In his latest WSJ ($) Business World column, Holman Jenkins, Jr. again addresses America’s broken health care finance system. Mr. Jenkins is an unusually gifted writer on business issues, and his prior columns in this area (here, here and here) have been typically insightful. In this week’s column, Mr. Jenkins addresses one of the main economic problems with America’s health care finance system that is dominated by third party payors for health care services and products — i.e., the system’s propensity to hide the true cost of such services and products from the consumer:

The problem is we hide from consumers what their health care is costing them, though hiding the cost in no way relieves them of having to pay the cost.
This is not the fruit of anybody’s design but of dumb acceptance of a system that has evolved unplanned over half a century. In 1940’s, the IRS allowed companies to pay their workers in untaxed health-care benefits, a subsidy that means a high-end worker now gets a 40% discount on health insurance and a low-end worker gets nothing. Then there’s Medicare, now grown out of all expectations, in which the richest generation of seniors in history gets “free money” to spend on health care, though the free money is actually provided by the involuntary contributions of workers.

Mr. Jenkins then points out that politicians, being adaptable sorts, have come to embrace the third party payor system as a means for political handouts and cost shifting:

Though a product of nobody’s explicit plan, politicians have learned to love the incentives implicit in this hidden-cost economics. To take an example more or less at random, Connecticut legislators recently voted to mandate that health insurers cover at least $350 a year in wigs for chemotherapy patients. Who wouldn’t want chemotherapy patients to have wigs? But now everybody in Connecticut who wants health insurance has to pay for wig coverage.
Duke University’s Clark Havighurst, one of the true sages of the health-care debate, has noted that “the systematic hiding of health-care costs from those who pay them” gives rise to the ultimate “moral hazard,” allowing politicians to spend the public’s money on health care in ways the public would never choose for itself either in the marketplace or the voting booth. “The consequence of the shell game in which costs are moved wherever employees/consumers/voters are not looking” is that health care is regulated in ways “that make sense only because price tags have been generally removed. Several whole percentage points of the nation’s gross domestic product are thus diverted wastefully to health care from other uses.”
He also notes the seldom-emphasized regressive nature of the transfer: “The United States has structured things so that lower and middle-income premium payers bear heavy burdens so that the elite classes can continue to enjoy the style of health care to which they are accustomed.”
You don’t hear this much from policy wonks and health-care economists. Treating cost as a factor in medical choices is considered somehow illiberal, though it’s the poor who’ve been priced out of the health-insurance market. But, say it again, in the final analysis there’s nobody to “shift” costs to. The health-care bill always comes home to working Americans in the form of higher taxes, lower take-home pay or unaffordable health care.

Indeed, Mr. Jenkins points out that the current political discourse over health care finance in the Presidential campaign reflects the politicians’ intransigence in changing the third party payor system:

Democrat John Kerry’s plan is astonishingly banal in the way it re-enacts the original sin, throwing yet more tax money at health spending while avowing disingenuously that “the rich” will pay for it. But our indictment here is of the conditioned cowardice of the health-care policy community at large. How can you expect better of Mr. Kerry when the arbiters of good policy (like, say, a recent Washington Post editorial) judge candidate health plans by a single criterion: Which would commit the most resources to health care?
There not being unlimited funds to spend on health care, Mr. Kerry’s plan would only speed the day when politicians, no longer able to write blank checks with the private sector’s money, would face directly the choice of whether to curb consumption or raise taxes to pay for it. That’s the job description of Europe’s national health systems, which are not exercises in beautiful egalitarianism but exercises in rationing for those not rich enough to jet off to a private clinic and get the treatment they seek.
Yet the same health-care wonks who mumble around the real problem of hidden costs are happy to be quoted finding fault with Health Savings Accounts, the heart of the Bush approach, which has the intolerable advantage of actually being aimed at the problem.
Better than HSAs, in our view, would have been flatly eliminating the tax deductibility of employer-paid health insurance and letting the system adjust. But HSAs are a much-better-than-nothing strategy, a way of rebalancing the tax incentives to encourage consumers to buy some or all of their health care directly from providers, demanding value for money.

An example of the type of mainstream skepticism toward HSA’s that Mr. Jenkins mentions above is this recent NY Times article. Although insurance will always be a substantial component of America’s health care finance system, Mr. Jenkins is correct that the current system’s failure to allow consumers to shop and determine what health care services and products to purchase is at the root of our spiraling health care costs.
Along these lines, I shook my head in amazement as I read President Bush’s comments on health care finance from last night’s debate. He started out pretty well:

I think government- run health will lead to poor-quality health, will lead to rationing, will lead to less choice. Once a health-care program ends up in a line item in the federal government budget, it leads to more controls.
And just look at other countries that have tried to have federally controlled health care. They have poor-quality health care.
Our health-care system is the envy of the world because we believe in making sure that the decisions are made by doctors and patients, not by officials in the nation’s capital.

But then, in response to Kerry’s promises of gifts to various voter groups, the President reverses field and touts his administration’s own give-aways:

We’ve increased VA funding by $22 billion in the four years since I’ve been president. That’s twice the amount that my predecessor increased VA funding. Of course we’re meeting our obligation to our veterans, and the veterans know that.
We’re expanding veterans’ health care throughout the country. We’re aligning facilities where the veterans live now. Veterans are getting very good health care under my administration. . .

Which only serves to underscore Mr. Jenkins’ point — so long as we continue to allow the health care finance system to mask the true cost of health care services and products to the public, the more the politicians will manipulate that system to troll for votes. Hat tip to Alex Tabarrok of Marginal Revolution for pointing out the above contradiction.