Economic InsightsAN IDEA PUBLICATION JUNE 2008 Volume 2 Number 4 Can Capitalism Save American Health Care? By David Gratzer, M.D.

[Editor’s note: While the CCEE takes no stand on any the emergency department. I swung open the doors specific health care proposals, we feel that it is impor- and I discovered the emergency room overcrowding tant for citizens and policy makers to consider a variety crisis that was plaguing so many Canadian hospitals in WWW.CCEE.NET of innovative ideas.] the mid-1990s. I remember the smell: the smell of sweat, the smell of urine, the smell of fear that hung in the Economic Insights Everyone I know has some frustrating story about air. Elderly people had been waiting four, sometimes is an idea publica- American health care, often involving the confusion— even five days to get a bed. And I remember stepping tion of the Colorado the prices that are inscrutable, the ever-rising costs, into that emergency room and thinking to myself, Council on Eco- the questionable quality, and the chaotic lack of infor- something is desperately amiss. nomic Education, a mation. That is the micro-level. Of course, the macro not-for-profit orga- nization founded picture is equally confusing. We now spend $2 trillion When I grew up in , although I was interested in in 1973 to promote a year on health care in the : 16 percent getting into , I didn’t give a lot of thought and improve eco- of GDP. It is awesome how much health costs have to health policy. When Hillary Clinton’s health care nomic literacy in gone up in just a short period of time—not in the last proposal was debated in the United States in the 1990s, Colorado schools. 500 years, not in the last 50 years, but in the last five I remember vaguely thinking there was something years. The Kaiser Family Foundation recently released good about the idea: After all, government should be We feel that an a report showing that health insurance premiums have involved in health care. But when I stepped into that understanding of doubled since the year 2000. emergency room, it got me thinking. Again, I was a key economic con- Canadian. There are three things I absorbed from that cepts is vital for all What to do about this problem? As you are well aware, environment: One was a fondness for ice hockey, the citizens in order some people are looking north for answers or look- second was an ability to convert Fahrenheit to Celsius to live, work and in my head, and the third thing was a belief that if the make informed ing over to Europe. That is the ongoing government decisions in our temptation, and some people in the corporate world, government did it when it came to health care, it must modern economy. in academia, in the union halls of America are looking be compassionate. We present high- north and seeing potential. Not me. quality graduate In Canada at the time, there were really two schools courses designed to I grew up in Winnipeg, Canada, and I learned my of thought with regard to health reform. There were provide an under- most important lesson in medical school not in the the people who thought we should spend more—I standing of impor- classroom, but on the way to it. One blisteringly cold like to call them the spendthrifts—and the people tant economic con- February morning, I decided to take a shortcut across who thought we should just hire more administrators cepts to Colorado K–12 teachers, so they can then bring About the Author these concepts to David Gratzer, M.D., a licensed in both the United States and Canada, is a Senior Fellow at their classrooms. the Manhattan Institute for Policy Research. The late , Nobel Laureate in Econom- Topics covered in- ics, wrote that Dr. Gratzer is “a natural-born economist.” David Gratzer’s most recent book is The clude monetary Cure: How Capitalism Can Save American Health Care (Encounter Books, October 2006), now available policy, taxation, in paperback. Previously, he authored Code Blue: Reviving Canada’s Health Care System (ECW Press, spending, inflation, 1999), which was awarded the Donner Prize for the best Canadian public policy book in 2000. He the environment, is often quoted on health matters across North America. His writing has appeared in more than a growth, conser- dozen publications, including The Wall Street Journal, The Washington Post, and The Los Angeles Times. vation, trade and Dr. Gratzer is married and is the father of two daughters. This article is adapted from his Fall 2007 energy, to name a Annual Lecture for the Colorado Council on Economic Education and is printed by permission. few. and make the system work better—I like to a person who was dying of a simple infec- I don’t buy it, because in every other aspect call them the magicians. I started to think tion: Alexander Albert had scraped his face of the economy, technological advancement about these things, and I became a spend- on a rose bush. The scrape became infected, has been accompanied by a fall in prices. thrift, and then I became a magician, and and within a few days he was dying in the Look at unit price. The computer on my then I became agnostic, and eventually I sepsis ward of the local hospital. They gave desk is faster, much more sophisticated, and became an atheist on this Canadian health him a dose of penicillin, and nothing hap- yet it’s so much cheaper. Look at the macro paradigm because I realized there was pened. On day two they gave him another level: Agriculture is much more sophisti- something going on which was much more dose; nothing happened. On day three they cated than it was 50 years ago. We feed more fundamental: there was a problem with a gave him a third dose, and his fever