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Saturday, February 23, 2008

National Health Insurance vs. Competition

Very few are happy with the state of health care in the United States. Many want to go to a single payer system like the Physicians for a National Health program. Others think that if somehow more competition could be interjected into health care, things might improve.

I recently received an email from a friend containing the following excerpts:
I thought you all might be interested in this article:

If you look at nothing else, look at the table on page 6.

It is my contention that healthcare is a fundamentally different type of "good," the provision of which is not well-served by the free market. The evidence is overwhelming that our current system is tremendously flawed. I'm in favor of National Health Insurance (as promoted by Hillary - even though I voted for Barack for other reasons). We are currently spending around 30% of our healthcare dollars on administration. That would be sliced way down with NHI. And, there is strong evidence that the quality of healthcare would increase. [...]

[P]lease forward this article to help people understand that there is nothing to fear from a national health insurance program. Much of the rest of the world has already proven it is far better than our current system. It takes tortured logic to argue otherwise. [...]

The article does a good job of addressing the common concerns which are raised about national health insurance.
This PNHP proposal for National Health Insurance works for me.

It's funny, but just recently I was thinking that I'd like to stop working, but because of health insurance I couldn't quite afford to do so, especially since now that I'm getting a bit older, health insurance is getting more and more expensive. With the PNHP proposal there would be absolutely no advantage to continue working from the perspective of paying for my health care and it would thus remove one of the biggest impediments keeping me from stopping working. I'm more than willing to kick back and fly kites at the beach in San Diego while all the young whipper-snappers work their butts off at low wage jobs in order to provide health care insurance for me. How could I argue against that? It won't be a very lavish retirement, but hey, the house is paid off, and food is cheap enough, so if health care is covered, I'm good.

On the other hand, I can't really advocate for this proposal because I just can't seem to understand the logic behind it. It seems that the gist of that logic is as follows:
A. Health care is one the least free markets in the nation with the tentacles of government regulation and control reaching into nearly all aspects of the market with government already involved directly or indirectly in over 60% of all health care expenditures in the country; and

B. Everyone agrees that the current system is tremendously flawed, especially compared with the efficiency and progress in many other non-regulated markets.


C. Let's make the government become even more intrusive in the health care market.
In other words, government intervention is substantial and the market sucks so let's add more government intervention!

Now, there's a much simpler set of logic that explains why I don't understand why that makes sense:
X. I'm fairly conservative; and
Y. All conservatives are stupid.

Z. It's not surprising I can't grasp the why the “A B -> C” logic above makes sense.
I'm sure if I had adequate mental capability I could understand all the nuances that turns NOT C into C, but I don't. So be it.

Nonetheless, it's quite hard for me to support, advocate and vote for something that doesn't make sense to me, so the best I can do in this case is abstain and make it work for me personally (i.e. fly kites at the beach) if it comes to pass. Indeed, because of my apparently limited understanding, I think it's probably bad for my children, if for no other reason than if enough reasonably productive people such as myself retire an extra decade or two early, it doesn't seem to me that that would be particular good for average prosperity. Since I know a number of people in their fifties and sixties who are working primarily to keep their health insurance going, I suspect that a fairly large number of productive people will retire significantly before they otherwise would've, assuming that the PNHP proposal is implemented. With any change in a system, there are always winners and losers, and I have little doubt that people who are between 50 and 65 years of age are the big winners if the PNHP proposal is implemented.

On the other hand (actually, I guess that's the third hand), there is a version of national health insurance that I could both understand and support. Unlike my uber-libertarian friends, I generally don't mind the concept of “safety nets”, especially ones that allow people to absorb risk and become more entrepreneurial. For example, I think that Social Security enables people to be somewhat more entrepreneurial since they can be a bit less worried about their financial state in their old age and take more risk when they're younger. I just don't think that “free rides” like the PNHP proposal that remove incentive for people to be productive are generally a good idea.

The alternative I'm talking about is a catastrophic only version of the PNHP proposal. I'm not sure what the exact numbers should be, and there are certainly gazillions of other details to work out, but the gist would be something like this: 95% of everything over $5,000 per year per family of medical expenses is covered and 95% of everything over $50,000 per individual per lifetime of medical expenses is covered.

Then, everybody is covered against severe financial ruin due to health problems. Keep in mind the following: other programs for the very poor like Medicaid can provide insurance for the first $5,000 if necessary; private insurance can provide coverage for some portion of the first $5,000 for the non-poor if people want that and it should be relatively cheap since a significant portion of the cost of health insurance currently goes to pay for the catastrophic cases; other preventative programs such as providing free prenatal care are not excluded by catastrophic health insurance if that's still necessary; etc.

