Author Archive
A Return-Quibble
Two days ago, I blogged that Americans spend too much for health care as a result of the bizarre health care financing system that has been fostered by government regulation and tax provisions. Michael Tanner subsequently responded that my claim makes little sense in a free society–Americans, who are wealthy, consume more health care because they simply prefer more health care and they have the money to buy it.
Permit me a response to Michael’s response. I offer a lengthy counter on my own blog; here is an excerpt of my reply:
I think of the American health care system not as a free-market system, but as a government-designed contraption constructed to vacuum money out of the pockets of consumers and into the pockets of health-care providers. A lot of this contraption is built into state regulations of health insurance and provider licensing. The Federal government adds an important layer by encouraging “employer-provided health insurance” (i.e., vacuuming wages into prepaid health plans).
[...]
Our difference is tactical. Tanner wants to put libertarians on the side of saying, “The American health care system is the finest in the world. Don’t mess it up with a socialized system like everyone else’s.”
I think that tactic is vulnerable to charges that people in other countries are healthier, charges which very well may be true. I would rather be in the position of attacking our vacuum contraption than defending it.
The debate continues…
Crisis of Abundance Watch
Joe Kristan is reading Crisis of Abundance and blogging the experience. He writes
Crisis of Abundance says
“An important characteristic of premium medicine is that many procedures have a low probability of affecting the outcome. In fact, often the procedures do not even affect the treatment plan.”
Digital mammography seems an apt illustration of this point. It is more effective for only a minority of patients, and the treatment for a cancer discovered digitally doesn’t differ from that discovered on film. Yet as it is the latest technology, and in short supply, the digital technology will cost more. It’s an illustration of “premium medicine” that could have come right out of C of A. And, as C of A notes, spending on imaging services is growing twice as fast as health spending as a whole.
He is referring to an article in the Wall Street Journal on digital mammography.
Mike Tanner says it’s fine that Americans spend a lot on health care. I would agree if it were an income effect. The problem is that with 85 percent of our health care services paid for by third parties (a stat which I got from the Tanner-Cannon book), I think it’s largely a substitution effect, based on an implicit price to the consumer of zero.
If you want to comment on this issue, go to the Amazon page for Crisis of Abundance. Scroll down for the discussion forum.
Mulling the Big Idea
A few comments on Brink’s post on the discussion I’ll be missing at the Hudson Institute.
1. I think that the background paper for the discussion is more interesting than Brink makes it out to be. I recommend it as a worthwhile read.
2. Having said that, I disagree with the characterization of the left as purely nihilistic. I think that the left is less reverent of intellectual history because, well, its intellectual antecedents are embarrassing. Was Communism really a great hope for mankind? Was the Vietnam war really an imperialist undertaking carried out because of the desperate desires of corporations for markets? Was it a good idea for Britain, India, and other countries in the 1950s to place “strategic” industries under national control? Were wage and price controls the solution to inflation? etc.
But, undaunted, the Left does have its big ideas. I still think that folk Marxism, the idea that certain oppressed classes and those who claim to speak for them have inherent moral authority, is a “foundational” idea in Leftist thought.
I also see an emerging Leftist doctrine of Individual Helplessness. That is, individuals are too ignorant and irrational to make their own decisions. “Happiness research” fits in well with that doctrine.
Finally, there is what I call absolute environmentalism, which is the doctrine that all other considerations pale in comparison to Global Warming. As Deirdre McCloskey pointed out, this is a transcendental philosophy that becomes the Left’s substitute for religion.
3. I do not agree with Brink’s characterization of those who are neither ardent Democrats nor ardent Republicans as a sort of “center.” Consider instead the hypothesis that we are a long tail.
Debating the Massachusetts Health Plan
Tuesday the 23rd at noon, on Capitol Hill. I will be one of four participants. Details here.
My challenge will be to prioritize what I want to say. I have lots of criticisms of the Massachusetts plan, but I think I should stick to the most important ones. These are:
2. It leaves the elephants in the room. The two elephants in the health care room that no one wants to talk about are (a) the unfunded liability in Medicare and (b) what I call “gray-area medicine” (procedures that are long on cost and short on benefits). These elephants in the room are ignored in most discussions of health care policy, but they are addressed in Crisis of Abundance, a must-have book that incidentally makes a great gift.
3. Instead of freeing private insurers from its regulatory stranglehold, Massachusetts is creating a government-sponsored enterprise whose main advantage, if any, will be that it is exempt from some of the regulations that ordinary insurance brokers face.
4. Rather than bipartisan political compromise at the state level, I would prefer to see clean experiments. A single-payer approach in states that lean that one way, and a relatively unregulated and unsubsidized approach in states that lean the other.
But the interesting thing about the live event won’t be my planned remarks. It will be the interaction with the other panelists and the audience.
A ‘Red State’ Health Care Plan
Instead of surrendering the argument on health care, I say we should come up with a health care reform that leans more toward libertarian principles.
In my view, free-market health care means health insurance policies designed by insurance companies to meet the needs of consumers, rather than designed by regulators. Thus, the core of any libertarian health care reform has to be be deregulation of health insurance—eliminating mandates and any restrictions on health insurance companies’ methods of managing risk. Such reform would allow risk-based pricing, for example.
