison freedom, and government can take over.

If this happens, one day you'll discover that a government that provides and pays for all of your health care has come to think and act as if it owns your body. Otherwise, you'll be free as a bird.

Richard E. Ralston is Executive Director of Americans for Free Choice in Medicine.

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