Thoughts on Health Care Reform

The American health care system desperately needs reform. But there are certain inescapable truths that would-be reformers would do well to heed; otherwise they risk making things worse for everyone, and particularly for the poor. Here are a few of those truths.

1. Insurance is not part of the solution; it’s part of the problem. Many people—and especially poor people— get too little health care in this country. That’s largely because many other people—and especially rich people—are overinsured. People with insurance demand more health care, which drives up prices. More insurance coverage will make this problem worse, not better.

There are good alternatives to insurance. For example, as David Goldhill points out in a magnificent Atlantic Monthly article called “How American Health Care Killed My Father”, we could take, say, half of what’s currently being spent on insurance and Medicare and use it to give each American family close to a million dollars to put in a health savings account. We’d probably want to couple that with insurance for catastrophic events that cost more than, say, $50,000.

Or, less radically (and therefore less effectively, but at least it’s a start) we could restructure medical insurance to look more like car insurance—where nobody asks how you spend your claim check. If you’re diagnosed with colon cancer, then instead of paying $X million to doctors and hospitals, the insurance company would pay $X million directly to you. That way, at least some of us would shop around for better prices and forgo treatments we don’t think we need—lowering demand and making medical resources easier for everyone else to afford.

The last thing we need is more of the inefficient sort of coverage we’ve got now. The very last thing we need is to make that coverage universal.

2. Somebody has to say no. Nobody would want to live in a world where we all get unlimited health care, because in that world, health care would be all we could afford. That means we despearately need someone to say “no” from time to time. In a world of health savings accounts, we’d tell *ourselves* “no”; in the world we live in, our insurance companies do it for us.

We all know horror stories of claims delayed and claims denied, and many of those stories are true. They have to be, because no system is free of mistakes. Sometimes insurers say “yes” when they ought to say “no” and sometimes they say “no” when they ought to say “yes”.

Now, we could always opt for insurers who err more on the side of “yes”—in exchange, of course, for higher premiums. But almost nobody wants that. I know this because I believe that insurers are consumed by greed, and would therefore happily offer any product as long as consumers were willing to cover the cost. Auto insurers compete on exactly this basis: Some companies hand out claims more easily than others, and their premiums reflect this. But when it comes to health insurance, it appears that the market is pretty satisfied with what we’ve got.

When your health insurer denies a claim, it’s performing a valuable public service. If health care is going to stay affordable for anyone, somebody has to sometimes say no. And as much as we bitch and moan (sometimes rightfully, because some of those denials really are unwarranted), we really wouldn’t prefer it any other way.

3. A public option can only make things worse. A government run insurance system can only do one of two things: Mimic the private insurers, or do something different. If it mimics the private insurers, it serves no purpose. If it does anything different, it can only be worse.

After all, what can it do different? Approve more claims? But where will the money come from? Higher premiums? But we’ve already agreed that if people wanted that kind of insurance it would already be offered. A more efficient bureaucracy? But if there were a way to save money by streamlining the bureacracy, why wouldn’t all those greedy private insurers have adopted it already? Does anyone believe that the major insurance companies are too lackadaisical to make an easy extra buck?

You might say that the private insurers, unlike the government, won’t always pass cost savings on to the consumer. But that too underestimates the greed of the insurers—and their willingness to undercut each others’ prices in the endless competition for customers.

So if public insurance is going to provide anything that private insurance doesn’t already provide, it will to have to do it by dipping into general tax revenues—maybe not at first, but surely soon. And that way lies madness.

Once those general revenues get tapped, all discipline goes out the window. With all that cash at hand, it becomes harder and harder to deny a claim. Nobody’s saying no, and the cost of health care spirals out of control.

Eventually you’re left with the health-care equivalent of Fanny Mae or Freddie Mac—an institution with dual mandates to earn a profit (or at least break even) and to serve the public—and therefore an excuse to fail on all fronts. When it loses money, well, that’s because it was trying to serve the public. When it fails to serve the public, well, that’s because it was trying to be financially responsible. Nothing counts as failure and nobody’s responsible. It was Larry Summers who first (and most eloquently) made this observation about the inevitable fate of dual-purpose institutions; once upon a time, he was a very wise man.

