Our View: Healthcare, the big ripoff

America's top health executives told the Washington Post something obvious: Healthcare isn't a bargain.

"We're not getting what we pay for," said Denis Cortese, president and chief executive of the Mayo Clinic.

"Our healthcare system is fraught with waste," said Gary Kaplan, chairman of Seattle's Virginia Mason Medical Center.

Kaiser Permanente CEO George Halvorson said American healthcare is inefficient, wasteful and dangerous.

"There is more than enough money in the system. We just are not spending it well," said former U.S. House Speaker Newt Gingrich, who runs the Center for Health Transformation.

Most agree the inefficiency results from a healthcare industry that's focused more on cure than prevention. It strives to treat heart and artery disease, doing little to discourage smoking, encourage healthful diets, exercise and blood pressure maintenance. Of course this is true. Good health maintenance saves extraordinary amounts of money and reduces demand on limited healthcare resources. Just as reducing demand on oil lowers the price of oil, reducing demand for health care services would reduce the cost of health care.

Potential causes of the cure-based, hospital-centric, non-maintenance health care industry include: A) A conspiracy, in which the nation's doctors, nurses and insurance executives converged in a smoke-filled room and decided to do things wrong; or B) The tax code and government regulation, which have interfered with natural market functions.

If you chose "B," congratulations! The country's healthcare industry provides inefficient care because of the regulatory disconnect between provider and customer. The system consists of few incentives for low prices and responsible consumption because most people have pre-paid health care services funded by premiums paid to insurance pools.

Americans with employer-based health plans have been lulled into a misperception that the health plan is a gift from the employer, when in it's merely earned as an invisible form of compensation.

The system dates back to 1942, when Congress and President Franklin D. Roosevelt-initiated wage controls.

Businesses, needing to compete for the best employees, found that health benefits - in the form of insurance and pre-paid plans - provided a way around wage controls. That same year, the government encouraged non-cash compensation by eliminating payroll taxes on employer contributions to employee health plans. In 1943, a federal court ruled that companies could make payments to commercial insurance pools that would not be taxed as employee income. Those events established a system that lacks conventional free-market checks and balances that result from direct buyer/seller relationships.

The result of subsidized, third-party health coverage is a system in which working Americans have a surplus of pre-paid health coverage that consumes a substantial chunk of each worker's earnings. When they consume medical services, a third party pays the bill. The insured consumer doesn't even ask about the cost of an MRI, lab work, or other procedures. In fact, the more it costs the better, because it's a benefit of the job. The pre-paid and insured consumer doesn't strive to avoid the future need for expensive artery stents or bypass surgery, because a third-party payer will write the check. The arrangement eliminates any financial incentive for the consumer to avoid serious and costly health problems, and creates a bizarre incentive for consumers to consume expensive cures.

Imagine if a chunk of employee compensation came in the form of pre-paid auto repair.

Millions of Americans wouldn't bother with $30 oil changes each 3,000 miles. When their engines seized, they'd tow their cars in for replacement motors or overhauls, never asking the price. A third-party would write the check, drawing on funds the customer earned but never controlled. Consumers would have incentive to consume what they had paid for, and providers would see no demand for efficient, cost-effective maintenance services. Grease Monkey and Jiffy Lube wouldn't exist.

Healthcare professionals can talk themselves silly about the need for a maintenance-centric health care system. They will never get one, however, unless it financially rewards health maintenance, financially discourages neglect, and gives patients a reason to care about the price tags on services, procedures and drugs.