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The Dumbest Words I’ve Read Today, Health Care Reform Edition…

August 12th, 2009 · 18 Comments

People really like to ask me what I think about the health care reform proposals being thrown around nowadays. Believe me, it’s not like I don’t have an opinion. I do, however, want to make sure that my position is well thought out before I go spouting it all over the interwebs. (Don’t worry, y’all will be the first to know when I do.) It seems as though other people don’t have the same qualms about the spouting, unfortunately. From Lee Siegel at The Daily Beast:

“Most consequential of all, even if limitations were put on certain tests and procedures, the only people who would be affected by it would be the people who, presumably, are the ones meant to be rescued by the very plan that would be imposing those limitations. The financially strapped, in other words, who are the intended beneficiaries of the health care plan would be the only people forbidden access to expensive life-extending technology. The rich will always be able to afford it.

Once the technology to extend life has become available, you cannot restrict its availability. That would be like only letting some people use cell phones.”

I don’t know a whole lot about medicine, but I do know about economics and even a tad about this thing called common sense. So let me make my point clear: WE DO ONLY LET SOME PEOPLE USE CELL PHONES. IN FACT, WE LET EXACTLY THOSE PEOPLE WHO PAY FOR CELL PHONES USE CELL PHONES. (Yes, I know that cell phones can be free with a service plan, but work with me here.) In this way, prices do the job of “restricting availability” once a technology becomes available. If a particular medical test were not covered by insurance, it would in fact be exactly like the cell phone, save perhaps for the unlikely nature of the “get the test for free if you sign a service contract” pricing structure.

The focus of the debate, at least as a starting point, should be over whether health care should be treated in the same way as cell phones, but it’s hard to have a debate over the right questions when people can’t even analyze the comparisons properly. To aid the discussion, I will throw out some values questions that in a reasonable world need to be answered before an appropriate plan can be developed:

  • Are we deciding as a nation that everyone *should* have access to health insurance? (By this I mean the guaranteed ability to purchase an individual policy, not necessarily getting it for free. Even this would be a deviation from the current system.)
  • Are we deciding as a nation that everyone *should* have affordable health insurance? (By this I mean that prices would be set such that health insurance prices would not be out of reach for any households. Given that healthcare is expensive, this is going to require some sort of subsidy.)
  • Are we deciding as a nation that everyone *needs* to have health insurance? (This is not necessarily a question of paternalism. If emergency rooms could turn patients away, this would be a very different question. The fact that emergency care is not restricted to paying customers means that health care at least partly takes on the properties of a common resource or common good rather than a normal private good like oranges, cell phones, etc. Free markets generally only function well for private goods, so there is a potential case for regulation to be made.)
  • Are we deciding that the government is going to organize the paying for health insurance? (Note that this does not follow from the above question- for example, Massachusetts requires its residents to purchase health insurance but doesn’t organize the funding of the program via taxes, at least not on a universal basis.) Note also here that there is a sub-question of whether certain groups (eg. children) need to have health insurance in order to guarantee that their best interests are being protected.
  • Are we deciding that government is going to administer the provision of health insurance and/or health care? (This is also different from the above, since it is possible for something to be government-funded without being government-run.)
  • For each of the above questions, what level of health insurance should be provided? Is the entitlement to basic services or an all-inclusive package? Should there be a guaranteed option to purchase more high-end/experimental/lifestyle-driven coverage?

These aren’t easy questions, and there is certainly not a “right” answer to any of them. The point is that these questions get even harder to answer when they are mixed in with the implementation debate.

Since this site is supposed to be at least marginally humorous, I will leave you with a couple of cartoons for the occasion, courtesy of The Cartoonist Group:

Tags: Policy

18 responses so far ↓

  • 1 Larry // Aug 12, 2009 at 3:02 pm

    This whole debate is miss information and ignorance driven. We cannot reduce the cost of healthcare on the nation no matter how government alters insurance with a few exceptions. The simple plan is the current proposals from an economic perspective will increase demand dramatically while reducing or at least not increasing supply. Furthermore, it invites the moral hazard since people will be unaccountable for the costs of their life style. From an economic perspective these proposals of government healthcare on the table now will increase the percent of net gdp spent on healthcare not reduce it no matter how the democrats spin it and no matter how many times they will make it efficient. BTW someone who disagrees with that name me one thing government does efficiently other than waste money and I’ll kiss your toe! Work with the USPS and then work with UPS or Fedex and see what I mean.