I know, I know—the proponents of the public option insist that it will be self-financing. I don’t believe them. What happens the first time a powerful congressman demands that his constituent’s claims be treated more respectfully? And the second time, and the third? Where does the money come from? But even if you *could* somehow resist that kind of political pressure, what are you left with? A high-claim-approval high-premium option that nobody wants? What’s the point of that?

4. It’s always the poor who get screwed. Expanded insurance coverage means higher health care prices; universal coverage means higher prices still; universal coverage with a public option blows the roof off. That’s bad for almost everyone, but it’s hardest on the poor.

Now you might say that we could make up for that by spending lots and lots of public money to buy health care for poor people. The problem with that is that every dollar you spend on health care is a dollar that’s unavailable to help poor people in other ways.

When you’re poor, it’s hard to buy health care. It’s also hard to buy schooling, housing, and groceries. It’s a false compassion that tries to alleviate one hardship by exacerbating others. If we make it unnecessarily expensive to help poor people buy health care, we handicap our ability to help them buy milk and eggs.

Consider the disaster that is Medicare. It’s easy to fool yourself into thinking that Medicare is working because it provides a lot of medical care. But it does so at a titanic cost that crowds out social programs large and small, some of which might have made a real difference in the lives of struggling people. Without drastic reform, the burden of Medicare will crush the next generation. Tack on a publicly run insurance system with its eyes on the Treasury, and you’ve made that burden all the harder to shed.

I do not know how much we should be collectively spending to help the poor. I do know that whatever we spend should be spent as helpfully as possible. I also know that the way to accomplish that is not to drive the cost of health care through the roof and then spend a fortune trying to help poor people afford it.

It’s also worth remembering that political institutions are not notorious for their responsiveness to poor people. When Congressman Smith comes around demanding better service for his favored constituent, odds are that constituent is a person with the means to make considerable campaign contributions. When you move institutions from the private to the public sector, you skew their responsiveness more toward the politically powerful, which usually means the rich.

****************

The answer is less insurance, not more, and private insurance, not public. In the long run, those health savings accounts are probably the best solution. In the interim, the single most effective way to cut health care costs in a hurry would be to eliminate the tax deduction for employer supplied health insurance. That deduction leads to immense overuse of health care resources, especially by rich people. That’s one good reason to eliminate the deduction, and here’s another: People would start shopping for insurance on their own instead of taking whatever their employers offer, which would make the insurance companies more responsive to consumer demands.

It saddens me that support for universal coverage and a public option has become, in many circles, a sort of litmus test for compassion and caring about the poor. It particularly saddens me to hear the president say that “What we face is a moral issue; at stake are not just the details of policy, but fundamental principles.” It’s the details of policy that change people’s lives. The moral imperative is to get them right.

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40 Responses to “Thoughts on Health Care Reform”


  1. 1 1 bouncing b

    I could say many things, but will restrict myself to just one. A question: Why is it that every other developed country has solved this problem using more or less just the opposite of Mr Landsburg’s prescriptions, and most of them have better outcomes, better access, less bureaucracy and more patient satisfaction than we do, and they do it at 50-60% of the per capita cost? It is astonishing and revealing that Landsburg writes 1500 words on this subject without ever mentioning other countries’ experiences.

  2. 2 2 Ben Alexander

    @bouncing b:
    Why is it that every other developed country has solved this problem using more or less just the opposite of Mr Landsburg’s prescriptions…

    -=-=-
    The only prescriptions I saw were for HSAs and removing the tax deduction for health insurance. Both of these measures make the consumers of healthcare more price sensitive.

    It isn’t true that no other developed country uses these mechanisms: Singapore’s systems uses HSAs, and its healthcare system has glowing review here (first link on google): http://econlog.econlib.org/archives/2008/01/singapores_heal.html

    Actually, I’m ‘astonished’ and I find it ‘revealing’ that you critique Prof. Landsburg on what he isn’t writing about rather than choosing to critique what he *is* writing about.

    In particular, I’d like you to critique comment #2 “Somebody has to say no”. Do you agree? Do you think *who* says no is important? Who would you choose (the consumer, a government panel, the insurance company, or somebody else?)

    Or how about critiquing comment #4 “It’s always the poor who get screwed” – though I would add the word ‘more’. Maybe everybody gets screwed, but the poor always get screwed more. Do you disagree?

