Health Reform's Moral Hazard

Health Reform's Moral Hazard

By Steven Malanga

For years Dr. Linda Halderman operated a general surgery practice in California's San Joaquin Valley, where she treated patients ranging from those with serious, life-threatening conditions to those seeking elective, cosmetic treatments. In a recent piece in Investors Business Daily, Halderman recounted the story of a woman patient who had not had a mammogram in several years even though her family had a long history of breast cancer. "But I don't have insurance," the woman told Halderman when the doctor asked why she had neglected to get a test that costs $90. Yet the woman was in Halderman's office for $400 Botox treatments that she was paying for.

In her piece Halderman recounted stories of patients who were enrolled in Medi-Cal, the state subsidized health plan for the poor in California, but paid upwards of $1,000 in cash out of their own pockets for laser hair removal procedures, and patients who sat in her waiting room entertaining themselves with expensive IPods and mini- DVD players yet balked at $5 insurance co-pays. She described patients who "considered health care a lower budget priority than decorated skin and expensive toys." Other doctors who commented on her piece online told similar stories.

It has now been some 70 years since the federal government shifted the landscape in health care by bestowing on employers tax subsidies for providing workers with health insurance. And it has been 45 years since the federal government got directly into the act by creating two vast public health plans, Medicare and Medicaid. Both moves have helped to transfer health care bills from the individual to third-party payers, so that many of us are now used to not paying individual bills from doctors or hospitals.

Over time, healthcare has come to seem less like a service we purchase than like an entitlement or worse, a right bestowed on us by government or by our workplace. After all, the government designed Medicare, the public health plan for seniors, to cover hospital care for seniors but eventually under pressure expanded it to pay for virtually all non-elective doctor and hospital visits as well as drugs for every senior.

And private enterprises like the Detroit auto companies negotiated their health benefits for employees with unions because it was cheap to do so using government tax subsidies. The companies rarely asked whether the additional services and coverage they were providing were essential to their employees' health. These services were perks that were affordable in the post-World War II era, and employees came to expect them until the auto companies could no longer afford them.

Now, nearly two-thirds of Americans surveyed by a Quinnipiac poll say it is government's responsibility to ensure that everyone has "adequate health-care." But does providing $90 mammograms to an uninsured person who would rather spend $400 on Botox treatments amount to a responsibility of government?

The question is ever more important as the health reform debate rages. The New York Times reports that a battle has broken out in the White House between those who want reform legislation to have more cost-saving initiatives and those like Chief of Staff Rahm Emanuel, a master of realpolitik, who think it's not politically possible to pass a bill that Americans will see as limiting their health care choices.

What both sides in this White House debate don't understand is that they are at loggerheads because the legislation being considered in Washington will attempt to reform the system from the top down, by fiat from the government. As a result, any cost savings will be those dictated from Washington after decades when individual Americans and health providers have grown resistant to such mandates. To take just one recent example out of dozens: some White House advisers want more savings in the legislation from hospitals, but the administration has already promised hospitals that it won't demand more of them in exchange for their support of health reform. This is the way our health system is being revamped, one political favor at a time.

This is why the only truly effective way to reform our health system, including slowing the growth of costs, is not from the top down, as mandated by Washington, but from the bottom up, by putting health care dollars and choices back into the hands of individuals. We can do that by eliminating the business deduction for health insurance and transferring tax credits to individuals who can use them to purchase their own insurance. We can establish health savings accounts where people can accumulate the money they save on health insurance to pay big bills. If we feel we need a safety net, we can establish government pools that protect people against the most catastrophic costs.

In these ways we would slow the growth of health costs not by gigantic, unpopular mandates from Washington but through millions of individual decisions by people acting with their own money and in their own best interests. Under such a system there should be no need for the White House to cut Machiavellian deals with hospitals or doctors or AARP for their support in exchange for political favors that undermine the greater goal of reform.

