All Commentary
Thursday, April 1, 1993

Patient Power: Solving America’s Health Care Crisis

A powerful message that needs to be heard in the current policy debate on health care.

For the past 50 years, public policy on health care in this country has led to the concentration of power in the hands of bureaucracies, both public and private. Consumers pay directly for only about 20 percent of the cost of care. Governments pay directly for 40 percent of the care received. Of those people who have private health care plans, over 90 percent have employer-based plans where individuals have little say in the choice of plans. Medicare and state government regulations delineate in minute detail how health care providers are to render care. The Food and Drug Administration has complete control over which drugs are allowed on the market and what conditions can be treated. The health care delivery system looks much like the failed centrally planned economies of the old Soviet Union and Eastern Europe.

Many serious students of health care policy have concluded that the only ingredients necessary to solve the current health care problems are more government regulations, more government spending, and less consumer choice. Two health care policy experts have arrived at a sharply different conclusion. John C. Goodman and Gerald L. Musgrave have clearly laid out the arguments for allowing individuals to make decisions about financing and receiving health care. Patient Power: Solving America’s Health Care Crisis is an important book to read to navigate the maze from our current system of bureaucratic power to a system based on patient power.

At 672 pages, only the most dedicated soul would attempt to read the entire book. The 21 chapters are written so that each covers a specific topic and can stand alone. The book provides good background for how the current system developed with chapters like “How the Cost-Plus System Evolved” and “National Health Insurance in Other Countries.” The route out of our mess can only be understood by looking at how we got into it. Other chapters like “Moving Toward the Ideal: An Agenda for Change” and “Privatizing Medicare with Medical IRAs” deal with the needed changes.

The authors use the first sentence in the preface to define the message, “The thesis of this book is simple: If we want to solve the nation’s health care crisis, we must apply the same common-sense principles to medical care that we apply to other goods and services.” More than 650 pages later in the conclusion, they are still stressing the same point: ”The assumptions of the advocates of greater government control are false. Self-interested behavior is a normal and natural characteristic of human beings. Socialism does not work in health care any better than it does in any other market.”

In a normal market system the pursuit of self-interest results in the needs of others being met at the same time. In the government-regulated health care market, the outcome is much different. “The result is a marketplace in which the pursuit of self-interest often does not solve problems, but creates them instead.”

Goodman and Musgrave are not new to the health care policy debate. Goodman, president of the National Center for Policy Analysis in Dallas, Texas, has spent much of the past 20 years researching and writing about the failure of government-run health care plans and how markets could deal with health care delivery and financing problems. Over the past ten years, Goodman and Musgrave, the head of an economic consulting firm in Ann Arbor, Michigan, have collaborated on many studies that formed the basis for much of the book.

The key element of their reforms is equity in taxation by permitting all taxpayers to purchase a health care plan and have medical savings accounts to pay small medical bills out of pocket. “To give all people the same economic incentives to purchase health insurance, premiums paid by employers should be included in the gross wages of their employees, and all taxpayers should receive a tax credit equal to, say, 30 percent of the premium.” The allowable health plan deduction or credit would be limited to a premium for no-frills, catastrophic health insurance.

The arguments for permitting auto assembly line workers and school teachers to control their health care decisions and financing are fairly easy to grasp. Goodman and Musgrave go beyond that by looking at how to privatize Medicare. They also propose to decentralize Medicaid, move the decision-making to the community level, and allow private charitable organizations to bid on providing services to low-income people.

Near the end of the book is a chapter on “The Politics of Medicine,” which primarily describes the politics of medicine in countries that have government-run health care. For those readers who are not familiar with “public choice” economics, the first part of the chapter provides an excellent overview of why politicians from different parties often support the same public policies. Several additional readings are also suggested.

That chapter alone is worth the price of the book and has implications far beyond health care.

While Goodman and Musgrave have many proposals to reform health care policy, they never lose sight of the fact that markets are always evolving in ways that we cannot anticipate. “The most that politicians can do is change the rules of the game. Once the rules have been changed, the tedious process of replacing cost-plus institutions with market-based institutions can begin. But the process of change must itself be market-oriented—brought about by millions of people pursuing their own serf-interest.”

Patient Power is a powerful message that needs to be heard in the current policy debate on health care. 

Ross Korves is an economist with the American Farm Bureau Federation in Park Ridge, Illinois.