    The easy things to make fun of are comments #1 and #3, but only by missing the point of the sections and wandering off topic, and you’ve proven that you’re not interested in staying on topic (i.e. Prof. Landsburg’s topic; it’s his blog, he chooses.)

  3. 3 3 Niels

    > If you’re diagnosed with colon cancer, then instead of
    > paying $X million to doctors and hospitals, the insurance
    > company would pay $X million directly to you.

    Cancer is a relatively unlikely disease. What about the majority of diseases, where you have a strong influence on whether you get it or not? With your system, people would get payed for getting ill – and I am afraid this incentive would be strong enough for quite a few people to search out for non-lethal diseases in order to maximize income – and then get just minimal treatment. This sort of economic incentive will surely lead to exploding costs AND lowering the state of health of the population.

  4. 4 4 vniederhoffer

    Very good to see your thoughts on coninuous basis. Have enjoyed your other books and learned m uch from them . What are best books to read to refresh one with the principles appropriate for a good foundationfor the type of analysis that you will be providing. your textbook is a little profound for bakground. I would like to hear your explanation for the current level of interest rates and it’s current determinants as I never could fully grsap your explanation for it in one of your short essay books. vic

  5. 5 5 Erik

    I believe one of the features of the Singapore system mentioned above is that the state supplies most of the hospitals but the private industry provides most of the out-patient care. I think this is similar to and would go along very naturally with the idea of providing catastrophic care insurance but using HSA to provide for the smaller ailments/ routine maintenance in life.
    I think the US should ensure that everyone has access to a hospital and that everyone has catastrophic care insurance (nobody should lose their life savings, house, etc. because they get sick). Beyond that I think we need HSA’s that are FDIC insured but can be invested to earn competitive interest rates. The average user will save the money he or she needs to pay for prescriptions, glasses, dental work, routine screenings and check-ups.

  6. 6 6 rick

    See Greg Mankiw’s blog on how other countries (may or may not) handle health care better. Different diets, different demographics, etc, etc. With health care no “one size fits all”.

    While I agree that something should be done, take a look at your vocation and compare that to the job of being a doctor. If you as academics, attorney’s, engineers or financiers can take a 20% pay cut then I as a doctor will take that pay cut because I use your services to deliver health care. You think health care is a right then I think I have a right to what you produce by your own labor because we are all in this together.

    The simple answer in this economy is to cover the uninsured now, see how that goes and then take the next step, means test Medicare and Social Security. The Economist magazine says our parents just lived thru the biggest ecnomic boom in history, one the likes of which me or my kids will never see. Some of the old timers could afford to pay a little more.

    This should be done incrementally or it will prove a disaster on the deficit. Oh and another thing, think about what will happen to health care innovation. It’s not free and neither was the cell phone, ipod, flat screen tv, dvd that we need? to have. The cost curves are different but over time, not so much. Where do you want innovation?

  7. 7 7 TomB

    Most other countries do not protect free speech as strongly as we do. Most other countries do not offer women opportunities equal or nearly equal to those offered to men. Those countries seem just fine. Does that mean that we should not protect free speech or continue caring about equality between the sexes? Other countries’ experiences are not as relevant as the system in the US.

    Here is a post that supports thought #1: http://www.marginalrevolution.com/marginalrevolution/2007/01/1000_word_rebut.html

  8. 8 8 Greg B.

    To go along with Steven’s #1 point, my take has always been of the form:
    Our demand for longevity and excessive care in this society (U.S.) has skyrocketed and is thus the primary reason for prices rising relative to other costs of living. Not waste, not greed. Yet pricing information has been masked by the insurance structure we have now, for the reason Steven makes so clear. Only when we consider the money spent as OUR money, will we have perspective to make economically rational decisions and society can finally see the true quantity demanded and the true demand curve. Reading Steven’s book ‘Price Theory’ makes this clear.

  9. 9 9 AK

    There’s one crucial point that I’m surprised that Dr. Landsburg didn’t make: calling the means by which we pay for health care in this country “insurance” is a perversion of the definition of “insurance” as understood by economists and historically understood by everyone else.

    The purpose of insurance is to shift risk, primarily the risk of low-probability but high-cost events. The chance that you’ll get in a car accident in the next year is low, but if you do get in one, it’s going to be expensive. So you pay a small amount of money to get rid of the small chance that you’ll have to cough up tens of thousands of dollars if you’re in an accident.