Or we can continue down the path we are on, which is what the current legislation would do. What will that get us? More incidents like this one in Boston, where a doctor, writing in the Boston Globe, recently described going to a CVS pharmacy where he found people lined up waiting for a flu shot. Some patients, when they discovered that their health insurance did not cover the shots, declined to get them and simply left, though CVS charges just $30 for a shot. As one letter writer, commenting on the doctor's observations, put it: "People unwilling to cover the costs of a shot that may prevent them from getting sick shows that the only health care reform that some people want is one in which someone else pays for it."

We need less of this sort of system, not more.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute

Global Warming scenario of the day

'Global Warming' fun scenario of the day:

Coal currently accounts for 83% of China's energy production. It is estimated that by 2030, the population of PRC will grow from 1.3 to 1.5 billion. This (along with continued urbanization of rural China) will result in an extra 8,600 terawatts of needed electricity - 3 times more than the usage in 2006. If China reduced Coal to 70% of energy production by 2030, even with "clean coal technology" equipped, China's CO2 emissions would increase by 80% by 2030.

Since China already produces more green house gases than the U.S. that would mean that in 2030, the US could emit 0 green house gases (read: not exist anymore) and everything would be pretty much the same as it is right now.

Doesn't that Cap-and-Trade sound amazing right now? It's going to save the planet!!!

Stimulus Spending Doesn't Work

He's only a professor at Harvard... no biggy...

The global recession and financial crisis have refocused attention on government stimulus packages. These packages typically emphasize spending, predicated on the view that the expenditure "multipliers" are greater than one—so that gross domestic product expands by more than government spending itself. Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates).

World War II defense spending offers a good measure of stimulus effects.

The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin. In ongoing research, we use long-term U.S. macroeconomic data to contribute to the evidence. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.

For defense spending, the principal long-run variations reflect the buildups and aftermaths of major wars—World War I, World War II, the Korean War and, to a much lesser extent, the Vietnam War. World War II tends to dominate, with the ratio of added defense spending to GDP reaching 26% in 1942 and 17% in 1943, and then falling to -26% in 1946.

Wartime spending is helpful for estimating spending multipliers for three key reasons. First, the variations in spending are large and include positive and negative values. Second, since the main changes in military spending are independent of economic developments, it is straightforward to isolate the direction of causation between government spending and GDP. Third, unlike many other countries during the world wars, the U.S. suffered only moderate loss of life and did not experience massive destruction of physical capital. In addition, because the unemployment rate in 1940 exceeded 9% but then fell to 1% in 1944, there is some information on how the multiplier depends on the strength of the economy.

For annual data that start in 1939 or earlier (and, thereby, include World War II), the defense-spending multiplier that applies at the average unemployment rate of 5.6% is in a range of 0.6-0.7. A multiplier less than one means that, overall, other components of GDP fell when defense spending rose. Empirically, our research shows that most of the fall was in private investment, with personal consumer expenditure changing little.

Our research also shows that greater weakness in the economy raises the estimated multiplier: It increases by around 0.1 for each two percentage points by which the unemployment rate exceeds its long-run median of 5.6%. Thus the estimated multiplier reaches 1.0 when the unemployment rate gets to about 12%.

To evaluate typical fiscal-stimulus packages, however, nondefense government spending multipliers are more important. Estimating these multipliers convincingly from U.S. time series is problematical, however, because the movements in nondefense government purchases (dominated since the 1960s by state and local outlays) are closely intertwined with the business cycle. Thus the explanation for much of the positive association between nondefense spending and GDP is that government spending increased in response to growing GDP, rather than the reverse.

The effects of tax rates on GDP growth can be analyzed from a time series we've constructed on average marginal income-tax rates from federal and state income taxes and the Social Security payroll tax. Since 1950, the largest declines in the average marginal rate from the federal individual income tax occurred under Ronald Reagan (to 21.8% in 1988 from 25.9% in 1986 and to 25.6% in 1983 from 29.4% in 1981), George W. Bush (to 21.1% in 2003 from 24.7% in 2000), and Kennedy-Johnson (to 21.2% in 1965 from 24.7% in 1963). Tax rates rose particularly during the Korean War, the 1970s and the 1990s. The average marginal tax rate from Social Security (including payments from employees, employers and the self-employed) expanded to 10.8% in 1991 from 2.2% in 1971 and then remained reasonably stable.

