Our View - Sunday

OUR ECONOMY'S IMMUNE SYSTEM
How health care is getting well

    We keep hearing of a "health care crisis" that must be solved by government. Claptrap. The system will heal, but only because of the amazing immune system of America's economy, so powerful it can overcome the infection of imposed constraints.

    Health care is a favorite topic of politicians because it reaches right into the homes and workplaces of middle America. It's candy for those who seek election with promises of safety, security and solutions to problems.

    Unfortunately for candidates, the so-called health care crisis defies an honest government fix. The problem with health care is simple. It's expensive because consumption has increased more rapidly than the supply of doctors, nurses, X-ray technicians, therapists, clinics, hospitals, ad infinitum. The cost of a service in times of stagnant supply rises with growing demand, because price is simply a valve to control the release of any service, commodity or good. History's great social engineers, socialist dictators and communist thugs have failed to find a way around this.

    Add to the equation a fundamental flaw in our system: Health care customers seldom challenge price, or shop for bargains. If they did, providers would make adjustments in response to consumer demands: more supply, lower prices, more choices. Consumers make few demands because a largely invisible third party seems to pay for it all, even telling them where they should shop. Workers have been led to believe that an employer "gives" them health care, subconsciously dismissing the fact that the company's health care contribution is part of an earned compensation package. The health care field, fed by insured corporate employees, doesn't earn customers; it's entitled to them. This distortion of market relationships results from the tax code, which rewards companies and employees for compensation that's partly in the form of health coverage packaged as a gift.

    Traditional consumers of health care pay little attention to the cost of services, because they're not paying. The company pays. Therefore, some consume health care services with reckless abandon, visiting the doctor for sniffles and sneezes, bumps and scrapes. Others fail to maintain their health, believing someone else will pay to fix them when things get really bad. Either behavior represents careless consumption, which raises costs. Few consumers see the cause and effect. Imagine if an obscure benefits office facilitated the payment of car repairs. With the blurring of personal accountability, how many oil changes would be missed; conversely, how many good tires would be needlessly replaced?

    Health care consumers often fail to see that soaring costs of health plans mean higher overhead for companies, lowering the amount an employer can pay in cash compensation. And the system rolls along, with corporate employees consuming health care without questioning the cost or shopping around. If bread were sold this way, it might cost $20 a loaf by now.

    The rising cost of health care has become more apparent only because companies have begun dumping the third-party payer plans they once pretended to "give" employees. Millions of Americans have found themselves uninsured, suddenly facing the absurd costs of services that had always appeared to be someone else's problem.

    The symptoms of this hocus pocus - high cost, limited supply, lackluster service - are what pass for a "crisis." Hillary Clinton, Barack Obama and John McCain each promise to fix it, by somehow giving us more and cheaper health care, in return for our votes. They have no health care to give, yet they promote greater consumption.

    What they can't possibly do, the economy can and will. It's an amazing thing, our economy, much like bio-immunity. Things go wrong, but the system tries to heal.

    A great indicator of this is that health savings plans are catching on. Nationally, enrollment in health savings plans grew by 35 percent in the past year as a tipping point draws near. The plans allow consumers to open tax-free savings accounts to pay for medical expenses up to $10,000, with catastrophic insurance to back it up. Consumers own and control the money. Built into this equation, of course, is the incentive to live well and stay healthy and maintain the account, rather than pilfer it for needless consumption of health care services. It's not some benevolent third party's money; it's the customer's money. Health care providers must compete for it. Routine medical expenses become unwelcome hits to a tax-free savings account that most people would like to keep. After all, once the account is full, budgeted payments can instead go for trips to Cancun or investments in gold, unlike the disposable premiums paid for traditional health care plans.

    People with health savings accounts no longer receive large sums of their compensation in the form of company contributions to a health plan they don't control. They're compensation comes in cash, some of which can be diverted tax-free into the self-managed account. The savings aren't an additional expense for those who were insured, because their health premiums were easily $500 to $1,000 a month or more. Anyone who was paying for traditional third-party insurance, individually or through an employer, can build up a $10,000 account (or pay health expenses as they're incurred) within a year or two, using money that previously went for premiums.

    As the health savings account system grows, demand on health care services will go down and competition for customers will increase. Prices will come under control for all Americans, and services will improve. Insured consumers will work to stay healthy, as it's clear their own money is at stake. When they do see the doctor, they'll be more likely to scrutinize price. They'll be less likely to demand costly services they don't really need, just as the owner of a car avoids needless repairs. Quite simply, blind consumption will become a thing of the past, while smart living and consumer control will thrive.

    If health care is ill, it's the result of a disconnect between consumers and providers, caused by a sleight-of-hand system that has made health care seem free. The economy is correcting this, restoring fundamental logic in the form of health savings accounts. Today, they're a minority, like a culture in a petri dish. Soon, they may catch on like spawning antibodies. If so, our health care system will heal.