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63 Presentation ASSURING AFFORDABLE HEALTH CARE FOR ALL AMERICANS STUARTM. BUTLERxPh-D. Director of Domestic Policy Studies The Heritage Foundation Washington, D.C. The United States spends over 11 percent of its gross national product on health care. That translates to more than $2,000 per person each year— higher than the per capita GNP of many countries.1,2 Yet, although the U.S. spends far more than any other country on health care, there are gaping holes in coverage, and the costs of health care services are subject to runaway inflation. As many as 37 million Americans lack adequate insurance against health care costs3, and many others who have insurance still dread the financial impad of a serious disease. How can America spend so much on health, and yet have a system with so many shortcomings? The reason is that the system has been built upon an unsound foundation. Each time we have tried to deal with a particular health care need, we have added a new component without addressing underlying problems . When a house is built on a bad foundation, adding on extra rooms leads to continuous and expensive repairs—and the possibility of collapse. The U. S. health care system is in similar danger. Problems with the U.S. health system There are three serious problems underlying the current health care system. First, it adually invites runaway costs. For historical and tax reasons, health care benefits are provided to most Americans through their employers. For workers, these benefits represent tax-free income. Most employees pay little or no premium costs out of pocket and they have little knowledge of the actual costs of the services they use. From the worker's viewpoint, these services are essentially free, and so he or she has little reluctance to demand them. Similarly, the hospitals and doctors who provide services know that insurers will pay most of the costs. Consequently, providers have little incentive to avoid prescribing costly procedures, even if these are of marginal benefit. The Journal of Health Care for the Poor and Underserved,Vól. 1, No. 1, Summer 1990 64 Assuring Affordable Health Care net result is a tendency for prices in the health care area to rise very rapidly because neither provider nor consumer is sensitive to cost. Consumers not covered by tax-free employer plans, on the other hand, generally have to pay for their health care in after-tax dollars. Thus a selfemployed person, a worker in a small business not covered by a plan, or the dependent of a worker not included in a company plan, faces much higher costs for the same protection than someone covered by a company plan. This tax dynamic within the insured health care market also pushes up costs for all Americans, insured or uninsured, rich or poor. The second problem is that the direct and indired assistance provided by government does not channel the greatest help to those who need it most. The tax code favors company-based health plans. Thus, individuals purchasing their own health insurance, and employees and dependents not covered under company plans, face higher costs for obtaining protection. This cost differential tends to make insurance comparatively more expensive for lower-skilled workers and their dependents. In addition, Medicaid is linked to the welfare system. Thus a poor family that stays intad and off welfare is, in many states, ineligible for most government-funded health services. Third, we in the U.S. are very reluctant to require households to proted themselves against health care needs. Consequently, many individuals and families, particularly among the young, dedde to use their income for other objectives than health care insurance, even though they have the means to obtain insurance without cutting back on other necessities. Though these individuals are often healthy, they are playing Russian roulette by gambling that their good health will continue. The result of these problems is the system we have today, in which many Americans find it financially difficult to obtain the protedion they need against the f inandal impact of illness. The very rich and the very poor, who are insulated by income and tax breaks on the one hand and welfare...

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