For data that start in 1950, we estimate that a one-percentage-point cut in the average marginal tax rate raises the following year's GDP growth rate by around 0.6% per year. However, this effect is harder to pin down over longer periods that include the world wars and the Great Depression.

It would be useful to apply our U.S. analysis to long-term macroeconomic time series for other countries, but many of them experienced massive contractions of real GDP during the world wars, driven by the destruction of capital stocks and institutions and large losses of life. It is also unclear whether other countries have the necessary underlying information to construct measures of average marginal income-tax rates—the key variable for our analysis of tax effects in the U.S. data.

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

Mr. Barro is a professor of economics at Harvard and a senior fellow at Stanford University's Hoover Institution. Mr. Redlick is a recent Harvard graduate. This op-ed is based on a working paper issued by the National Bureau of Economic Research in September.

Saving a Million Jobs at $787,000 Per Job

Saving A Million Jobs at $787,000 Per Job

By Bill Frezza

The White House Council of Economic Advisers said Thursday the $787 billion stimulus plan kept one million people working who would otherwise not have had jobs.

You wouldn't let me stand up and make the simplistic claim that these million jobs were saved at a cost of $787,000 per job without challenging the details of my accounting, would you? Surely, reality is more complex.

But when the White House Council of Economic Advisers calculated the number of jobs saved by our government's massive stimulus spending, how is it that they entirely neglected to account for the impact on employment of removing $787 billion dollars from the balance sheet of the private economy?

What kind of single-entry bookkeeping is this? Who are these experts so willing to make glib claims with a straight face? How is it that the press, politicians, and pundits credulously report these claims as facts? And why are those who question whether the emperor is wearing any clothes treated like obstructionist members of some lunatic fringe?

There are those who passionately promote the theory that the government can, on net, create jobs by taking money from one set of citizens and handing it to another. Does this make sense to you? Are these promoters easily fooled, willfully blind, or cunningly smart? Let's take a look under the covers and examine the source of this week's claim.

The White House Council of Economic Advisers is lead by three presidential appointees. Currently, these are Christina Romer, Austan Goolsbee, and Cecilia Rouse.

According to their biographies on the Council web site, these people have never held jobs outside of academia. Their positions at Princeton, Berkeley, and the University of Chicago were protected by lifetime tenure. Unemployment, to them, is a theory that cannot become a personal reality. What in their backgrounds makes them experts on the subject of job creation?

They never had to meet a payroll. They never had to raise money to fund their businesses from skeptical investors. They never bet their life savings on their own business judgment. They never had to scramble to pay off a banker who called in a loan. They never had to decide whether to take a calculated risk to expand their workforce hoping to take market share from a fierce competitor. They never had to make a judgment call on whether or not to launch an unproven new product. They never had to manage a reduction in force, explaining to employees that their jobs have been eliminated because the tax and regulatory burdens imposed by some new law forced them to cut costs. They never lost business to a government-subsidized competitor whose cost of capital was vastly lower than theirs. They never had to grease the palms of politicians offering constituent services to resolve a bureaucratic hangup caused by the labyrinthine government approvals these selfsame politicians inflict on many businesses. They never had to deal with a missed sales forecast caused by an economy so roiled by capricious and uncertain fiscal policy that frightened customers were holding back orders. They never had to deal with a key supplier that unexpectedly went bankrupt because their source of credit dried up as dollars got sucked out of the commercial economy into government debt. They never had to negotiate with angry landlords after being forced to shut down a business destroyed by spurious mass-manufactured class action lawsuits. They never had to stand up in front of disappointed investors to explain why they lost money that had been entrusted to them. And you can be sure that none of them ever fell on their face and had to pick themselves up, dust themselves off, and decide whether it was worth going through all of the joys described above to take another shot at building a business from scratch.