broke. people a more diverse amount of food, and government-run system. On day four he was up and eating again; yet as a percent of GDP it has dropped. on day five he was palpably better. All we Maybe it was just the experiences I had, see- understand about modern medicine really Why is it that health care keeps rising year ing a patient who had the classic symptoms begins with this first day. after year? Why has its cost doubled since of sleep apnea and needed to go to a sleep 2000? I think the answer is because of the disorders clinic for a test: three-year wait Isn’t it remarkable that in such a short time, odd way we pay for health care in America. list. My father, who could barely walk— something like heart disease could be classic symptoms of spinal stenosis—was revolutionized? Death by cardiovascular October 26, 1943 is possibly the most impor- told he needed an MRI and told he should disease has fallen by two-thirds over the last tant day in health policy in America. The wait eight or nine months. 50 years. Winston Churchill, shortly after IRS ruled for the first time that employers the bombing of Pearl Harbor, comes to the could provide health insurance and pay the What I discovered was how many Ca- United States and gives one of the greatest premiums in pre-tax dollars. This was later nadians were realizing that there was a speeches of his prime ministership. Then codified in the Internal Revenue Act of 1954. problem in the system. Today, things are he gets on a train to go to Canada to give an very different than they were even a short equally rousing speech in Parliament, but on How did this come about? Wage and price time ago. A private clinic opens up at a rate the train he discovers the window is stuck. controls during the Second World War. of about one a week in Canada. One of the He wants some fresh air, and he’s straining Employers needed to attract employees but foremost critics of Canadian health care is and straining. Suddenly, he gets crushing couldn’t offer better wages. So they started a doctor who was just elected president of chest pain radiating to his left arm. He’s hav- to offer benefits, and in particular, they of- the Canadian Medical Association. Even ing a heart attack. What is state-of-the-art fered health insurance, something employ- the Supreme Court of Canada recognizes medicine for the Prime Minister of Britain or ers really hadn’t done before; and what was something is desperately amiss; in 2005 anyone else in 1941? Six weeks of bed rest. a fringe benefit initially became the main- they ruled that access to waiting lists is not stay of private insurance for Americans. access to health care. Had we discovered nothing else in the 20th Century, I’m still convinced it would have Employers could now offer prospective em- Canadians are beginning to rethink their sys- been the century of medicine, but so much ployees a benefit in pre-tax dollars, avoiding tem. You find the same thing across Europe. else follows: steroids, beta blockers reducing wage controls. It was also a good deal for Yet here’s the irony: If Canadians are willing cardiac mortality—one pill by 50 percent— employees. If your boss offers you $1,000 in to rethink things and embrace, at least to antidepressants, antipsychotics. bonus, how much are you really going to take some extent, some capitalism when it comes home? Depending on your tax bracket, you to health care, I find increasingly that many So medicine is much better. Dick Cheney, might only take home $500. But he offers you Americans are not. If Canadians are willing who has had 4 heart attacks, has a special $1,000 worth of health insurance, and you to rethink these issues, Americans are also type of pacemaker which costs about 50 could potentially take home $1,000 worth rethinking and heading down the same lines times more than the average expenditure of benefits. That is why, well into the 1970s that Canada once did. That’s a terrible mistake. on health care in 1950. Many people con- and ’80s, employers offered health insur- clude that while medicine has never been ance and lots of it; why sunglasses, marital Let’s shift gears for a moment and ask a better, we’re paying more than ever because counseling, hair transplants were all at one simple question: Why are there so many progress costs money. point in time covered by health insurance. problems with American health care? Here is a very simple answer: Americans are not Support Economic Education underinsured; they are overinsured. As a We depend on donations from private individuals, foundations and businesses interested in result of this, American health care is so ter- education and community support to fund our important mission of economics education for ribly expensive because it’s so terribly cheap. teachers and their students. With your support we can advance education and help students make I think I can explain to you everything about informed decisions in our modern economy. American health care in four dates. Name ______ Enclosed is my tax-deductible contribu- tion to CCEE for $______. Organization ______A lot of people tend to think of medicine Address ______ Check made payable to CCEE is enclosed. as an ancient tradition, but medicine is a City, State, Zip ______ Charge my:  VISA  MC thoroughly modern creation, and it begins Email ______Exp. Date ______on February 12, 1941, with the first clinical Phone ______Card No. ______use of penicillin. During the heat of the  Please send information on leaving a gift to CCEE in my will or trust. war, a research lab in Britain chose to treat The Colorado Council on Economic Education is a not-for-profit, 501(c)(3) organization.

