Morningstar on Health Care Reform

The U.S. pays significantly more for health-care products and services than comparable developed countries, yet the quality of service and patient outcomes hardly reflect the drastic difference in pricing. The U.S. trails the developed world in life span, infant mortality, and medical mishaps--a tough pill to swallow for a country that spends more than 16% of its gross domestic product on health care. The problem looks even worse when we consider that 46 million U.S. residents lack health insurance altogether, whether because of their uninsurable status or unaffordable premiums.

The million-dollar question is how do we repair a clearly cracked system? The seemingly best, albeit completely unattainable, solution would be to blow up the current health-delivery system in its entirety and start from scratch, as been done in other modern nations, notably Taiwan. A system with one main payer (the federal government) would have unquestionable bargaining power and would no doubt be capable of slowing health-care cost inflation, via rationing of services to curb unnecessary and often abusive use and price controls.

However, the complexity of the existing U.S. system, massive obligations associated with the present entitlement programs, and, most importantly, overwhelming political opposition would hinder any attempts to drastically overhaul our current payer-provider framework. That is why we're not seeing any attempts to introduce a single-payer system similar to the one in the U.K. or Canada in a form of a government mandate, despite the Democrats filibuster-proof majority in both chambers of the Congress. Instead, greater government involvement with health care is being introduced through a rollout of a public plan that would--in theory--rationally compete with existing insurance plans, while also extending insurance coverage universally.

Despite some potential benefits that a government plan would provide, its existence in itself is a major sticking point for a sizable group of Americans. The challenges of simply getting proposals that contain a public-plan option to the negotiating table underscore the reluctance of some Americans to fully embrace government involvement with health care. Right or wrong, the uproar over a public plan could doom broad health-care reform in its entirety, and leave us with the unsustainable status quo.

It is, however, possible that an amicable compromise could still be achieved. There are a number of areas where the support for reform is strong, such as the proliferation of information technology to reduce administrative waste, disease prevention, and universal coverage, among others. The desire to reduce medical cost inflation is also widespread, which may yield a greater willingness by some industry participants to proactively seek ways to reduce overall costs. A recent agreement between the pharmaceutical industry and government to save federal programs an estimated $80 billion in drug costs over the next 10 years could be a harbinger of future price concessions offered by various industry players.