I am thinking of voting Republican for the first time this year. Oh I've voted for plenty of individual Republicans before. I'm thinking about voting straight Republican.
The reasons are Bill Clinton and Hillary Rodham. The United States came within a whisker this year of socializing medicine. That is one seventh of the U.S. economy. For sheer scale of communization the only historical parallels are the Soviet Union and Communist China. If socialized medicine is passed, the combination of command economy stupidity and the shifting of yet another huge block of costs from old to young will be the billion tons of straw that crushes the camel flat.
Only Republican filibustering got us to the election recess free from this disaster and the danger returns as soon as Congress reconvenes. If the Republican numbers are not strengthened in the election, socialized medicine is still very much in prospect. What a strange impasse, at this stage in the history of communism. It is worth looking into the pervasive misunderstandings of economic and moral science that enable such an absurd predicament.
Some of the blame goes to Econ. 1. Introductory economics courses all over the country, in need of examples of market failure, depict medicine as a classic example of an industry where markets do not work. On the one hand, since medicine is an insured market, customers are not shopping with their own money and have little incentive to shop for price. Also, providers have all the expertise, making it hard for consumers to shop intelligently. But in fact, the market for medical services is not nearly as dysfunctional as it is typically made out to be, and most of the dysfunction that does exist is not inherent but is a result of egregious government regulation.
The great majority of trips to the doctor or hospital are simple trips in and out that are not very costly in hospital time and materials. In an unregulated market, the insurance that people would buy would usually not cover these trips. No rational person would buy herself medical insurance with less than a couple thousand dollar deductible. It is just much more efficient to self-insure (to save). In fact, a thousand dollar deductible plan costs almost five hundred dollars less than a five hundred dollar deductible plan. It's better to pay the lower premium and put the difference in a bank account. Insurance is costly, and anyone with savings is already self-insured.
The only reason low deductible health insurance exists is because the government provides hefty tax incentives for firms to provide income to employees in the form of health insurance. To take advantage, firms offer more health insurance, in the form of lower deductibles, than rational people would ever buy without tax incentives.
If this perverse tax incentive were eliminated or reversed routine medical care would no longer be an insured industry and would quickly become much more cost efficient. Everyone would be shopping with real money and price competition would become as strong as in other markets. I was recently charged $280 for having an intern squirt saline in a nail puncture and give me a tetanus shot. With competition that five minutes of service might cost $50 dollars.
Without low deductibles, only catastrophic health care would be an insured industry, but here too, getting employers out of the business of buying health insurance for employees would go a long way towards letting market forces work. When employers buy health insurance for employees, people are not choosing for themselves what particular coverages are worth the cost. As a result, no market develops for insurance that lets people opt out of coverages that are not worth the cost.
Consider an example. How many couples of child bearing age would be willing to pay a couple hundred dollars a month for insurance to keep a non-viable preemie alive until it dies? It should be none. The medical benefit is zero and the average cost for this service is a quarter million dollars. Yet everyone is presently buying this coverage, spread out between those who are at risk for incurring it and those who are not, because people are not buying their own insurance and deciding what coverages are worth spending their own money on.
Sensible insurance would rank procedures by medical benefit per dollar spent. Oregon has already done a tremendous amount of work coming up with such a ranking for allocating their public health funds. Individuals buying private health insurance would pick a cut off point in such a ranking and choose to be insured for all services above the cut off point, plus they could tailor their coverage to include or exclude any particular procedures that they thought were or weren't worth the cost.
Medical benefit would typically be stated in terms of years of healthy life preserved, so it would vary according to the demographic status and health history of a client. A life saving operation confers less medical benefit if the patient has full blown AIDS or is ninety years old than if the patient could otherwise be expected to live a long and healthy life. Similarly, the cost of being insured for a particular procedure would vary by demographic status, since some people will be at higher risks of needing the procedure. All the relevant information could be punched into a computer and the estimated medical benefits and the costs of being insured for each service could be printed out.
This system would cure one half of the problem of an insured market for catastrophic care. Catastrophic services would still be paid for with insurance money, but at least people would be deciding what coverages were worth spending their own money on. In sum three quarters of the insured market problem would be eliminated. For the rest, we can just let doctor's be the best doctors they know how. Costs would be higher than if price competition were in operation, but the size of the problem would be much more manageable.
All of these changes would follow just from de-coupling health insurance from employee remuneration, which should only take removal of the tax break for employee health benefits. Because of inertia, this de-coupling might not occur unless there were actually a tax penalty for employer provided health insurance. Such a tax would be justified because price competition provides external benefits.