    In essence the current proposal has nothing to do with saving money or making healthcare more affordable its about another redistribution of wealth scheme at the cost of more disinsentives for positive social behavior and subsidies for irrisponcible and negative social behavior which from an economic standpoint is always bad!

    What could be done? Wall street journal did an article today that might shed light. But the things I’ve been saying for years now is that we need some form of reform to lower malpractice insurance without giving doctors a free pass on negligence. Basic tort reform or a change in the malpractice insurance industry such as removing the state by state barrier and letting doctors have a national market instead of a state market… I know in many states there are only 1 or 2 malpractice insurance companies to choose from. Bad!

    Secondly we could do the same with health insurance… let people shop in a national market instead of only in their state! A big chunk of insurance costs comes from the state regulation and departments of insurance… I worked at a law firm suing insurance companies for several years and I learned in some states the insurance lobby is so strong they do as they please and in fact can get laws passed to alter specific contracts (Even though its illegal and unconstitutional) the level of corruption is hard to imagine… on the other hand some states departments of insurance and legislatures are anti-insurance and make them cover everything and the kitchen sink… both are bad for policyholders! A simplified national regulatory system or at least a lowering of barriers between states would be HUGE!

    Another important aspect is Medicare which is a huge drain of resources! There is so much waste and and burden. I know doctors in my old home town you get reimbursed below cost for Medicare patients in many situations because of the payment structure based on cost of living standards…

    Point is there is so much that could be done if we would look at the problem rationally as you have here (TY) and make decisions as informed people and preferably as economists that will truly help the system rather then just changing where the bill goes. Note to the bleeding hearts… we are running out of rich people to rob! The current proposal puts us at well over a trillion in new debt next year thats more than 39k for each man women and child which is more than the combined salaries of everyone making 250k a year and above… ie we couldn’t pay for this with a 100% bracket on the rich! If this goes through there will have to be middle class tax increases though they may be shrouded like a vat or sales tax or maybe mass inflation it will have to come!

    Good Article!!

  • 2 Daniel J. Smith // Aug 12, 2009 at 3:06 pm

    Good article! Reminded me of this quote:

    “The luxury of today is the necessity of tomorrow. Every advance first comes into being as the luxury of a few people, only to become, after a time, the indispensible necessity taken for granted by everyone. Luxury consumption provides industry with the stimulus to discover and introduce new things.” -Ludwig von Mises

    This applies to Healthcare as well. Mandating that every new medical technology be available to everyone will reduce investment in new medical technology, as businesses won’t be able to off-set the costs of investment by charging the first customers the costs of developing and refining the technology in order to learn how to produce it cheaper and on a mass scale.

  • 3 Sam // Aug 12, 2009 at 3:11 pm

    From the desk of Dr. MyDad, MD, American Society of Anesthesiologists

    Hang Jim Sokolov, John Edwards, and other bottom feeding lawyers from a tall tree. I could use the target practice.

    Yes, there’s a LOT of overkill when it comes to medical spending. Why? Because if we don’t make you spend that much, someone’s gonna litigate, and we’ll have to pay that much more. Healthcare reform is even more overkill to a simple problem. Just reform the goddamn torts.

  • 4 Jon Garling // Aug 12, 2009 at 4:00 pm

    Its not a simple question to answer – many countries of many sizes struggle with this issue. The effects of large reform will be much larger than any scope we can accurately predict. Example: Switching to a gov’t mandated (but not controlled) health care system a la Germany will force ALL people to pay for health insurance (many options but no option is zero dollar premium) will create a large blanket of good coverage. However, doctors are paid less than they are here, but even scarier is how do you pay for the funding of medical research, pharmaceutical research, etc?
    Is everyone comfortable paying for medical research and drugs we may never use? I might be, but will I make that decision for my neighbor who is healthy and makes 1/3 of what I do in income?

    The United States may not have the best quality of care in the world – but we have made more leaps in medical tech. than any other country in the past 50 or even 100 years. Same with pharmaceuticals.

    Also, what happens when we take off on a reform plan and find out 100 years down road that we have backed ourself into a nasty corner…. cough* Social Security* cough?

    I have no answers, but as a Medicare Insurance agent I have seen the effects of a poorly run government health program… and it’s scary.

