Regina Herzlinger, professor of business administration at the Harvard Business School, recently discussed consumer-driven health care during a John Locke Foundation Headliner luncheon in Raleigh. Money magazine has dubbed Herzlinger the “godmother” of consumer-driven care. She discussed health-care issues with Mitch Kokai for Carolina Journal Radio. (Go to http://www.carolinajournal.com/cjradio/ to find a station near you or to learn about the weekly CJ Radio podcast.)

Kokai: This is a key issue. We’ve heard for years about health care and the challenges of health care, making sure people are insured and get access to care. How much is this new administration going to change what we’re used to?

Herzlinger: Politically, health care is known as the third rail of politics, so even politicians as adept as Bill and Hillary Clinton got electrocuted when they hit the third rail of health-care changes. But health care is a major issue for our economy, and there are two parts of it that will command attention. …

One of them is that our health-care costs make us globally uncompetitive. We spend 17 percent of GDP [gross domestic product] on health care. Countries with whom we compete spend 10 percent. We cannot point to quality excesses in our health-care system that would justify the enormously higher amount that we spend.

The second problem [the new president] will have to address is known as “job lock.” That is, most people receive their health insurance through their employer. Most of the uninsured are employed, but they work for companies that don’t offer health insurance. Those companies are, by and large, small companies. Small companies are the engines of productivity and job growth in the United States. The reason the small companies don’t offer health insurance is either they can’t afford it or it’s very difficult to buy.

So the president will have to confront the public policy problem that our employer-based health insurance system is forcing people to remain in jobs that they may not want in big companies only because those companies offer health insurance, whereas we would love for them to move to small companies. So the challenge … is to slim down health-care costs and, secondly, to make it feasible to buy health insurance outside the employer base.

Kokai: Much of the debate seems to center around trying to get more people covered. Is that the issue we should really be focusing on — getting more people insurance coverage? Or is there another issue that we’re missing completely?

Herzlinger: Of course, we are the richest country that ever existed in the world. We are a hugely charitable country. Of course, people who cannot afford health insurance should be able to have it. … Everybody agrees with that. The underlying question is why don’t they have it? You know, even poor families — a very large fraction — have a car, and over 10 percent have two cars. So if the poor can have one or two cars, what about health insurance?

The core issue is it’s much too expensive. It is beyond the means of even middle-class people. In Massachusetts, a health-insurance policy costs $15,000. Median family income in the United States is $50,000. If you can use only after-tax income to pay for that health insurance, $50,000 after tax is $37,000. Nearly half of your after-tax income would go for health insurance. People can’t afford to do that. …

Obama would create a huge supermarket — national supermarket, U.S.A. Health Insurance — and he would stock that supermarket with health insurance policies that the U.S. Congress designs. And one of those might indeed be Medicare. Everybody who is uninsured can come and buy health insurance policies in this supermarket.

McCain [had] a very different solution. McCain would give everybody who buys health insurance a $5,000 tax credit. That essentially means he’s giving you $5,000. If you’re poor, you get the 5K. If you pay taxes, you avoid $5,000 in taxes. Plus he would force employers to cash out the amount they now confiscate of your salary and my salary to buy health insurance and to give it to us. He is relying on a consumer-based market to make health insurance better and cheaper.

Obama is relying on economies of scale — this big buyer forcing economies out of recalcitrant health insurers. Very different philosophies, but addressed at the same problem.

Kokai: You’ve been dubbed the “godmother” of consumer-driven health care. Why is that a better model — consumer-driven health care — than what we’re used to?

Herzlinger: The heart of making any industry better and cheaper is innovation. Crazy entrepreneurs come out of the walls, and they get better ideas about how to do things — people like Bill Gates and Sam Walton and Michael Dell. The only way we will make health care both better and cheaper is if entrepreneurs are attracted to create innovations in this sector.

No entrepreneur is going to be attracted to a market where the only place you can sell what you have to offer is a store run by Uncle Sam and the only product you can offer has to be vetted by the U.S. Congress. That is a space that attracts people who are interested in political maneuvering. Sam Walton, Bill Gates, Michael Dell — they wouldn’t be in that kind of space.

A consumer-driven market is quite different. As a consumer, I could buy anything I wanted. As a consumer, I bought an iMac. As a consumer, I bought a Toyota. As a consumer, I bought a Trio. I made it possible for entrepreneurs with crazy ideas to appeal to me without having to go to the U.S. Congress and beg for permission to offer their products.