Go read their biographies. Do Christina, Austan, and Cecilia appear to you to be contributing members of the productive economy? Do you see any evidence that they've spent even a fraction of their careers creating jobs? What do you think qualifies these people to work as high level apparatchiks of a governing class determined to manage the businesses of others?

All three have Ph.D.'s from fancy universities. They are prize winning experts in macroeconomics. To have come this far you can bet that they are ambitious, articulate, well connected, and brilliant. Yet when the Council of Economic Advisers did its calculations to determine the number of jobs saved by the stimulus, they shamelessly counted assets and totally ignored liabilities.

People this smart cannot be easily fooled. People so visibly in the public eye cannot remain willfully blind.

No, these people and those that appointed them are cunningly smart. It's we who are the fools for listening to them. Long after these experts return to their sinecures in academia to train another generation of economists on the wisdom of central planning and Keynesian pump priming, it's we and our children and our grandchildren who will be paying the price.

Bill Frezza is a partner at Adams Capital Management, an early-stage venture capital firm. He can be reached at bill@vereverus.com. If you would like to subscribe to his weekly column, drop a note to publisher@vereverus.com.

End to Two Grim Fairy Tales

This sums up exactly how I feel about these two men...

Well done, Mr. Breitbart, well done.

(emphasis is mine)

End to Two Grim Fairy Tales

By Andrew Breitbart

With the deaths of Sen. Edward M. Kennedy and Michael Jackson, the summer of '09 marked the merciful ends to Camelot and Neverland, iconic American fairy tales whose story lines should have come to merciful ends long ago when their charismatic protagonists took dark and irredeemable turns.

Our country was not built to support blood dynasties or to elevate the rich and famous to a higher ethical or constitutional plain. But through the power of celebrity, Mr. Kennedy and Mr. Jackson worked the media to twist truths. They manipulated their constituencies and fans to obscure their misdeeds. They played the faithful to confer this manufactured innocence on the rest of us. And, in the end, they placed themselves above the law.

My condolences go to the Kennedy and Jackson families, who should not be stained by the sins of their kin. But there is no time like the present to ensure that those masterfully produced, over-the-top, all-star televised funerals don't serve to canonize talented and charismatic men who failed to own up to their public wrongs and who continued to flaunt the behaviors that got them into trouble.

Given that President Obama's flailing medical care reform movement is in the process of being given new life under the fallen senator's name, our national health now depends on talking honestly. As Mr. Kennedy's political defenders would put it, it's time to speak truth to power.

Forty years have passed since Chappaquiddick. Immediately after the accident, Mr. Kennedy scrambled to organize the best and brightest to save his career, rather than to save the life of 28-year-old Mary Jo Kopechne.

Before the facts were gathered, as her family was being prepped for a cash payoff, the Massachusetts voter - in "shock" and "denial," the beginning phases of Elizabeth Kubler-Ross's grief cycle - was asked by the senator in a carefully constructed televised speech to look away from his misdeed in the name of his family's recent tragedies.

In a time of grief, the young senator framed his future as a referendum on Camelot. And the media didn't call him on it. The fix was in.

The result was Mr. Kennedy needn't do more than show up for work to atone for his calculated selfishness. Without apology or contrition, Mr. Kennedy crafted a public career in which he spent taxpayers' money - certainly not his own - to make up for his unspeakable behavior.

As long as he toed the liberal line, this trust-fund Robin Hood was protected by the liberal masses and the mainstream media. Hollywood did its job by not putting his story on the big screen.

Doing to the reputations of Clarence Thomas and Robert Bork what he did to Miss Kopechne only reinforced his value to the Democrat Media Complex as the memory of his brothers' more authentic Camelot began to fade.

A blogger at the Huffington Post went so far as to argue the liberal Miss Kopechne herself would have accepted her death on utilitarian grounds. "Who knows - maybe she'd feel it was worth it," Melissa Lafsky wrote.

