Katrina Response Shows Need for Medicaid Reform

Published November 1, 2005

Hurricane Katrina has brought to the fore the strengths and weaknesses of America’s health care delivery system. Millions of individual Americans, acting on their own initiative, quickly responded to meet the dire need Katrina created.

Those efforts have included medical care providers rushing to assist in person, as well as charitable contributions made by those who never left home. By contrast, the response of government has been alarmingly slow and in some cases has thwarted private efforts.

Private Sector More Agile

Entrepreneurs and private charities often respond much more quickly than government because they are more agile and flexible. Just as important, they avoid wasting valuable resources, allowing help to go where it’s needed the most.

Those considerable advantages emerge from the facts that government must follow cumbersome rules, and that individuals are more careful with their own resources than with others’. There is a lesson here for America’s daily struggle with how to make health care more accessible.

In many sectors of the economy, market competition consistently improves quality while reducing costs. Health care is an exception, but not because competition cannot work. The recent rise in cash-paying patients traveling abroad for medical care shows that market competition makes even urgent, high-cost, acute care more affordable.

Increases Quality, Access

Health care is largely an exception to the rule because market competition is not allowed to work in this sector.

Market competition requires three key elements: (1) a large pool of actual and potential producers with new ideas, (2) consumers who are free to choose different products, and (3) consumers who weigh the costs and benefits of those products. At every turn, however, government tax, spending, and regulatory policies thwart these necessary conditions of a free market in health care.

To mention just one example, heavy government subsidies (through programs such as Medicare and Medicaid) and tax penalties (for workers who do not let an employer purchase their health care) discourage patients from weighing costs against benefits. As a result, Americans pay for more of their medical care through third parties (86 percent) than patients in 17 other advanced countries, including Canada.

People are suffering in the wake of Katrina and Hurricane Rita, but countless others suffer every day because the U.S. health care system is not what it should be. Government policy has been a big part of the problem, and it must change if real solutions are to arise.

Michael F. Cannon ([email protected]) is director of health policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.