Wednesday, August 8, 2007

Why I'm Not Buying Free Health Care, Part 2

(About damn time, huh?)

Okay, so it's easy to dispel the Moore favored single-payer system:
Assume that the government is now paying for same total amount of health care--however, because health care consumers experience no out of pocket cost for additional health care (what economists call a zero marginal cost to the consumer), they will demand a quantity of health care greater than they demand now. Boom Shortages. Problem not solved.

You've still got rationing, except now it's done by government instead of insurance companies. You really think that will be better? A quick (if only) trip to the DMV should disabuse you of that notion. You may think it's tough arguing with insurance companies about coverage, but have you ever tried arguing with an administrative bureaucracy [IRS]? Think about how politics can get involved: "why are my good Christian tax dollars going to help treat that homosexual with the gay plague?" [The excellent politics point respectfully stolen from Kip Esquire].

Oh but we're not finished, let's look at the producer side: We all know that the incredible quality (not including access) of our health care comes from profit motivated innovation. An egalitarian single payer system is going to ruin that. People are not going to be able to pay more for better, so why make anything better? Certainly there are some who would like to cure diseases for the humanitarian good, but that research still costs money and that money is going to be harder to come by when investors looking for profit are no longer going to provide any of it.

Woe is us. What can we do? Well, some, try have their cake and eat it too, with a dual system. The free health care for everyone, but still allow people to pay for private health care if they want it (Paging John Edwards). That sounds nice at first blush: you solve the access problem, but you don't damage the profit motive for innovation! Except that you do.

Providing health care to everyone using tax dollars will mean providing health care to those who do not pay any taxes, as well as to those who don't pay enough taxes to cover their consumption of the government provided good. The free system is going to be strained from day one. Then there will be those who will use the free health care even though they could afford private (hey, it's free!) Of course there will be those super rich who will prefer paying the higher cost for private health care, because it will be a) better in quality (of course you are paying for it) and b) fewer other people will be using it, so there will be shorter lines! Problem here comes with b. Fewer people paying, means they will be paying more to retain the quality of the good. Otherwise the income from providing the private health care won't be enough to pay for the innovation that makes it better. So either the quality differential will evaporate or the price will keep going up.

Consider the following analogy: Education. We have free public schools as well as not free private schools. Most won't deny that the quality of private education is by and large better than what we find in public schools. However, the cost of private schools is prohibitively high for most, and is going up for those who can still afford it (still paging John Edwards). So we want to import this model into our health care? (One important difference: even private schools are non-profit. They don't need profit to provide higher quality education, but the quality of health care depends on innovation that needs to be paid for by profit, so I think the differences between public and private health care cost will be even starker than the difference in the education).

Now I am a big supporter of school choice. I truly believe that by letting the consumers direct where their educational dollars go, we will keep our super posh private schools affordable only to the elite; we will develop mid-range schools that are better than the bottom tier and are affordable to the middle class; as well as improve (eventually) the quality of schools for those who can only afford what the voucher is worth. I think this model might be the best choice for our health care problem, assuming we believe that the government should be subsidizing it (and it looks like more and more people believe that).

While we are at, PinkCare will make money paid beyond the health voucher tax deductible, return unused voucher dollars at the end of the year, and allow tax deferred IRA style Health Saving Accounts. I have full confidence that this will go a lot farther to fixing the problem than simply letting the government take over the whole operation.



Tim in Italy said...

Please correct me if I’m wrong… which I’m almost certainly sure I will be… but we seem to have some goal issues.

My goal: provide quality affordable health care to all

Pink’s goal: while preserving the free market economy and the escalating shareholder value of insurance companies, let’s see if there’s a way we can crack this nut… sometime.

I’m also not getting the math. Canada, that charnel house of socialist health care, spends 16% of every health care dollar on administrating a system that covers all of its citizens.

The US spends 32% on partial coverage. I guess it’s really expensive employing all those doctors who get to decide who lives and who has to die. And don’t start in with quality of care issues. You may have noticed that the number of Americans moving to Canada is at a 30 year high. When asked, most responded that Canada cares about its people. Ouch! I doubt sub-standard health care was a primary motivator.

Another example: you don’t want all of our tax dollars going to pay health care for those who can’t afford it. But we’re doing that anyway. Drive around Anytown, USA on a Saturday night and visit any of the hospital Emergency Rooms. You will note your tax dollars going to pay for the treatment of everything from bellyaches to a gun shot wounds. Do you want to try and convince me that all of this spending is being accounted for somewhere? Wouldn’t it be better to have a universal system that can be accurately tracked rather than the hit and miss production line medicine we have now?