    What we call “health insurance” ain’t insurance. It could be, but it isn’t. True health insurance would cover only expensive, low-probability events, like serious illness, hospitalization, and expensive tests. But that’s not what “health insurance” plans cover, and that’s not what the public (by and large) demands. Our “health insurance” pays for expenses that we know that we’re going to incur. We expect a third party – whether that’s the government or a private insurance company – to pay for low-cost, predictable expenses (and even controllable medical expenses, like pregnancy). “Health insurance” that covers the common cold, basic antibiotics, and annual checkups is like “auto insurance” that covers oil changes, rips in the upholstery, and new tires.

    The distinction matters because we don’t actually get any economic value from having other people pay for predictable events. It introduces deadweight loss into the system. If insurance isn’t reallocating risk, it provides NO economic value. On the samll, predictable stuff, insurance companies and the government are just unnecessary middle-men. Inserting an insurance company between me and Jiffy Lube is pure waste. The resources consumed could be put to better use elsewhere in the economy.

  10. 10 10 jim

    Who says “no” is my biggest fear of where we are headed as a country in general and in health care in particular. Right now, insurance providers do it for us. There are drawbacks to that, but the scope a government has to affect our lives makes me far more fearful of giving it the right.

    Governments in America have already limited cigarette use and sued tobacco companies using the costs to the public as the justification. Some have outlawed trans fat and are working on soft drinks. Where will the federal government stop if every person’s actions – in regard to there health – cost it money?

    Maybe it’ll just be taxes on junk food but I doubt it’ll end there. Why not tax cable and internet for encouraging sloth? Perhaps we will be compelled to exercise so much per day. Not any exercise you want, however. Biking will count for more than walking, but not mountain biking, since that can lead to falls and cuts and broken bones. Not all sports can be allowed either. Football is obviously too dangerous and basketball can be very bad for the knees. Soccer is probably the safest team sport and should be encouraged. Then again, the stress from losing or even just the competition is probably a bit harmful to the heart, so maybe competitive sports should be banned altogether. Then again, maybe working as a team makes people happy and maybe that does something good for their health and needs to be subsidized.

    The only option that can avoid anyone saying “no” except the one best suited for it is the one where decision maker and patient are the same person: HSAs.

  11. 11 11 Brian McCann

    “But if there were a way to save money by streamlining the bureaucracy, why wouldn’t all those greedy private insurers have adopted it already?”

    Hmmm… what about the inelasticity of this particular demand? If the private competition really were working effectively wouldn’t all of the insurance companies be breaking even? It seems they aren’t, but are rather making billions in profit. Aetna, for instance, made over $8b in the quarter ending this past June. Why couldn’t the public option simply provide the exact same service as Aetna without that $8b in profit?

  12. 12 12 davidr

    “Hmmm… what about the inelasticity of this particular demand? If the private competition really were working effectively wouldn’t all of the insurance companies be breaking even?”

    The nature of the demand has nothing to do with the efficiency of meeting that demand. If insurance companies could increase profits by more efficiently meeting demand, they would.

    On insurance industry profits — they are awfully close to breaking even, making on average a 3% profit margin, well below the average in corporate America. Even your Aetna example– for 2008 it made all of a 4.4% profit margin. Margins like that are thin, an indicative of a very competitive market.

  13. 13 13 Pat McCan

    Even the Associated Press knows more about the size of health-insurance industry profits than does Brian McCann. How about performing even the most minimal research before posting completely inane comments?

    Eliminating those superfluous profits has certainly worked for every other industry that’s been nationalized, hasn’t it? It’s sad that, 80 or so years after Hayek explained reality to Lange, we have to continually play whack-a-mole with the ill-educated believers in “scientific socialism.”

  14. 14 14 buzz

    “If the private competition really were working effectively wouldn’t all of the insurance companies be breaking even? It seems they aren’t, but are rather making billions in profit. Aetna, for instance, made over $8b in the quarter ending this past June. Why couldn’t the public option simply provide the exact same service as Aetna without that $8b in profit?”

    What is their profit compared to their expenses? 6 billion in profit compared to how much in revenue? And if they were working INEFFECTIVELY then they might just be breaking even. Your comment makes no sense. What area of ANYTHING has the government shown they can provide the same service level as the private sector for the same cost?

