The Ultimate Solution

I’ve discussed many ideas proposed to reduce the unsustainable growth in our health care costs.  Most involve changes in the way providers are paid — e.g., eliminating fee-for-service, Accountable Care Organizations (ACO), bundled payments, HMO’s, and Coordinating Care Organizations.  Will these reforms be accepted and work?  No one knows.  The results of most past reforms have been disappointing.

The U.S. spends twice as much as other advanced countries on health care.  I believe the ultimate reason can be traced to one unique characteristic of our system.  Everyone thinks someone else is paying the bill.  The government pays for half of our health care and higher costs are either tacked onto the federal deficit or taken from the Medicare Trust Fund.  Since taxes aren’t increased, taxpayers have little reason to demand (or even accept) reforms.  Much of the rest of our healthcare costs are paid by business.  Employees think health insurance is a free benefit and don’t realize they’re paying premium increases with lower wage growth.

The best (and maybe the only) way to generate support for actually implementing reforms is through a dedicated tax that would provide health care vouchers to all Americans.  The tax could be used only for health care, would eliminate the need for Medicare, Medicaid, and employer-provided insurance, and would automatically increase as costs increase.  Victor Fuchs, the dean of American health care economists, and John Shoven recently published an article outlining how a dedicated VAT tax would work.  Read their six-page plan.  For a good discussion of our cost problem and shorter discussion of the solution, see a recent interview with Fuchs.  You can also watch Fuchs and Shoven discussing their plan in a short video.

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