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In New Jersey it costs more to pay for a private health care policy than to lease a Ferrari.

The Cure – How Capitalism Can Save American Health Care
by Dr. David Gratzer
 Foreward by Milton Friedman
Published by Manhattan Institute for Policy Research (2006)
Hdbk., 233 pgs. ISBN: 1594031533

Health care has become a major issue to many members of the American public. The question of how to pay for what has become an increasingly expensive item has led to proposals for a government run national health care system beginning in the 1960’s and continuing into the 1990’s when the “HillaryCare” proposal was disapproved by Congress although Medicare part D, the prescription drug program was enacted under the Bush Administration, increasing government involvement in the continuing controversy; a controversy that has become known in some circles as a crisis, which has led many pundits to suggest that national system similar to that used in Canada is the only rational answer. 

One medical professional, Dr. David Gratzer is bucking the popular cant that government is the only answer.  Gratzer is a medical doctor, licensed in both the United States and Canada.  He divides his time between New York and Toronto, which puts him in a rather unique position to observe the strengths and weaknesses of both systems first hand.  His response to the calls for nationalized health care in the United States is a resounding “No, Thank you.” 

Beginning his work with an illustration from his own life involving surgery for a ruptured spinal disk, an incomprehensible hospital bill and threatening collection letters which arrived shortly after he called to question exactly what he was being billed for, Dr. Gratzer provides us with a detailed outline of his work, and an explanation of exactly what he is setting out to show.  He provides a sketch of modern medical progress, how health insurance became a fixture in employment benefits, evolution of the private and government programs, why government programs are in trouble, and concludes with ideas for using the free market and the informed consumer, to make affordable health care available to more Americans with less difficulty than our present system allows.  What makes this book most impressive is that the author delivers extremely well on his promise. 

Perhaps one of the most telling bits of information concerns Dr. Gratzer’s search for a surgeon to do the spinal disk operation mentioned above.  He found that there was more information on the Internet to assist him in picking a hotel than in locating a medical specialist.  This is a theme that he returns to on numerous occasions, all of which are related to the topic of the informed consumer.  A second theme is constant increase in the cost of health care as well as that of insurance, both to private companies and to government-funded programs.  On page 94 he cites figures showing that in New Jersey it costs more to pay for a private health care policy than to lease a Ferrari.  He also shows how the cost of a similar policy varies from state to state and city to city.  At the same time he addresses the sacred cows of who the uninsured are, how long they remain uninsured, and potentially why, using credible statistics, often from government sources that should lead lawmakers to junk their expensive programs on the basis that they really aren’t delivering the goods to those who need them. 

Dr Gratzer writes in an easy style and has obviously done his research.  His information comes from government sources, scholarly studies, the health care industry, health insurance companies, and independent brokers such as eHealthInsurance.com.  He is able to back his contentions with hard facts showing that the system isn’t working as planned.  His research and information gathering come to a major focus when he discusses the future of the government health care plans; that if something isn’t done to control the skyrocketing costs, these plans will go insolvent, if they are not there already.  Increasing taxes to cover increased costs is shown as a bad choice, as the amount of money needed would eventually become astronomical.  After building this foundation, Dr. Gratzer proceeds to explain how the problem can be solved, not by doing more of the same, which is the standard answer of politicians, but by getting government out of the way.  

One prime example we are shown is the Federal Employee Health Benefit Program (FEHBP) that covers, among other people, postal workers.  It is administered by a number of private insurance companies, has a vast number of competing plans, and allows consumer choice.  Most importantly, it has consistently been able to keep its costs better in line than any other program except Medicare, and this is not a fair comparison because Medicare “cheats” by setting the prices that providers must accept.  Interestingly, the National Bipartisan Commission on the Future of Medicare, eventually proposed a plan that was modeled on the FEHBP, but was never passed into law, partly because it was lost in the drive for the prescription drug program, something that is part of the FEHBP, and could have been provided by the Commission’s proposal. 

After covering in some detail the problems of Medicare and Medicaid, the legacies of Wilbur Mills and the Great Society, he spends an excellent chapter on the problems with the Food and Drug Administration.  He illustrates some of the problems with getting medicines approved, why the approval process sometimes misses potential side effects of drugs, such as Vioxx, why it takes so long for approval, and why it is so expensive.  An interesting portion of this chapter deals with AstraZeneca’s replacement of Prilosec with Nexium; the latter being essentially a molecular mirror image of the former.  Gratzer does not criticize a manufacturer trying to make money; what he sees is 1) that companies have to recoup the costs of FDA approval and 2) the fact that someone else is paying the bill eliminates the competitive edge present in other area of the marketplace, including, for example, over the counter pain medications such as Ibuprofen.  He contrasts the prescription drug market with the battle between Sony and Microsoft over video game equipment, where no one would pay a higher price for a new system that provides nothing new or better than the old one.  Thus, why should we pay more for Nexium which is really no better than Prilosec, which is available for a lot less. 