No reading of Mr. Jackson's relationship with young boys seems kosher. Perhaps he didn't molest Jordie Chandler, but paying him eight figures to go away certainly should have put an end to the Peter Pan routine. Mr. Jackson was a singer and a dancer but his best instrument was playing the media. As long as he kept up the "We Are the World" routine - noblesse oblige to a beat - the media looked the other way.

In the language of the Democrat Media Complex, speaking ill of Mr. Jackson was racist. Speaking ill of Mr. Kennedy was ideological. Both were protected. Their foes were ignored or castigated.

By playing the media's institutional biases, both Mr. Kennedy and Mr. Jackson rose above the law.

While Mr. Jackson spent most of his time self-medicating and collecting children and expensive stuff, the untouchable Mr. Kennedy continued his destructive habits while giving his Massachusetts constituency and American liberalism a bounty of legislative accomplishments.

The supporters of Mr. Kennedy, and to a lesser degree Mr. Jackson, elevate and promote "social justice" and "economic justice" as the highest human goals. Upon the deaths of Mr. Jackson and Mr. Kennedy, the media continue to erase their ugly backgrounds hoping their eternal celebrity can serve these collective ideals.

But the rubes - those of us skeptical of moral relativism, media manipulation and the cult of celebrity - prefer "justice justice."

Only when the "elite" among us begin to see things like us - and not in the unrealistic fairy tales crafted by our liberal betters - will Americans begin to live happily ever after.

Andrew Breitbart is the founder of the news Web site breitbart.com and is co-author of "Hollywood Interrupted: Insanity Chic in Babylon - the Case Against Celebrity."

Seriously Unserious

In August our ubiquitous president became the nation's elevator music, always out and about, heard but not really listened to, like audible wallpaper. And now, as Congress returns to resume wrestling with health care reform, we shall see if he continues his August project of proving that the idea of an Ivy League Huey Long is not oxymoronic.

Barack Obama in August became a Huey for today, a rabble rouser with a better tailor, an unrumpled and modulated tribune of downtrodden Americans, telling them that opponents of his reform plan—which actually does not yet exist—are fearmongers employing scare tactics. He also told Americans to be afraid, very afraid of health-insurance providers because they are dishonest (and will remain so until there is a "public option" to make them "honest"). And to be afraid, very afraid of pediatricians who unnecessarily extract children's tonsils for monetary rather than medical reasons. And to be afraid, very afraid of doctors generally because so many of them are so rapacious that they prefer lopping off limbs of diabetes patients rather than engaging in lifestyle counseling that for "a pittance" could prevent diabetes.

Sen. Olympia Snowe, the Maine Republican whom Democrats hope will lend a patina of bipartisanship to their health legislation whenever it gets written, says that one thing we learned from the cacophonous town halls of August is "that there are many people who are satisfied with their health insurance." Actually, long before this debate began we knew that a large majority of Americans have insurance, and a large majority of that majority are content with their care. That is why the president has become shrill: There is no underlying discontent commensurate with the scale of the changes he is trying to propel.

Another reason that reasonable people are wary of any government plan for a grandiose rearrangement of the health-care sector's 17 percent of the economy is that, regarding grandiosity, the president, after less than eight months in office, is a recidivist. His health-care crusade comes after a $787 billion stimulus (which has effectively made the Energy Department into the nation's largest venture-capital firm, scattering scores of billions of dollars to speculative energy investments) and the semi-nationalization of two car companies. August ended with the unembarrassable administration uttering a $2 trillion "Oops!" by estimating that the 10-year budget-deficit projection is about $9 trillion rather than $7.1 trillion. The supposed means of paying for the president's $1 trillion health-care plan include substantial Medicare cuts that will never happen, and the auction of carbon-emission permits that, instead, would be given away by the Waxman--Markey cap-and-trade legislation the House has sent to the Senate.