A universal system would also more easily provide preventive medicine. Catch a disease early and it’s easier and less expensive to treat. But if people wait until they’re nearly dead, because they can’t afford the deductibles and uncovered treatments, then the price continues going up. In ancient China, a patient paid his doctor to keep him well. If the patient got sick, the doctor paid the patient until he got well. Something to think about, anyway.

So, aside from false economy, high costs, sub-standard care in may hospitals, what has our health care system done for us?

Pink Elephant said...

Tim = Sort of right. I am not terribly concerned about shareholder value of insurance companies, and I do think that there may be some anticompetitive practices that should be addressed. However, I don't think the answer to insurance company oligopoly is replacing it with a government monopoly. Otherwise, you rather nailed my position (though you could have me sound a little more sympathetic!).

Now assuming your figures on the relative costs of administration are correct (I am not trying undermine them, I just don't feel like verifying and I can make my argument anyway), there are other factors to consider. Canada's population is about 10% that of the United States. It probably costs less to administer health care to fewer people, dontcha think? Also, Canada gets the benefit of the U.S.'s market motivated health care along with the Canadian "all expenses paid" version. It's a rather easy to decide which side of the border you want to go to the hospital on: is your problem mundane? stay in Canada is free! Would you rather pay out the nose for top notch care in a private system? A short car ride can make that happen. Canada essentially has that dual program I discussed in the second half. With one exception: the private alternative is funded by a much larger population than uses the public Canadian plan. If the U.S. institutes a similar program, there will be far fewer who will fund the private alternative.

Now, I'm glad you mentioned the emergency room! I had intended to use the emergency room as an example but got all wrapped up with the education comparison, So I, well, forgot to. I think the problems with emergency rooms strengthens my argument. It is precisely because we have to treat anyone who comes in that those costs need to be covered by the other more profitable operations of a hospital. It drives up costs on that end, making people more likely to use the emergency room (since they can get away without paying), exacerbating the problem.

There are those, however who do not use the free emergency room because they think it dishonest to take advantage (shame is also a powerful motivator--just ask the Victorians), but once government offers all health care for free, that shame aspect goes away. They are no longer taking advantage, they are only using their entitlement. No shame in that. People will have no problem using more health care than they would if they were paying for it, even using more than they need. Creating the shortage problem I mentioned. It makes no difference that the health care that is provided is paid for by taxes or private money.

Finally, I'll tell you what our health care has done for us: look at the number of Nobel Prize winners for medicine that are from the U.S. compared to other countries. (Even though many discoveries may be made thanks to public research grants, it the private sector that takes those discoveries and makes them available to the public--the public sector has far less motive to do that as quickly and as frequently). Look also at the new drugs, both preventive and responsive that come from the U.S. I'm not defending the market for the market's sake. I am defending it because the profit motive most strongly leads to innovation and greater goods and services.

Now I am curious: what did you think about my voucher idea?

P.S. I still like you, *Kiss, Kiss*

Andronicus said...

Vouchers are an interesting idea...but fail on the issue of distribution. Do you just give everyone the same amount each year?

Do you give old people more?

Does the government decide how to carve up the pie?

Do you get, say, a brain cancer voucher packet in the mail upon diagnosis?

It would seem impossible, and downright communist, to try to predict health care needs. Wellness, yes, but not disease or injury.

Now, I like the idea of vouchers. One example rarely mentioned are what used to be food stamps, now the EBT cards for those on welfare. They can use them at any store to buy qualified food items. Imagine the outcry if welfare people had to buy groceries only at the government food store. In this case, vouchers work because each person, more or less, needs about the same amount of food to live.

Tim is right about the admin costs. It's not really our health care delivery system that costs so much, it's the processing of claims. Now the VA and Medicare, both single payer systems, don't always offer great care, they both spend an amazingly low percentage processing claims. Something like 1 or 2 percent, if I remember correctly. So it has been proven that a US government bureaucracy can deliver efficient services. The problem to solve is how to keep the quality of care high and keep access easy. I don't have an answer for that part yet.

But Pink, I just can't see how to solve the distribution issue with vouchers....maybe you have thought this through and will reveal all in part 3.

Pete said...

The NHS in the UK is a horrible example of free health care but the closest thing we have to it in Europe. It's indirectly expensive and not very good.