My shopping for price helps you by keeping prices down, even though I do not take this benefit into account when I shop for price. When low deductibles and employer provision keep people from choosing for themselves what is worth spending their own money on, we all lose the external benefit of price competition and it becomes efficient to use a tax to force people to take this cost into account.
One thing that really confuses health policy is our failure to understand the implications of moral science for public policy. People have some idea that, because health problems are largely a matter of natural accident, social policy should see to it that everyone pays the same amount for health insurance, regardless of anyone's known health risks. Undeserved differences would then be ameliorated rather than exacerbated. To implement this leveling it is necessary to dictate the same coverage for everyone, eliminating individual judgements about what coverages are worth spending one's own money on and requiring instead an entire system of socialized medicine.
But a basic principle for achieving distributional justice is that whatever distributional goals society sets, policy should not try to achieve these goals in each market but should be concerned only with the sum of distributional effects in all markets. A person with high health costs might, in the labor market, have the combination of talents and luck of a Bill Gates, leaving him in sum one of the wealthiest people on Earth. It would obviously be perverse from a distributional standpoint to subsidize this person in the health market, and this is a general principle.
I was talking about socialized medicine to a woman last year and she was mad that routine mammograms might not be covered in Clinton's plan. I explained to her that non-contingent costs should never be covered by insurance. They just make the insurance premium go up by the certain to be incurred amount, but since the service is paid for with insurance money, price competition disappears and everyone ends up paying five times as much.
Still, she wondered why she should have to pay for mammograms just because she was a woman. I told her she had just answered her own question. Everyone pays the costs and reaps the benefits of being themselves. If some people in sum end up needing some help to get a leg up on life, that is where our priority for distributional justice should go. Welfare for upper middle class women would be absurd even if it weren't an engine of inefficiency.
Beyond setting up an equitable tax system, the proper role of government in achieving distributional justice is to provide a safety net with full incentives for people to be responsible for themselves. In health care this means guaranteeing a minimum standard of medical benefit per dollar spent that would be provided to anyone who wants it and cannot otherwise afford it. To preserve incentives not to treat the safety net as a hammock, all services would be billed at full cost and recouped according to ability to pay over the life of the recipient.
In general, billing this way for safety net help enables more generous help because it cuts down the room for abuse. Those who do abuse it by running up bills beyond any prospect or evidence of repayment would have to be cut off from more generous help. Far more people could be helped through rough times by such a system than by any system of dole.
In health care, billing for services rendered would give impoverished people an incentive to buy insurance, which they should also be able to get loans for, again, to be paid back by ability to pay over the rest of their lives. But no one should have insurance automatically provided or we are not asking them to be responsible.
With minimum standards in place (they could be set as high as society deems appropriate), hospitals would be free to only provide services beyond the standard when private insurance or direct payment was in place to cover the costs. This is the only way that we will ever stop squandering vast irrational amounts of money on dying.
Fully half of a person's lifetime medical expenditures currently are spent on dying. The reason is that we have already socialized medicine for old people. The elderly should be asking themselves: "Do I really want to spend a thousand dollars a month of my children's inheritance for insurance coverage to pay for six months and two hundred thousand dollars of misery at the end of my life?" As it is the costs are spread over everyone and the inheritance of the young is squandered without anyone ever accounting the costs.
Other needed reforms have to do with moving from our current group based cost sharing system of insurance to a true actuarial insurance based on individual characteristics and fully capturing the costs associated with new information about an individuals health that comes out in an insured period. (Present group based insurance allows insurers to evade their insurance function by allowing healthy people to move out of groups, leaving the sick to pay their own medical bills.) These reforms would occur automatically with the kind of individually calculated insurance policies described above.
Bill and Hillary are a pair of old fashioned socialists/ new fangled communists. Clinton is so widely despised because he has become the symbol of Democrat betrayal: winning elections by talking about market oriented reforms and individual responsibility, then voting for socialism and extending the dole and treating working people as nothing but a source of tax revenue. Given that it took the Republicans to stall the headlong rush to socialized medicine, I have come to the conclusion that the symbolism is accurate.
The Democratic party is rotten to the core with these "Old Democrats", posturing incessantly to look tough on big government and tough on crime and tough on illegal immigration and tough on paying people for having babies they can't raise, but their true emotional center is soft on all these issues. They have sympathy for everyone but those supposedly privileged people who are trying to live responsible lives. They have no grasp of what is clean and upright and how a responsible society wants to comport itself.
I am going to vote straight Republican.
Next article in the Utilitarianism volume of Moral Science: File Unions in the Dustbin of History
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Date Last Modified: 8/27/99
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