  15. 15 15 Barretta

    Brian McCann – Are you kidding with that? Why stop at healthcare? Why shouldn’t the gov’t provide food for everyone? Afterall, Kraft & General Mills make money selling food, by your argument the gov’t could sell Wheaties cheaper by taking profit out of the equation. I think the USSR provided a pretty clear example of why that does NOT work. Afterall, a profit motive is why efficiency and innovation occur.

  16. 16 16 Economiser

    AK hits the nail on the head. “Health insurance” is much closer to pre-payment of health expenses than actual insurance. And the pre-payment market only developed because of the government’s employer tax breaks and strict health insurance regulation.

    1) Eliminate the tax discrepancy, 2) allow interstate competition for health insurance providers, and 3) encourage HSAs and high-deductible plans and you’ll see a sea change in the way health care is delivered in this country.

    Markets and services will develop that are totally unavailable today. To give two quick examples that I’ve seen elsewhere:

    1) Futures insurance against acquiring a “pre-existing condition” (e.g., if you’re 30 and healthy today, you could buy supplemental insurance that will moderate your health insurance premiums if and when you get heart disease in the future).

    2) Risk pools that are totally unrelated to your employer. Instead of losing your health insurance when you change jobs, why not create risk pools based on other demographics? School alumni organizations, neighborhood organizations, clubs, professional or trade associations, etc. Many of these currently offer life insurance discounts. If the health insurance tax discrepancy were eliminated, they could and would offer health insurance as well.

  17. 17 17 Brian McCann

    Well, now we can play that same game the other way can’t we? Why not water? Why don’t we completely privatize water collection, sanitization, and distribution? Certainly the municipal water authority must be inefficient, right?

    You liberals are all the same. What’s your answer to the business cycle? Starvation?

  18. 18 18 Tim Keese

    The problem with the high ($50,000) deductible and HSA’s, as I see it, is that people would tend to skip regular check-ups and dental visits, which can result in more expensive care later.

    And is the high deductible per annum? Or per illness? If the former, one serious cancer could bankrupt a family in short order.

    And if the latter, who determines if it is the same illness? How would “same” be defined? Not always easy.

  19. 19 19 Ignorance is Bliss

    My thoughts:

    1) The goal is not health insurance. The goal is health care. Insurance ( particularly catastrophic insurance ) may be part of the solution, but it is not the goal.

    2) The goal is not health care, it is health. It is important to remember that the most significant things that could be done to improve the health of the American population are things that can only be done by individuals. Eat right. Exercise. Don’t smoke. Don’t do drugs. Wear your seatbelt. Etc. The more that we can do to make people see that they are ultimately responsible for their own health, the healthier they will be.

    3) The goal is not health. It is a happy and fufilling life. People are constantly making choices that effect their chances of dying. If you choose to go to a movie, you increase your chances of catching the flu. If you choose to drive a hundred miles for a summer vacation, you increase you chances of dying in a car accident. If you choose to spend a dollar to buy a song from iTunes, that is one dollar less that you have to pay for healthcare. These are choices that individuals should be free to make. They should not have thier dollars taxed away because a politician decided that their health is more important than their happyness.

  20. 20 20 Economiser

    Re: Tim Keese October 29, 2009 at 10:29 am,

    I don’t think it’s clear that people would skip regular checkups. People get routine maintenance on their cars and homes even though they have to pay out of pocket.

    And if people do skip regular checkups, it doesn’t necessarily follow that later care will be more expensive. If someone catches cancer late and dies rapidly, the total financial cost will probably be lower despite the tragic result.

    Finally, even IF people skip routine care AND it winds up costing more in the end, why is that a social problem? It’s bad for the individual but it doesn’t affect anybody else.

  21. 21 21 Brian McCann

    @Economiser:

    What about children? Should children be allowed to do as they please? We want them to lead a happy and fulfilling life. Clearly, as utility is a purely subjective concept, it must be impossible for parents to suggest a course of action which would more effective at maximizing their lifetime utility than their own volition.

    Is it possible that our own neurology might allow us to act irrationally given even our own preferences? For instance, most smokers I know would rather not smoke. They just need a little help winning the battle of cognitive dissonance.

    Also, the cost of poor decisions often does impact society at large. What if your cancer patient has children relying on his or her income?