That legislation is a particularly lurid illustration of why no serious person nowadays takes seriously Washington's increasingly infantile bandying of numbers. The point of cap-and-trade is to impose a ceiling on the nation's greenhouse-gas (GHG) emissions—primarily carbon dioxide. The legislation endorses the goal of holding the global carbon--dioxide level to a maximum of 450 parts per million by 2050. That. Will. Not. Happen.

Steven Hayward and Kenneth Green of the American Enterprise Institute do the math. The 450 level is less than the 2030 projected level for all countries other than the Organization for Economic Cooperation and Development's 30 developed nations. Which means the global goal would be unreachable even if in 2030 those 30 disappear—if they have zero emissions. Waxman--Markey endorses the goal of reducing all of this nation's GHG emissions 83 percent below 2005 levels by 2050. In 2005, the United States' carbon-dioxide emissions were 6 billion tons, so an 83 percent -reduction would permit about 1 billion tons—what America's emissions were in 1910, when the population was 92 million and the economy was one twenty-fifth of today's. But by 2050, the population probably will be about 420 million, so per capita carbon-dioxide emissions would have to be 2.4 tons—one quarter of 1910's per capita emissions.

Hayward and Green say that historical data indicate that the last time emissions were that low was 1875. And even before that, before widespread use of fossil fuels, wood burning by Americans may have produced more than 2.4 tons per capita. Today France, which generates approximately 80 percent of its electricity by nuclear power, and Switzerland, which generates most of its electricity by nuclear or hydropower, have per capita emissions of 6.59 and 6.13 tons, respectively.

Obviously Hayward and Green are correct that meeting the 2.4-ton goal "is not going to be seriously attempted." So why do the same politicians who want to radically expand government's control of health care pretend otherwise? Because they are not serious people. Which is why so many Americans are seriously alarmed.

- Newsweek, George Will

The Myth of Free-Market Health Care in America

Why other Western countries offer no panacea for American woes

Shikha Dalmia | July 30, 2009

ObamaCare is in retreat. That much was clear the moment the president started springing B-grade Hollywood references to "blue pills and red pills" in its defense during his news conference last week. But before ObamaCare can be beaten back decisively, its critics need to answer this question: How did his plan for a government takeover of roughly a fifth of the U.S. economy get this far in the first place?

The answer is not that Democrats have a lock on Washington right now—although they do. Nor that Republicans are intellectually bereft—although they are. The answer is that both ObamaCare's supporters and opponents believe that—unlike Europe—America has something called a free market health care system. So long as this myth holds sway, it will be exceedingly difficult to prescribe free market fixes to America's health care woes—or, conversely, end the lure of big government remedies.

The fact of the matter is that America's health care system is like a free market in the same way that Madonna is like a virgin—i.e. in fiction only. If anything, the U.S. system has many more similarities than differences with France and Germany. The only big outlier among European nations is England, which, even in a post-communist world, has managed the impressive feat of hanging on to a socialized, single-payer model. This means that the U.K. government doesn't just pay for medical services but actually owns and operates the hospitals that provide them. English doctors are government employees!

But apart from England, most European countries have a public-private blend, not unlike what we have in the U.S.

The major difference between America and Europe of course is that America does not guarantee universal health insurance whereas Europe does. But this is not as big a deal as it might seem. Uncle Sam, along with state governments, still picks up nearly half of the country's $2.5 trillion annual health care tab.

More importantly, contrary to popular mythology, America does offer public care of sorts. It directly covers about a third of all Americans through Medicare (the public program for the elderly) and Medicaid (the public program for the poor). But it also indirectly covers the uninsured by—at least in part—paying for their emergency care. In effect, anyone in America who does not have private insurance is on the government dole in one way or another.

This is not radically different from France, where the government offers everyone basic public coverage, of course—but a whopping 90% of the French also buy supplemental private insurance to help pay for the 20% to 40% of their tab that the public plan doesn't cover.

Meanwhile, in Germany, about 12.5% of Germans who are civil employees or above a certain income opt out of the public system altogether and rely solely on private coverage—even though they know it is well nigh impossible to return to the public system once they switch. And more Germans likely would go private if they were not legally banned from doing so.

