The public is being sold another bag of goods on health care. The supposed solution is to throw money at the problem. Throwing money at health care is the cause of the problem, not the solution.

Medical expenses in the US are around $2 trillion per year. That's about $6,700 per person, or $27,000 for a family of four. The amount is the problem, which means a scheme to rearrange the paper work is not the answer.

The political hype focuses on "universal coverage," which of course means spending more money. The Schwarzenegger and Romney solutions do nothing but force more people to spend more money on the problem. At the same time, there is less coverage for the most needy due to the continual decrease in Medicaid spending. Every few years, Medicaid is cut to "reduce deficit spending." It now pays about half the usual rate. Few dentists take Medicaid because of the low payments, and hospitals in low income areas are closing due to the large number of Medicaid patients they get.

The driving force and main significance of the so-called universal coverage is to force young and middle age workers to spend more on health insurance. Often, such persons avoid health insurance, because they have few health problems, and it's cheaper to pay directly than buy insurance. Forcing them to spend more is the whole purpose of the ruse.

But the new fix sucks up money from every other source also. If small companies cannot afford health insurance, their payroll tax is increased by 4%. This is a flat tax, which used to be social security, charged to all low level workers including part-time and homeless workers but excluding everything over $80k per year. Even illegal aliens pay the flat tax, which is 15% with employer and employee portions combined. The federal government makes a lot of money off illegal aliens, even if state and local governments do not, though they also get sales tax, gas tax and property tax from illegal aliens.

One of the problems in sucking up all that money is that it needs to increase continually. The health care problem is not at a stable level; it increases at about three times the rate of inflation.

The Cause of the Problem

The first thing students of business learn is that "incentive" determines the result. To increase worker productivity, give them an incentive. This includes bonuses, commissions, stocks in the company, etc.

The incentive in the American health care system is to maximize expenses. Everyone makes more money, including doctors, administrators, insurance companies and drug companies, when expenses are increased. Expenses increase unlimitedly for that reason. Sadly, the most effective way to increase expenses is to increase health problems instead of diminish them.

The Solutions

The usual solution in the developed, industrialized world is government controlled medicine. It produces much better health, at much lower cost, than the American system. The technology is not quite as elaborate, but the health of the public is much better.

One is hesitant to suggest government control over anything in this country because of the depth and width of corruption in the bureaucracies. But a similar method of control could be established outside the government. Independent institutions, controlled by citizens, could serve that purpose. Such institutions would have to be carefully designed to prevent the money incentive from overtaking the health incentive. Supposedly, most health care facilities already have such characteristics, being owned by religious organizations or such. But hogging in money is still the force that overwhelms them. If the institution sold its own insurance, expenses might be gotten under control.

Theoretically, it would be possible to design a medical institution with the purposes and procedures which reduce expenses and improve health. It would have to start with directors from the public who have no other purpose. Then it would need a good charter which spells out procedures and goals. It would need total transparency and accountability to the public. All employees including doctors would get paid on an hourly basis, so there would be no incentive to increase expenses. The end result would be something like the European model but without the federal government. State governments could possibly do this without federal involvement.

If such newly designed medical institutions used the same old insurance companies, there would have to be some improvements to reduce the meddling. It isn't likely to happen. Therefore, there is a strong cry among reformers for a single payer scheme. Nothing could be easier to create than a single payer design. Just include everyone in the Medicaid program.

But a payment scheme is not the biggest problem. It does nothing to reverse the incentives for ballooning expenses to the detriment of everyone's health. The all-important challenge is to reverse the incentives from promoting expenses, corruption and ill health to efficiency and effectiveness. Reversing the incentives is the essence of fixing the problem.