  • 5 Dan L // Aug 12, 2009 at 5:17 pm

    econgirl, I had to follow the link to find out what you’re so upset about. When I read Lee Siegel’s quote above, taken out of context, I thought it was trying to make the *opposite* argument from the one it’s actually making, so I was hugely puzzled.

  • 6 Jeffrey Horn // Aug 13, 2009 at 2:37 am

    Have you been drinking Megan McArdle’s Kool-aid?

    Not that it’s a bad thing. I just thought it was interesting that, in the only blog posts I cared to read today, both authors basically tackled the same topic.

    Even if it’s all just a strage confluence of events, you might find her article interesting.

  • 7 Scott Ritchie // Aug 13, 2009 at 11:05 am

    If we want to promote health, why don’t we implement an actual death tax? That would give people an incentive to avoid dying.

    Note that I’m not talking about inheritance taxes here, which only encourage you to die poor or murder your parents.

  • 8 Jeffrey Horn // Aug 13, 2009 at 2:37 pm

    Genius. Because no one wants to live.

    Seems like dying is self-incentivizing to me. I could be wrong. Or I could just prefer living.

  • 9 Larry // Aug 13, 2009 at 3:16 pm

    The problem is who pays to keep them alive I think not if they want to be alive…

    However, I am reading a book the Law’s Order I think its call by Friedman’s boy that clearly explains that everyone values their life differently and the average american has a value for their life of between 1 and 10 million dollars. (To find the calculation you have to do some funny analysis to avoid dividing by zero but the calculation is pretty legit and interesting might I add) 🙂

  • 10 Matt D. // Aug 13, 2009 at 4:01 pm

    Hmm, it seems that after you put out a statement, so to speak, for people to completely consider the issue before forming opinions, several readers choose to do the opposite. This is why so many believe the issue has become so loaded, etc. in the public sphere, no?

    Anyway, I saw moral hazard mentioned here, and I’ll be honest, I never thought of it like that and that commenter brought up great points. However, when I think of moral hazards and this issue, I get drawn to (regardless of me economic studies) to the fact that i find it “morally hazardous” for a private industry to make decisions about what risk they are willing to incur in order to make a profit. Simply put, the health insurance companies are in the business to benefit off of risks. They chose what risks to take, and have incredibly complicated( at least more so than I can understand) actuarial formulas for doing so. If they did take these risks they might lose profit. However, consumers of health insurance products can’t exactly mitigate their own risks with the same resulting consequences. The consumers, aside from those who want to die/suffer-in-some-way (as one keen reader commented on I believe) have the choice of having health care, or suffering blows to their health , or not and betting on having enough money to pay for their health care when the time comes. Ultimately, the demand given such a situation results from, probably above 99%will purchasing health care. because, I mean, who wants to die? So, when betting on the same level of risk, the company can lose profit, but the consumer could lose money, but also possibly die? Anyway, I realize this is only slightly economical in its rationality, but just an issue for fodder.

  • 11 Matt D. // Aug 13, 2009 at 4:16 pm

    Oh! Also, I see a lot of economists agreeing the the government cannot run anything well. Interestingly true, but don’t most people believe the government runs goods publicly because an efficient market isn’t created by the people? For example every econ 101 talks about roads being government run because everybody uses them but nobody would like to pay for them. So, while the government doesn’t always run road building efficiently, they do so because everything runs more efficiently under that than would happen if those who used the roads stood around and argued over who should pay for them. 🙂 Be easy on them sometimes, guys and gals, after all they are their because WE voted them in right?

    Haha, maybe one day the vote will represent the percentages actually. Insert funny picture of physical features roughly 51% Gore-49% Bush here. (Wouldn’t that be truly efficient,assuming people’s votes represent their values efficiently of course. ):-)

  • 12 Matt D. // Aug 13, 2009 at 4:22 pm

    Oops,edit my first comment:
    *me= my

    *Also, with regards to businesses choosing what risk to accept, I only find it “morally hazardous” in the case of the health care insurance industry I suppose, because all businesses decide what risks the should take to make a profit. Oops, what a ridiculous original statement.

  • 13 Larry // Aug 13, 2009 at 5:02 pm

    Well Matt please don’t take this the wrong way but you might want to invest in econ 102 because there is more to the analysis than you seem to be putting in..

