A Modest Proposal

As I have discussed in previous columns on the health insurance market, one of the profound problems afflicting healthcare insurance is that many patients have an incentive to overuse healthcare services since the patient often faces reduced, or in some cases little or no, costs as compared to the full cost of the treatment.

Studies show that a high percentage of a person's lifetime use of healthcare services occurs in the last six months of life, as often very expensive healthcare treatments are employed to address severe health problems. If a person faces little cost for potential life-extending treatment, many will naturally want to the treatment. If Medicare has to pay hundreds of thousands of dollars, for treatment that perhaps extends your life by a month or two, you will be tempted to incur such costs and treatment if your out-of-pocket is a small fraction of the total.

Medicare has an unfunded liability of an estimated $60 trillion, dwarfing the nation's national debt. This liability measures how much more money it will cost the federal government to pay Medicare expenses than it will receive in Medicare taxes.

Suffice to say, the nation cannot afford a $60 trillion liability. The unstated significance of ObamaCare is to cut government spending on healthcare by controlling the healthcare marketplace. Many countries with socialized medicine spend a smaller fraction of their economic output on healthcare - not because they are efficient, but because they simply provide fewer expensive healthcare treatments. The use of waiting lists to delay surgery and denying introduction of new drugs and medical devices are some of the ways these countries reduce healthcare spending.

Sooner or later, America needs to change its healthcare system to either socialized model, such as the path ObamaCare would take us, or a model consistent with freedom and individual rights, where the patient bears a greater portion of the cost of treatment so they have an incentive to economize on spending.

One step in this direction would be to continue Medicare and Medicaid's practice of paying exorbitant costs for healthcare - but then charging those costs above a certain threshold to a person's estate. If a person is poor, they will little or no estate so they will experience little or no change in their financial position from this proposal. But for middle and upper income Americans, they will have to seriously consider whether the cost of expensive treatment is worth paying the price in terms of leaving less money to their children and grandchildren.