Economic Insights, Colorado Council on Economic Education, www.ccee.net December 1, 1942: Lord Beveridge in London Congress needs to act on and the President issues his report on public health insurance, needs to sign into law. and he points out that the most compassion- Upcoming Seminars ate way of doing it is through zero-dollar First of all, we need to make health insur- for the Community & Teachers insurance. He then goes on a speaking tour ance more like every other type of insur- Check out www.ccee.net for a complete across the United States, and although his ance. As I’ve alluded to before, Americans class listing with detailed descriptions. ideas fall apart before Congress, eventually I are overinsured because, in a sense, their think they provided the intellectual founda- health insurance doesn’t discriminate be- Campaign 2008: tion for Medicare and Medicaid. tween small items and large items. Imagine Economic Issues for the Classroom if we did that for car insurance. It wouldn’t Americans are hopelessly overinsured just cover you if you were in an accident, when it comes to health. For every dollar but it would cover you if you had a fender spent on health care in the United States, bender or your tank of gas was running only 14 cents comes out of pocket. That ap- low. Car insurance would be feverishly plies for people on Medicaid, Medicare, and expensive were we to adopt that approach. the privately insured—and that’s why we American health care is so very expensive have such an upside-down universe when because we violated basic rules of insur- it comes to health care. ance. I think we ought to expand and revise Health Savings Accounts, which provide an What is the overriding theme of this na- How do I think we ought to proceed? There important first step in separating smaller tional election? To quote the catch-phrase is a fourth date I think you need to bear in expenses from catastrophic events. from 1992, “It’s the economy, stupid.” mind: January 1, 2013. Why did I pick this The challenge is how to educate tomor- date? We spend about $2 trillion a year on Idea number two: Government policy needs row’s voters about complex economic health care in the United States; by 2013, rea- to foster competition. American health care issues. Students (as future voters) need sonable projections are that will rocket up is the most regulated sector in the economy. to be given the “lens of economics” to ac- to about $4 trillion: 16 percent of GDP today The result? A health insurance policy for curately evalute these critical election is- will rocket up to about 21 percent of GDP. a 30-year old man costs four times more in sues. Date: June 19-20, location: Daniels New York than in neighboring Connecticut Fund, Denver. In other words, if companies like GM and because of the multitude of regulations in many other companies are having trouble the Empire State. Americans can shop out- Economics for Educators paying for health care today, you haven’t seen of-state for a mortgage; they should be able anything yet. Everything we know about to do so for health insurance. American health care is about to change. My third idea: We need to reform Medicaid. How can we deal with this financial crisis? Medicaid has become the great sleeper I’ve only really found three choices for issue. We spent $5 billion in 1970; today, America. One: Go back to managed care. we spend over $300 billion a year, in part Health spending reached a plateau in the because it is owned by neither the state gov- mid-1990s. Sure, people were upset, but we ernment nor the federal government and, as actually contained costs. a result, is probably the worst government- This 5-day class explores the operation of run program in America. markets and the role of government. It is Option number two: . the first in a sequence of courses for the Every other Western country has done it. How to reform Medicaid? Turn it over to the CU/CCEE Certificate in Economic