The United States, by contrast, is moving in the opposite direction. Physicians and hospital administrators spend an enormous amount of time on paperwork, not just to facilitate the exchange of money but because third-party payers also want to ensure that the medical care is appropriate and necessary. Were the United States to adopt a program of national health insurance, there is every reason to suppose that administrative costs would go up, not down. There is little chance that we would follow the Canadian practice of giving providers a fixed budget from which to ration health care with few questions asked. Nevertheless, almost everyone familiar with the administrative burdens faced by providers has concluded that the burdens are way too heavy, causing inefficiency and waste.

Some health policy analysts see no value in, and no role for, a market in health care. Monopoly and central planning are almost always preferred to competition and decentralization. For them, the concept of patients shopping in the medical marketplace and negotiating and bargaining with providers is not part of their thinking. Thus, they reason that if a single payer (read: government) wrote all of the checks, costs would be lower than they are when the checks are written by Medicare, Medicaid, and thousands of employers and private insurers. This approach is misguided, however.

One of the reasons why administrative costs are high is precisely because the U.S health care system is bureaucratic, rather than market-based. One of the most important functions of competitive markets is to eliminate waste and inefficiency. More than half of the money now spent by third-party payers could instead be spent by patients out of individual Medisave Savings Accounts. If these expenditures were made with health care debit cards, the administrative costs would be a little over 1 percent. Not only would there be huge savings in administrative costs, there would also be a substantial reduction in spending on unnecessary care, or care of marginal value. Overall, we estimate that if every family in America had a Medisave account covering the first $2,500 of annual medical bills, the nation’s total health care spending would be reduced by as much as one-fourth, with no detrimental effect on the health of patients.