Red Staters who are intrigued by such ideas but who nonetheless believe some sort of government intervention is necessary may want to consider Red State offering of long-term catastrophic re-insurance. If a health insurance company issues a policy to an individual (this would not apply to employer-based health insurance, which is over-subsidized as it is), the Red State would pay health insurance expenses that exceed a five-year deductible. The deductible would be based on the person’s family adjusted gross income, divided by the number of people in the family. Divide that number by two, and make that the five-year deductible. Read the rest of this post »
Libertarianism and Health Care
I recently did an interview with Catallarchy, a group blog made up of young libertarians. Sample Q&A:
While you come out in favor in free-market reforms in your book, how politically feasible do you think these reforms are?
Not at all. The most important proposal I make is to phase out Medicare. That’s a non-starter politically. But these ideas only become possible if you start to talk about them and people begin to understand that they make sense.
Many people view the US healthcare system as “free-market” and the rest of the world, especially England and Canada, as “socialized”. Is this the case?
The more I look at, the less free-market it seems. Take health care finance. In every major country, the consumer is insulated from at least 80 percent of health care costs. In the U.S., it’s 85 percent, which is one of the highest rates of third-party payments, or what I call insulation. In most other countries, it’s 80-85 percent government, and 10-15 percent paid for by consumers out of pocket. In the U.S., it’s about 45 percent government and 40 percent private insurance, with 15 percent out of pocket. So if we’re more market-oriented, it’s because of that 40 percent that’s paid for by private insurance. That is not a big deal.
As I have realized lately (since writing the book), health insurance is a favorite playtoy for state regulators. You could say that in most states, insurance products and services are designed by regulators, and the private companies just compete in terms of marketing. So insurance companies cannot innovate either in terms of product or in terms of risk management. In my book, I say that the main benefit of markets is innovation. The way the insurance market is regulated, we don’t get that. What’s not in my book is my rant about regulation of health care providers, with its heavy credentialism and rent-seeking. My latest pet peeve is physical therapy, which I suspect could be taught reasonably well in a one- year trade school course to high school graduates, and which recently instead had its requirement raised to three years of post- graduate training!
Although it uses my new Cato book Crisis of Abundance as the main focus, the interview ranges into other topics, from teaching economics to where I like to take vacations.
The Devil in Massachusetts
Betsy McCaughey digs into some of the details on the effects on business of Massachusetts’ brave, new health insurance experiment:
Say, for example, you open a restaurant and don’t provide health coverage. If the chef’s spouse or child is rushed to the hospital and can’t pay because they don’t have insurance, you — the employer — are responsible for up to 100% of the cost of that medical care. There is no cap on your obligation. Once the costs reach $50,000, the state will start billing you and fine you $5,000 a week for every week you are late in filling out the paperwork on your uncovered employees (Section 44). These provisions are onerous enough to motivate the owners of small businesses to limit their full-time workforce to 10 people, or even to lay employees off.
What else is surprising about this new law? Union shops are exempt (Section 32).
Of course, in states like Maryland (where I live), the possibility of killing off jobs in small businesses would hardly deter the passage of similar laws. As far as politicians here are concerned, undermining the private economy is not a legislative bug. It’s a feature.
Medicare
On May 2, I attended an American Enterprise Institute symposium on Medicare’s financial outlook. That outlook is awful.
I offered the Stroke of a Pen solution of raising the age of eligibility going forward. In Crisis of Abundance, I explain in more detail how to phase out Medicare.
This idea was ridiculed by the panel. For the most part the panel reminded me of an old business cartoon with the caption, “I don’t have a solution, but I really admire your problem.”
However, the most likely alternative to cutting benefits is “cost control,” meaning price controls and/or rationing. The audience and the panel seemed much more receptive to cost control than to cutting benefits. Maybe the AEI is getting ready to play a role in the Hillary Clinton administration.
One of those who emphatically resisted cutting benefits was Mark McClellan, the Medicare czar. He was so gung-ho about Medicare’s quality initiatives that during the Q&A I asked him whether Medicare should take over health care for everyone. Instead of saying, “No,” he gave a political answer about how Medicare’s new initiatives were a “partnership” with the private sector.
Public-private partnerships are problematic, in my view. Power corrupts, absolute power corrupts absolutely, and private-public partnerships absolutely corrupt the private sector.
We have reached the point in health care policy where government is like the ten-year-old boy who starts fires so that he can be lauded as a hero for helping to put them out. Massachusetts gives huge hospital subsidies for “uncompensated care”—the subsidies apparently exceed the cost of care, because one of the obstacles to the Massachusetts reform is that hospitals are worried that they will lose money. Anyway, these subsidies, along with dysfunctional insurance regulations, favor uninsured free riders, causing the fire that needs to be put out with health insurance mandates.
McClellan lauded the Massachusetts reforms.
Entitlement Solution
Do you think that the entitlement crisis is difficult to solve? Think again. I write
The solution, as I have argued for several years, is to raise the age of government dependency for workers now in their 30′s and 40′s. This is a painless solution, because (a) it does not affect anyone who currently receives or is counting on government entitlements and (b) it does not really affect people now in their 30′s and 40′s.
For people in their 30′s and 40′s today, the age of government dependency is only a promise. As of now, projected entitlement benefits to young workers are only promises that, under conservative assumptions, the government will be unable to meet. If the assumptions pan out, then the actual benefits that young workers receive when they finally retire probably will have to be reduced. It seems to me that young workers are no worse off if their promised benefits are reduced now (by raising the age of government dependency) than if their actual benefits are reduced when they reach their late 60′s.
But then, hey, I’m not a politician. And politicians say that the age of government dependency is a third rail that no one can touch.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