Educa- You want to call it universal health care; you states. I favor block funding, much in the tion. Includes microeconomic and macro- want to call it single-payer system; whatever way we reformed welfare a decade ago. Let economic concepts relevant to K-12 eco- you want to call it. the states experiment and innovate. nomic educators and students. Date: July 7-11, location: Daniels Fund, Denver. Option number three: Let’s try something Idea number four: We have to revisit Medi- we don’t do a lot of in health care policy in care. We’ve had a lengthy and feverish dis- eryone can appreciate are too high. The way the United States: capitalism. Let’s do for cussion about a prescription drug benefit, to do that is to go back and reconsider the health policy what we’ve done in the other but we really haven’t seriously reformed it role of the Food and Drug Administration. five-sixths of the general economy. in any way. I don’t think this is a cure-all, but I don’t think we can even look at solving I don’t think the approaches of expanded What do I think about managed care? our Medicare crisis until we get away from government through managed care or Overly paternalistic. I don’t think it jibes wage and price controls, which has been Medicare and Medicaid are going to work. with American values. What do I think among the reform efforts of this Admin- I think the problems with American health about socialized medicine? You’ve already istration and every other Administration care are going to grow with time, and thus heard what I think about socialized medi- since Medicare was created. we need to look at that third option, that cine. That really leaves us only with the crazy option that so few people are willing third option. There are basically five steps Finally, my fifth idea is we have to look at to embrace but that we’ve embraced for the that I think we ought to take now and that prescription drug prices, which I think ev- other five-sixths of the economy.

Economic Insights, Colorado Council on Economic Education, www.ccee.net Board of Directors  Robert Deuschle  Jeffrey Whiton Copyright © Chairman FirstBank North TransPort 2008. Views ex-  Jerome Bruni  Meg Duke  William Wright pressed in Eco- J.V. Bruni & Company  Jay Grenawalt Xcel Energy nomic Insights are those of the au- Chairman, Adam Smith Society Heritage High School CCEE Staff thor, and do not  Walter (Buz) Koelbel, Jr.  Steven Gunderson  necessarily rep- Koelbel and Company US Bank, N.A., Grand Junction Robert Clinton President resent the views Secretary  Sherri Koelbel of the Colorado  Robert Fogler  Heidi Conley  John Moran, Jr. Kamlet Shepherd & Reichert, LLP Vice President Council on Eco-  Joe Pariseau nomic Education Treasurer  Dennis Grogan Colorado Lending Source and its affiliates.  John Couzens Program Director  Individual sub- Trinity Capital Services, LLC John Pritzlaff, III  Amanda Dixon Aviation Technology Solutions scriptions are free Members Development & Program Associate  upon request.  Peggy Altoff Brooks Rarden  Erica Fukuhara Northern Trust Bank, N.A. Prior editions are Colorado Springs School Dist. 11 Program Associate available online  LaKay Schmidt  Paul Ballantyne, Ph.D.  Audrey McKee in PDF format at CCEE President Emeritus CU at Colorado Springs Administrative Assistant www.ccee.net.   Rep. David Balmer William Schuck  Michele Wing Bulk black and Assistant House Minority Leader The Schuck Corporation Office Assistant white reprints  Christine Burtt  Michael Serio are available for CQB & Associates, Inc. Citicorp North America, Inc. Editors $25 per 50 cop-  Christine Calvert  Brian Travis  Jerome Bruni ies. Wells Fargo Bank, N.A. Eaton Sales & Service, LLC Chairman, CCEE  Ward Cerny  Lisa Vogt  John Brock, Ph.D. ISSN 1937-1977 Green Manning & Bunch, Ltd. ThunderRidge High School CU at Colorado Springs  Peter J. Coors  Michele Warren Coors Brewing Company JPMorgan Chase Bank, N.A.

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