Before going on to his recommendations Dr. Gratzer covers the new trend in Canada, away from government health care, and how, despite a lot of claims to the contrary, the U.S. health care system still delivers better service than any other nation on earth. The statistics he provides are quite interesting, including the single MRI machine available on Vancouver Island, for a population of some 600,000 resulting in patients waiting about a year to get an exam; a situation that could be deadly in some cases.  (See page 169.)  He also covers the trend toward more privatization in European countries, which previously were touted as sterling examples of why socialized medicine was the best answer. 

The short, concluding chapter provides some ideas for changing the health care system to make it more market aware, and more consumer oriented; a theme that recurs throughout the book.  He discusses portability of health insurance, Health Savings Accounts and personalization of payroll taxes devoted to government health plans.  His ideas bear investigation, and may be promising. 

This book does have one glaring weakness in the area of tort reform.  While it is reasonable, using the author’s logic, to blame much of the high cost of health care on the economics of using “other people’s money”, the author does not sufficiently address the issue of malpractice suits, their effect on the market, and whether patient expectations are out of line in some instances.  He also barely touches on the question of how the cost of technology affects the marketplace.  According to several sources this writer is familiar with, many hospitals tend to rush into new technology while the price is at its highest, passing the cost on to the patient’s bill payer.  Of course, opening up the market to greater competition and informed cost-conscious payers might tend to keep this more in line.  It might also bring the cost of using the technology down faster, allowing those who invest in it to recoup their investment as fast or faster than under our present systems as more people line up to obtain more affordable care. 

Finally, I must take issue with a position taken by Dr. Milton Friedman, who was consulted by Dr. Gratzer for this book.  Dr. Friedman’s opinion, apparently adopted by Dr. Gratzer is that health care costs, whether for insurance or for actual treatment should not be tax deductible.  As a tax attorney and tax historian, while I must agree with Dr. Friedman that the tax code loophole allowing businesses to deduct the cost of employee health insurance has created a problem, I believe that he has ignored one particular fact on the other side of the equation; one that grows out of examining the differences between how taxable income is calculated for businesses and real persons. 

Businesses are allowed to deduct the cost of labor and other inputs, supplies, rent, advertising and much more; essentially the entire cost of doing business.  This is essentially the cost of keeping the business alive.  Individuals, on the other hand, are not allowed to deduct the actual, reasonable cost of their lives; the individual standard deduction and personal exemption are not sufficient in today’s world to cover the cost of food (supplies and inputs), clothing (advertising) housing (business rent) and so on.  In effect, for businesses the costs of doing business come first while for individuals I is the opposite.  Where Drs. Friedman and Gratzer miss the point is that if a person cannot pay their medical bills, and therefore cannot work, they produce no income and fall out of the tax base.  Medical expenses, therefore, are part of the reasonable expenses that they incur simply by virtue of being alive, which brings to mind a cartoon panel from Grin and Bear It by George Lichtenstein, which I encountered many years ago.  The IRS examiner is telling the taxpayer “Saying excuse me for being alive doesn’t alter the fact that taxes come first, Mr. Snodgrass.” 

It makes no sense that the tax system should allow the deduction of home mortgage interest while severely limiting the deduction of necessary medical expenses.  While allowing this deduction might create some distortion of the system, so does allowing the deduction of mortgage interest, which is now essentially the only way for people to get on Schedule A and itemize.  Allowing businesses to deduct the cost of employee health insurance which provides a tax free benefit to the public is not the same as allowing someone a tax break so that they can cover the cost of staying alive or well.  Government and economists should understand this.  otherwise we fall into the trap that many “single payer” advocates loudly trumpet; that in America no one cares whether you can pay for medical care or not. 

Despite my limited difference of opinion regarding how to fix the problem, The Cure is an excellent work, and provides some important information on how government is more part of the problem than part of the solution.  Dr. Gratzer makes first-rate contribution to solving the problems of reducing the cost of health care, eliminating the bureaucratic mess that now plagues it, and making it generally available to every American.  

The Cure is available at Amazon.com