For everything else (under the $5,000 per year per family), allow a free market to operate. This includes greatly deregulating the private insurance market, greatly deregulating all health care including allowing more alternative medicine, and removing the tax break for employer provided health insurance (which mostly helps the relatively well-off anyway). We should then commit to the program for 15 to 20 years in order for the change to stabilize and to allow the profit motive a sufficient window to make investment potentially profitable.

At the end of 15 to 20 years we will be able to at least partially answer two questions: are government administrative costs and government ability to control quality of care, access, and cost really better than the private insurance companies (for catastrophic health problems); and can a market freed of government intervention for services below $5,000 per family per year adapt and provide better choice and higher quality of care at lower cost? In other words, we can gather data on how well a national single-payer system would really work before committing whole hog and we can gather data on how a free-market approach might work in the mean time. All of this data would be new.

When the new data becomes available, we can re-evaluate and make modifications if necessary to enhance the system based on the new information in a decade or two.

In summary, I personally can make use of the PNHP proposal, if implemented, but I think it may be a bad idea overall. However, I've proposed an alternative that would be much less expensive and much more free-market that accomplishes many of the stated goals of the PNHP proposal.


Hey Skipper said...

If I became the HDWIC, I would:

1. Eliminate the IRS distortion that penalizes individuals purchasing their own health insurance.

2. Return to the raison d'ĂȘtre of insurance: pooling risk. That means no more money shifting for known periodic health expenditures (e.g., dental cleanings, physicals, etc)

3. Impose a Health Savings Account upon all taxpayers; the minimum amount in the account would be a function of family size; say, $2500 per person. In order to retain progressivity, those getting an EITC would get a contribution to their HSA.

4. The HSA would be used for non-catastrophic and known periodic health care expenses. Individuals would choose their own providers based upon services provided and cost.

5. Health care costs depleting the HSA would be covered by a catastrophic health insurance policy. The policy cost would be deducted from pre-tax income.

6. Insurers may not take pre-existing conditions into account.

7. Everyone (meaning all taxpayers, which is close to everyone) must have both an HSA and a catastrophic health insurance policy.

8. For those who do not get their own catastrophic insurance, the IRS will penalize the taxpayer for the amount of a government provided policy. It will be bare-bones.

Though my instincts are decidedly libertarian, any approach that fails to take human nature into account must fail. Hence, there must be some compulsion. Far too many people just suck at planning for high-cost / low-risk occurrences. Further, there is absolutely no possibility we would ever deal with the free-rider problem by doing the obvious--denying care to those who didn't make provisions and can't pay.

Bret said...

hey skipper,

I like your plan. The main reason I proposed the national catastrophic health insurance is that it seems like it was a fair compromise.

I doubt either your plan or mine is politically viable though.

Hey Skipper said...

I don't see where political viability fails.

Building in sufficient progressivity, by, in effect, increasing EITC then statutorily spending some of it on health care means everyone is guaranteed access, and the better off are obligated to make that happen.

Additionally, for all but catastrophic situations, the administrative overhead of deciding how much to pay to whom for what disappears.

That no one who matters has seriously put forth anything like this means something must be wrong with it, but I sure as heck can't figure out what that might be.

erp said...

Skippers idea is a good one which is why it’ll never see the light of day.

Anyone making the following statement is seriously deluded.

We are currently spending around 30% of our healthcare dollars on administration. That would be sliced way down with NHI. And, there is strong evidence that the quality of healthcare would increase.

The more government is involved in healthcare (or anything else), the more funds are diverted to management and the less devoted to actually taking care of the sick and here’s some strong evidence on the quality of socialized medicine -- many Canadians are sent to the U.S. because their health care system doesn't have the capability to do what are considered routine procedures in our “worst” health care system on earth.

Bret said...

erp wrote: "The more government is involved in healthcare (or anything else), the more funds are diverted to management..."

That's what I think too. I read recently somewhere (I can't find the link), that Belgium's central bank employs 2,000 people. What's particularly interesting about that is that Belgium hasn't had its own currency for several years since the Euro was introduced.

Not only are government management bureaucracies bloated and inefficient, but once started, your stuck with 'em foverver.

erp said...

Proving once again that great minds really do think alike.

Howard said...

As you point out:

Anyone making the following statement is seriously deluded.

We are currently spending around 30% of our healthcare dollars on administration. That would be sliced way down with NHI. And, there is strong evidence that the quality of healthcare would increase.

It's actually worse from the standpoint of falsehoods in the debate...

This paper provides some food for thought regarding admin. expense. (see executive summary to start)
I could list a dozen fallacies surrounding the public debate which would just be the beginning.

erp said...

Howard, as you say, there are many other debatable issues. Can you imagine this happening in any hospital in our fair land.