The most striking similarity between America, France and Germany, however, is the model of "insurance" upon which their health care systems are based. In other insurance markets, the more coverage you want, the more you have to pay for it. Consider auto insurance, for instance. If you want everything—from oil changes to collision protection—you'd have to pay more than someone who wants just basic collision protection. That's not how it works in health care.

For the same flat fee—regardless of whether it is paid for primarily through taxes as in France and Germany or through lost wages as in America—patients in all three countries effectively get an ATM card on which they can expense everything (barring co-pays) regardless of what the final tab adds up to. (Catastrophic coverage plans are available in America, but the market is extremely limited for a number of reasons, including the fact that most states have issued Patients Bill of Rights mandating all kinds of fancy benefits even in basic plans.)

Thus, in neither country do patients have much incentive to restrain consumption or shop for cheaper providers. In America and Germany, patients don't even know how much most medical services cost. In France, patients know the prices because they have to pay up front and get reimbursed by their insurer later—a lame attempt to ensure some price consciousness. But since there is no cap on the reimbursed amount, the French sometimes shop for doctors based on such things as office decor rather than prices, according to a study by David Green and Benedict Irvine, researchers at Civitas, a London-based think tank. (Green and Irvine reported this as a good thing.)

So what are the consequences of this "insurance" model and how are the three countries coping with it? America, as Obama continuously reminds us, spends 16% of its gross domestic product on health care—the highest percentage in the world. If current trends persist, in 75 years health care will consume about 50% of the GDP—and all of the federal budget. But France is not doing a whole lot better. Its health care system is the third most expensive in the world with over 11% of its GDP going toward health care—nearly three times more than the amount in 1960. The French fork over more than 20% of their income in taxes for public coverage (and another 2.5% to purchase supplemental private coverage)—yet their public program suffers from chronic deficits. Germany, similarly, spends about 11% of its GDP on health care with Germans contributing more than 15% of their income toward buying health care.

If France and Germany are not spending even more on health care, one big reason is rationing. Universal health care advocates pretend that there is no rationing in France and Germany because these countries don't have long waiting lines for MRIs, surgical procedures and other medical services as in England and Canada. And patients have more or less unrestricted access to specialists.

But it is unclear how long this will last. Struggling with exploding costs, the French government has tried several times—only to back off in the face of a public outcry—to prod doctors into using only standardized treatments. In 1994, it started imposing fines of up to roughly $4,000 on doctors who deviated from "mandatory practice guidelines." It switched from this "sticks" to a "carrots" approach four years later, and tried handing bonuses to doctors who adhered to the guidelines.

Meanwhile, in Germany, "sickness funds"—the equivalent of insurance companies—have imposed strict budgets on doctors for prescription drugs. Doctors who exceed their cap are simply denied reimbursement, something that forces them to prescribe less effective invasive procedures for problems that would have been better treated with drugs. But the most potent form of rationing in France and Germany—and indeed much of Europe—is not overt but covert: delayed access to cutting-edge drugs and therapies that become available to American patients years in advance.

The point is that there is no health care model, whether privately or publicly financed, that can offer unlimited access to medical services while containing costs. Ultimately, such a model arrives at a crossroads where it has to either limit access in an arbitrary way or face uncontrolled cost increases. France and Germany, which are mostly publicly funded, are increasingly marching down the first road. America, which is half publicly and half privately funded, has so far taken the second path. Should America offer even more people such unlimited access through universal coverage, it too will end up rationing care or facing national bankruptcy.

The only sustainable system that avoids this Hobson's choice is one that is based on a genuine free market in which there is some connection between what patients pay for coverage and the services they receive. That is emphatically not what America or any Western country has today. Looking to these countries for solutions, as Obama and other advocates of universal health coverage are doing, will lead to false diagnoses and false cures.

Shikha Dalmia is a senior analyst at the Reason Foundation and a columnist at Forbes. This article originally appeared at Forbes.