I tend to agree with The Economist's position that the US would be better off developing a newer, more modern model for themselves rather than copying old, tired systems from Europe (or maybe elsewhere) that nobody's really happy with. Use the knowledge that has been built up over the years in all these health care systems.

ThatGayConservative said...

I still can't find anybody who can explain to me why the government is the answer. The reality is that the government now is the main problem and we're supposed to hand over complete control of our health to them?

Folks complain about the VA, county and state hospitals all the time. So why are people hell bent on more of it?

Remember when people were going ape over the Walter Reed kerfuffle? Why are we demanding that for all?

People complain about the response to hurricane Katrina. Why are we demanding more?
And no, it was not all Bush's fault. James L. Whitt's (under Clinton) FEMA took 3 weeks to respond to hurricane Floyd which at the time was one of the costliest storms in history. Brown's FEMA had USAR in south Louisiana while Mississippi was still being battered. So yes, "Brownie" did do a "heckuva job".

Tim mentions all the Americans moving to Canada yet somehow he neglects to mention that more than twice as many Canadians are moving here. Guess that doesn't fit his template. Nor does he mention anything about the fact that there are a ton of people who come to the U.S. for their healthcare needs. If we suck so bad, why is this so?

For instance, my mother used to work for a former thoracic surgeon (under DeBakey). A good portion of his patients would fly to the U.S. from Russia, France, the ME, UAE, Spain, Italy etc. just for an appointment. They didn't go to Canada, Britain or Cuba.

Another thing I'll point out is that the libs want to change Medicare so it's more like the VA. Nevermind that there's more medications on the Medicare formulary than the VA. Matter of fact, many vets are dropping the VA and have joined Medicare Part D.

Further, the liberals think they can save us all by "negotiating" lower drug prices. That's ASSuming on their part that the drug companies will accept their negotiations. This is still America and they can still say no.

Matt-CNS said...

First off, thegayconservative made the point about government not doing a good job. You are mistaken, government can do a good job when they are given the mandate. The issue is that politicians stick their nose in (e.g. place this hospital there because it means I'm more likely to be reelected).
However while I actually can find some positive aspects of two tier health care (both public and private), I don't want to discuss that. Pink one thing that I completely disagree with is your take on education system. I realize that this was not the main point of your post, but I find your conclusions troubling. The public school system in the states is flawed big time. Programs like no child left behind do not cause schools to improve, they widen the gap. Everyone has the right to a education in a public school, and everyone pays the taxes to support it. Should a parent decide to stick their child in private school good for them, but that is their choice, and they still have to pay the taxes. My parents put my sister in private school, and still happily paid their taxes because to them it was not about only paying for my sisters education, but it was for the kids who live next door, or the ones up the street, or on the other side of the province. The notion that it should be everyone for themselves, and using a voucher system will actually exacerbate the problem of having sub standard schools and elite schools. For proof I look to my old professor in University. He remembers when New Brunswick started to have bilingual classes in school. Spaces were limited in each school, so it was first come first serve. The town I went to school in has two groups of people, the educated who also made the most money and were largely working at the university. The second were the largely uneducated group (maybe a high school education). They worked the menial jobs in town. When one looked at that first bilingual class at the local school, every child was that of a professor or administrator. Money had nothing to do with it, they simply realized the benefit of this program to their kids, and took the steps and thought ahead on how to get their child into it. When you have a population where education is not a priority the same will translate to their kids, unless good schools encourage kids to learn and explore. In theory a voucher systems seems like it would support that, however it is useless unless the parents knew what to do and many don't. A Voucher system assumes that everyone would know what to do, the fact is they don't, and the quality of a child's public education should not be determined by their parents intelligence.

Also as proof of how politics can ruin something take a look at Maine. They have something like 200 different school districts, each having a school board, each paying administrators. In NovaScotia we have roughly the same population, and geographic area, but only 13 (12 plus one francophone), maybe try dealing with that bureaucratic mess first and putting that money back into schools that need it.

Closet NS

Tim in Italy said...

No worries, Pink, I like you, too. I'm just wondering why I don't find that thought more disturbing.

Actually, I like your voucher idea... (No, I don't feel like I'm selling my soul to Satan. Why do you ask?) I especially liked the PinkCare add-ons. I agree with Andronicus that there are some details to be addressed, however, but it's one of the more interesting ideas I've heard.

Regarding Canada, yes there are fewer people than in the US, but I would consider that we also have greater resources. Make sense?

Andronicus said...


Oh yeah, and another thing, I don't like your idea of Pinkcare, tax deductions, health savings accounts etc. because I advocate eliminating the income tax completely and replacing it with a consumption tax.

