Health system’s inefficiency is market’s fault

As I write, billions of your health-care dollars are being wasted, and you probably don’t even know it.

According to the Wall Street Journal, $20 billion are spent each year by doctors and insurance companies trying to sort out each other’s claims. Moreover, according to the McKinsey Global Institute, $66 billion are wasted on pharmaceuticals and about $147 billion are wasted on “operational inefficiencies” in the United States when compared to spending patterns of other developed countries. The total drain on our system each year? About $480 billion — more than double the annual cost of the Iraq war and enough to provide universal health care five times over.

As your money is being wasted, your health isn’t getting much better. The U.S. still ranks below other developed countries in life expectancy, and the infant mortality rate remains shockingly high. Instead, this waste only generates more waste. At the current rates of increase, U.S. health-care expenditures will almost double to $4.1 trillion in 2016.

Now in theory, health spending and some administrative costs aren’t inherently bad. But squandering health-care dollars when 47 million Americans are uninsured and millions more are underinsured is not only morally reprehensible but also fiscally irresponsible.

So what’s the cause of the exorbitant waste? Believe it or not, the problem isn’t government-run programs. Administrative costs for Medicaid and Medicare remain a fraction of those of private insurance. Instead, the fact is that the government isn’t doing enough to regulate our private health system so that it can work efficiently.

Yes, that’s right, the market — that sacred cow of libertarian economists — just isn’t working. While each sector does an amazing job maximizing its own profit, the overall value on the health-care system is being lost. For those of you who made it to the second semester of economics, the phenomenon is called market failure, and it isn’t new.

The market breaks down because we’re competing on all the wrong things. Insurance companies fight over not paying for the sick, and many doctors work to maximize the number of reimbursable procedures rather than the health of the patients themselves. We forget prevention and primary care, and so we are forced to spend billions of dollars in the emergency room instead.

What’s the solution? Single-payer health care, in which the government pays for but does not provide medical care, is certainly an attractive option, but it isn’t the only alternative. At the very least, government needs to step up to correct market failures and allow the health industry to compete over what really matters — our health. Some important first steps include paying doctors for performance rather than procedures, eliminating perverse incentives in the insurance market, and simply having the courage to make investments upfront in prevention and primary care that will reduce costs later.

These reforms aren’t some scary specter of “socialized medicine.” It’s capitalism at its best — getting what you paid for and helping society at the same time. Capitalism only works, however, when demand meets supply. For years, interest-group, supply-side politics has dominated the health scene, offering tax breaks for the powerful but not enough for us. Now it’s time to expose these misplaced priorities and to start putting patients over profits.

As we enter this terrain of patient-centered health care, beware of false rhetoric. Health Savings Accounts and other plans for “consumer-directed health care” that put the burden of change on the individual simply won’t work. We consumers don’t need more choices in the infinitely complex field of health care, we need better choices and better value.

Unfortunately, change isn’t easy. Consumers don’t have the same fancy think tanks and lobbying organizations as other established interests. Moreover, as the system gets worse, the billions of dollars of our money being wasted simply allow these interests to become even more entrenched.

The one power we do have, however, is our democracy. We elect our lawmakers and we can hold them accountable. Last fall, we chose a Democratic majority in Congress and a supermajority of Democrats in Connecticut’s state legislature in part because we wanted real attention to public health.

Unfortunately, in the same way that the health system is wasting money, politicians are wasting time — focusing on petty interests instead of the pressing issues facing millions of Americans. Funds needed to fully reauthorize effective programs like the State Children’s Health Insurance Program remain in limbo, and efforts on universal health care in Connecticut are foundering as legislators can’t make up their minds.

Yale students are now mobilizing with many different coalitions in Connecticut and across the country to make real change. We won’t give up until the fight is over. As wasteful spending and misplaced priorities spiral out of control, we cannot afford to let this opportunity slip away.

Robert Nelb is a junior in Timothy Dwight College. His column appears on alternate Thursdays.