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Health Care without Rationing?

Adequately compensated health care is possible without rationing

One of the best solutions to avoiding rationing in any health care reform proposal is to find as many solutions as possible in the private market. Why? Because the private market allows market forces to keep costs in check.

A limited government budget cannot change and adjust itself the way the private market can.

It is true that Americans are spending more of their annual income on health care as compared to fifty years ago, but does that necessarily mean that Americans can’t afford it? An interesting point offered by economist Sherry Glied suggests that while the percentage of health care costs have risen every decade, the amount of money Americans spend on food and other resources has gone down. The rate of increase in health care costs has been balanced by efficiencies found in other sectors of the economy.

Health and Food Combined

The chart shows that the decline in how much Americans spend on food, on average, has more than covered the increase in what we spend, on average, on health care. By adding together the percentage of personal consumption expenditures on food (blue bar) and that on health care (yellow bar), we get the red bar – which has consistently hovered around 30% from 1940 until today.

Private insurance companies can afford to reimburse doctors at adequate and higher compensation.

Government reimbursements are too low to properly compensate providers for the care they give. As a result, providers charge individuals with private insurance more to cover the costs of treating their Medicare and Medicaid patients. This is called private sector cost-shifting. Even with this cost-shifting, providers are turning more and more government insured patients away because they can’t make ends meet with the low reimbursements levels. This leads not only to rationing of care (providers withhold treatment), but also rationing of access (providers refuse to see Medicare/Medicaid patients).

Non-Rationing Solution: Increasing enrollment in the private market.
The surest way to avoid rationing is to adequately compensate providers. One way to ensure adequate reimbursement that also allows market forces to work freely is to enroll more people in private insurance. For those who cannot afford private insurance on their own, the government could provide sliding scale subsidies based on individual need that work like vouchers. Individuals would then be able to choose a private insurance plan that best meets their needs, while enabling them to have insurance that pays doctors at an adequate level. The patients would be seen and the providers would get paid more sufficiently. The key is finding a reliable and sustainable way to fund these vouchers.

Subsidy funding must be tied to health care market spending.
Currently, public funding sources for health care are inadequate because health care costs are going up at a rate higher than inflation. Therefore, health care is demanding a higher and higher percentage of the government’s budget. If a dedicated funding source were created that was tied directly to health care spending, then the funding available for public health care programs, including vouchers, would rise at the same level as health care expenses. Government would have more resources available for health care and would not be forced to ration it.

Directly reflecting what is being spent in the market is the surest way to avoid rationing. Those who can afford the health care they want are free to spend their own money, and a portion of what they spend would be withheld and used to cover those who need assistance paying for their health care. It is a win-win for all parties.

Read more detailed information about the withhold proposal and how it could work in Minnesota.

Source information for graph: http://www.nrlc.org/HCR/HCFood1940-2006.html These charts are versions derived from updated data, based on Figure 4.3 in Sherry Glied’s Chronic Condition: Why Health Reform Fails (Cambridge MA & London: Harvard Univ. Press, 1997), and p.103. Data Source: (CEA 1991, 2008.) Available at http://origin.www.gpoaccess.gov/eop/tables08.html