We have got to move from taxing success in this country to encouraging savings, which a consumption tax would do.

Now go have yourself a great trip this weekend and get yourself some good old fashioned boy on bicycle messenger action.

ThatGayConservative said...

In theory a voucher systems seems like it would support that, however it is useless unless the parents knew what to do and many don't. A Voucher system assumes that everyone would know what to do, the fact is they don't, and the quality of a child's public education should not be determined by their parents intelligence.

A good example of the elitist liberal mindset. "You're too damn stupid to know what to do so big government will take care of you so you won't have to". Instead of explaining the program and it's benefits, just write everybody off as too stupid and move on.

Further, there's lots of people who DO understand vouchers and who actually WANT it. The catch is that the teacher's unions don't want to lose their power and cash. Not only that, but if the kids wind up going to a public school, the chances are greater that they won't be sitting through liberal indoctrination.

Michael in Norfolk said...

To me the big issue is that something needs to be done to address the millions in this country not covered by medical/health insurance. It is a travesty that the richest nation in the world has such glaring gaps in coverage. If most of western Europe and Canada can provide basic coverage to all citizens, why can't the USA?

As a small business owner, I can also tell you that health insurance premiums are my largest monthly expense after
payroll and rent. Moreover, the cost is increasing faster than any other segment of operating expenses.

Lastly, do not think having "good coverage" will protect you from a potential finacial disaster. When my daughter had meningitis back in 1999, much of her rehab treatment far exceeded the limits of our "good" coverage. The net result was that all of my savings were wiped out and it took me over 3 years to pay off the medical bills.

The bottom line is that the current system is NOT working for millions of people and something needs to be done to fix the problem.

danielnl said...

just some issues I really cannot agree with.

The problem of "overuse" is a problem of full insurance, if you are fully privately insured its worst, if government provides free care, its bad but you can at least ration. But that is exactly why about every "universal" European country does not have free government provision, but has developed its own measures and institutions to minimize that problem. That is never perfect, but its not like you just have to accept it.

And innovation in the medical sector depends on the profits of those who innovate, they are out for profits and they do not necessarily care if they get paid from a government fund, private insurers or public sickness funds. Of course, you need to have your payment structures, so that innovation pays off. But that does not mean you cannot have universal health care. And just one thing, if equal access meant that there are 40 million more "customers", that would also increase the profit outlook of introducing innovations.

And why should it be more expensive in relative terms to administer health care in a bigger country? Shouldn´t administrative costs actually decline per person with larger numbers?

You can always point to the efficiency problems of universal sytems, because there are always problems. But thats the same with a market based system. You want choice and competition, but if the competition is only about which insurer is best at denying claims and denying insurance to bad risks thats not a competition that adds to any sense of efficiency.

I am not sure if i understand your voucher system correctly, but to me it seems to miss the point. What does a voucher help me when I get really sick and need expensive treatment? but if you have the time take a look at the Dutch system, because I think you might find that quite attractive, as it does have the voucher incentive structure, and as a side effect it also is universal.....

ThatGayConservative said...

And what good does it do if everybody has coverage, but they can't get in to see a doctor? That's the sort of thing that's going on now with Medicare and Romneycare in Massachussetts. "Great! I've got healthcare. Now what the hell am I supposed to do with it?"

Audrey B said...

So many people seem to forget that there are only so many doctors, nurses, and beds. No law is going to change that. It's not a question of whether there will be health care rationing of not. It's a question of who does the rationing.

Audrey B said...

Honestly, there are much better ways to make healthcare more affordable. First, we could eliminate the admission quotas the AMA enforces (which keep doctors salaries artificially high). Then we could do away with employer provide health insurance (which separates people from the true cost of care, discourages competitive pricing, and leaves people without insurance high and dry). Third, people with limited finances could form what are known as fraternal organizations. Fraternal organizations are groups of people (possibly in the same trade, immigrants form the same country, etc…) who pool their monetary resources together (i.e. pay membership fees) so that when they, or someone else is in trouble, they have a pot of money they can draw form.

Pink Elephant said...

thanks for mentioning the AMA admissions quotas, Audrey (and welcome, as I think these are your fist comments!)

My ideological hero, Milton Friedman, addressed the issue of admission quotas in his book CAPITALISM AND FREEDOM. He suggested using antitrust laws to break up unions and professional associations that impose barriers to entry. I can't say it would fly (antitrust not being the area of law I plan to practice), but it's an interesting thought, nonetheless.