Transform The VA Into A Pro

The National Health Service Norfolk and Norwich University Hospital in the UK, showing the utilitarian architecture of many modern hospitals. (Photo credit: Wikipedia)

The VA (Veterans Administration) scandals show why so many people have been so highly motivated for so long to fight against Obamacare. That is because of the perfectly rational fear that Obamacare will end up doing to the entire American health care system what the VA has done to health care for America's veterans.

Many have already commented that the VA system is actually pure socialized medicine. The government doesn't just pay for health care or health insurance under the system for our nation's veterans. The government actually builds and owns the hospitals and their clinics, and hires the doctors and nurses, who serve as government employees. The government then finances the operation of these facilities, actually providing the health care directly itself. Those eligible for VA benefits then go to these government facilities to get their health care.

This is basically how the notorious British National Health Service (NHS) operates. I say notorious because the National Health Service is famous for running a strict rationing system, with the government determining who gets what health care and when, and deciding who gets told when its time to go home and die. In my 2011 book, I suggested that Britain's National Health Service is probably responsible for the deaths of more British subjects than the Nazis and Adolf Hitler. But a thorough study would be necessary to document that.

The NHS does not do this out of malevolence. It does it because when the government is dispensing free health care, there must be some means to control costs. With no market prices, incentives, or competition to control costs, the only choice is for the government to decide when the money train stops at the station to let some off. Ironically, a system originally adopted supposedly so everyone could get health care becomes an institutionalized means for deciding when some shall be denied health care.

The British people accept the cold, calculating, health care rationing of the NHS because of a social belief that it is necessary for everyone to get health care. That is deluded because market competition and incentives will work in health care the same as for everything else. But when social mores prevent anyone from questioning the status quo, and alternatives from being considered, the people and the society suffer. That is essentially the same social process more generally which left many societies around the world stagnant with no economic growth for centuries going back to the Dark Ages. British health care could ultimately be liberated by starting social experiments with Health Savings Accounts, which would teach eye opening social lessons.

America's VA, with all market prices, incentives and competition excluded from the system, operates with similar health care rationing. The VA is given a 'global budget' each year that it can spend for health care for our nation's veterans and no more. With no prices or competition for anyone in the system to weigh costs against benefits, the only way total costs for essentially free health care can be kept within that budget is for the VA bureaucracy to deny health care through some form of rationing. That is primarily accomplished within America's social mores with long wait times for the free VA health care granted to veterans, effectively denying or at least stretching out health costs.

That is why Larry Kudlow is so right when he says in his May 23 column, 'The VA problem is not Shinseki, it's socialism.' That is why America's VA operates like the socialized medicine systems of Great Britain, Canada, and continental Europe, with long delays for the sick to obtain necessary health care, and other bureaucratic means of reducing access to quality care to control costs (again without consumer choice and market competition to control costs, there must be some means to control costs). These problems are so serious that at dozens of veterans are now documented to have suffered premature deaths due to lack of health care, and the full scope of the problem may involve the same for many more.

The problem is not inadequate spending on the VA, which socialist Democrats are trying to argue. As John Merline reported in Investor's Business Daily on May 20, from 2000 to 2013, VA spending nearly tripled while the population of veterans declined by 4.3 million. Moreover, as Michael Tanner of the Cato Institute reports, 344,000 veterans' care claims are now backed up and waiting to be processed. But it takes 160 days, almost half a year, for health benefits approval. For those who have to appeal a decision, the wait is 1,598 days, or more than four years.

Forbes' own Avik Roy in his thorough May 23 column explains how America fell into the VA experiment with socialized medicine. The roots of the VA go all the way back to 1827, before the modern American health care system had even developed. So the federal government itself had to establish homes for disabled military veterans, and facilities to provide the more rudimentary health care of the time.

By the end of World War II, the VA was responsible for a burgeoning veterans population including aging veterans from World War I as well. This population swamped the available health care at the time. So the VA undertook the burden of sharply expanding the supply of hospitals, clinics, and medical facilities. From 1930 to 1947, the number of VA hospitals more than doubled, from 54 to 120. Today, the VA maintains and operates 153 hospitals, and with 300,000 mostly medical employees, it is the second largest department of the federal government.

But America's private health care system is all grown up now, and the best in the world, by far in my opinion, in providing critical health care to the sick. Just consider premature babies, and the miracles America's health care system achieves with those born less than a foot long, and less than a pound in weight. No other country even really tries to save these most vulnerable newborns today. But in America they now almost routinely are saved to grow up and lead normal lives. Or compare the health care and survival and recovery rates of America's seniors with those of the same age in any other country.

America's veterans now would do far better participating in this same private health care system, along with everyone else. That can be achieved by dividing up the VA budget in equal shares for every veteran, and freeing them to use those sums to help purchase the private health insurance of their choice. That would include Health Savings Accounts (HSAs), which maximize the freedom of control and choice by patients over their own health care, and their own health care dollars. Such HSAs are also the only health policy innovation that have proven to control health costs in the real world, without a third party empowered to deny health care to the patient.

Similar reforms can and should be extended to liberate the poor on Medicaid to obtain better health coverage and care of their own choice. Block grants of federal Medicaid funds back to the states, which were so successful in reforming the old New Deal, Aid to Families with Dependent Children (AFDC) program in 1996, could be adopted while giving the states broad authority to reform Medicaid to best suit the poor in their state. Each state could then experiment with providing the poor with vouchers that could be used to help pay for the health insurance of their choice, including again HSAs. The voters of each state would then decide how much should be given in assistance at each income level to assure that the poor would be able to buy essential health insurance.

Some states might choose to reform their Medicaid programs primarily focusing on providing the poor on Medicaid with HSAs, like Indiana has recently done. Or they might focus more on covering the poor with managed care programs, like Rhode Island has recently done. Or they might leave the choice completely to each poor family. The important point is that broad opportunities exist for states to assure the poor much better access to essential health care than Medicaid currently does, like both Indiana and Rhode Island have done, even with more efficient control of Medicaid spending.

Such reforms should also be extended to replacing Obamacare, with much broader benefits. Because Obamacare is not only a serious threat to the quality and supply of American health care. It also is a major drag on the American economy, due primarily to the costly regulatory burdens imposed by the program, and the perverse, counterproductive incentives involved.