    First off healthcare doesn’t meet the requirement of an inefficient market. Only public goods can truly meet that requirement and healthcare as much as you don’t like it is like food… sure everyone needs it but the quantity and quality depend on your willingness to pay out for it… there is a big difference between a $75 steak and the dollar menu at McD’s but the argument that everyone deserves to afford food on the table doesn’t mean we need to subsidize and buy everyone $75 steaks does it? Health care is the same! Emergency rooms don’t deny service and there are charitable healthcare for the really poor plus Medicare and Medicaid.

    Secondly, you are wrong about the 99% of people who can afford it buy health coverage. Truth is a large number of middle class folks choose not to because the money is better spent on other things like a new house. A recent study shows that somewhere between 15-30% of the uninsured are at or above the median meaning middle class or above most of them single and young meaning they think their risk is low and would rather bear it themselves instead of buying insurance… a choice. (BTW another 30%+ of the uninsured are illegals or kids of illegals).

    As for moral hazard… you might want to look up that phrase 🙂 not to be a smart ass but it is a term of art in the field and doesn’t mean an obstacle having to do with morality. It basically means that people take on more risk if someone else is footing th bill IE if you don’t pay for your healthcare you don’t bear the costs of your choices or at least not as much of the cost and things like smoking, drinking to excess, eating fast food everyday, practicing safe sex or abstinence, and not maintaining a generally healthy lifestyle have less costs and therefore people are more likely to take those risks knowing someone else will pay to make them better. Basically you make responsible people pay for the mistakes of the irrisponcible which is not justice but theft. In this particular scenario it is no different than car insurance. I’ve had a wreck and now my insurance has gone up… I deserve the right to drive so I can have a job and feed my family right? So government should bear the risk and pay for my accidents right? No of course not I drove recklessly and had a wreck I should pay for the consequences just like if I live unhealthy ie I smoke and I’m 200lbs over weight I should pay higher premiums for good healthcare. Its just a matter of personal responcibility.

    As for the inefficient market let me say this most of the inefficienies in the healthcare market are designed by government. Medicare and Medicaid altered the supply demand ratio in a negative way, state boundary on markets gives monopoly control or at least oligopoly control to insurance companies by eliminating competition and states corrupt and changing regulations increases the cost to everyone… so there are 3 ways to make insurance more efficient. Another would be Health savings accounts mixed with less regulation to make it easier to by only catastrophic care coverage which is almost impossible to do under current regulation. See then you could say shove off to the insurance and get a health savings account of a few grand to cover smaller stuff… then get coverage for a huge bill like cancer or heart attack… this allows high deductibles and reduces the moral hazard on insurance companies allowing healthy people to get into a decent pool and allowing more of those middle class and even poor to afford decent coverage for the things they really need.

    But sadly those options aren’t really being discussed and aren’t on the table because government likes to grow and deregulation even if strategic and designed for the better good is still seen as a loss of power and thus a loss of lobby dollars 🙁 sad but thats the system we are in…

  • 14 Eli Hayes // Aug 14, 2009 at 9:01 am

    I like the ideas posed here

  • 15 Matt // Sep 3, 2009 at 5:40 pm

    Haha, I obviously don’t check back too often do I? My apologies Larry, I was making a little bit of a pun on moral hazard when I wrote that. Hey, what can I say, I blame my parents for putting me in that catholic school for 8 years.

    Anyway, I still disagree with the fact that health care as it currently exists is an efficient market. The point you made about state boundaries illustrates that point. And true the government is partly responsible for making it that way due to such laws and medicare. (Side note: as if the companies need the protection from, I know here in PA, 70% of the insured are through two companies – There’s those lobby dollars you mentioned :-). Boo lobbyists).

    However, the stats you gave do not convince me, They still leave the fact that 40-55% fall into the category of being unable to get insurance either because even of pre-existing conditions, or just plain not-being-able-to-afford-it (afford either the cheapest insurance, or afford minor health services.) As, you said, there is always more to the story, and I believe such is the case with that particular stat. The make would be more efficient in the insurance companies offered at least some kind of limited, affordable policies that soak up the demand of these people.

    But you’re definitely right about one thing, I should crack out the old textbooks more often.

    I’d really be interested to hear more about HSA’s to cover small things and and insurance companies offering catastrophic care coverage. Although essentially the previously proposed HSA’s are just savings accounts with tax breaks right, so why aren’t more people just saving now and even if there are HSA’s why will insurance companies be more apt to offer policies with only catastrophic care? People still would still be worried about being able to afford health costs if they have a heart failure and would have to purchase whatever the companies offered.

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