  22. 22 22 Ignorance is Bliss

    Brian-

    Of course parents can tell children what they can and can’t do. That right ends when the child becomes an adult. The government has no right to treat anyone as their child, especially not adults. Of course, sometimes people will make bad choices that reduce their lifetime utility. Do you really want the government making their choices for them? Prohibition worked out real well, didn’t it?

    Yes, the cost of poor decisions does sometimes impact society at large. The cancer patient should have been responsible and obtained life insurance as soon as they had children, just as any other parent should. The same is true for the parent who decides to go out to dinner and dies in a car accident on the way home. Should the government ban eating out too?

  23. 23 23 John G. Bennett

    I’ll confine myself, with great effort, to a few brief comments
    about specific things said in the main post.

    “The last thing we need is more of the inefficient sort of
    coverage we’ve got now. The very last thing we need is to make
    that coverage universal.”

    This is a mistake. We don’t let people die in the streets, at
    least not very often. When people go to the emergency rooms, they
    are treated, whether they have insurance or not. So we do have a
    sort of universal coverage now. But nearly everyone who has
    studied the problem recognizes that this is the worst way to
    provide coverage, and it would be better and (probably) cheaper
    to give people a form of coverage that would get them to primary
    care physicians before they end up in emergency rooms.

    “But when it comes to health insurance, it appears that the
    market is pretty satisfied with what we’ve got.” This is
    ridiculous. We don’t have any sort of ordinary market in health
    insurance. Few consumers understand what they have, and the
    consumers mostly don’t pay for the insurance or decide what is
    consumed.

    “A government run insurance system can only do one of two
    things: Mimic the private insurers, or do something different. If
    it mimics the private insurers, it serves no purpose. If it does
    anything different, it can only be worse.” No. Medicare has much,
    much lower overhead costs than any private insurance. Also, a vast
    percentage of health care costs (I’ve heard up to 25% though that
    sounds high) are due to the complexity and difficulties providers
    face in trying to get reimbursed from a great variety of payers
    who have different reimbursement policies and differently
    confusing forms and procedures for reimbursement. Individual
    insurers have little incentive to make it easier or faster for
    providers to get reimbursed, and every incentive to shift costs
    to providers wherever possible.

  24. 24 24 Brian McCann

    @Ignorance

    How about drunk, blindfolded driving? Should we be allowed to do that?

    At what point is it okay for the government to step in, and gently guide us towards responsible decisions?

    The classical liberal argument against the nanny state is strictly ideological. In the end it comes down to specific policies, and specific cost benefit calculations. Successfully claiming that a government solution to inadequacies in our health care system will necessarily underperform a private solution requires data, not thought experiments. Opponents to the public option have failed miserably at providing said data, and prefer instead to rekindle cold war era fears.

  25. 25 25 Ignorance is Bliss

    Brian-

    Sure, they can outlaw drunk, blindfolded driving. I even thing that they can require positive action to prevent harm to others, such as requiring vacinations.

    The government should never step in and gently guide us toward responsible decisions. It should step in and absolutely forbid us from making decisions that put other people at significant risk.

  26. 26 26 Brian McCann

    So at least you agree that where externalities exist, the government ought to internalize them. We can agree on that. The next important question is: Who decides when a risk is significant?

    Do carbon emissions put us at significant risk?

    How about smoking in restaurants?

    Or, you know, securitizing debt, and massively leveraged consumer banks?

    Finally, what about the premature and preventable death of a constructive, albeit unfortunate, member of society? Isn’t there the opportunity cost of their future contributions to the GDP? Aren’t there risks inherent in the future activities of their orphaned children?

    Where’s the line?

  27. 27 27 submandave

    [W]hat about the premature and preventable death of a constructive, albeit unfortunate, member of society?

    Why stop there? How about the removal of non-contributing member of society for the collective good. After all, if that individual refuses to do what is best for society (as determined by the appointed peoples’ representatives), then why continue to subsidize their continuing drain on the collective?

  28. 28 28 Brian McCann

    So long as those representatives answer to the electorate, they can try and legislate however they want. Good luck with that bill though, I hear it isn’t popular in Alaska.

    I’d rather wager on the good faith of public servants than on the good faith of executives.

  29. 29 29 Ignorance is Bliss

    Who decides when a risk is significant?

    We the people, through our government.

    Do carbon emissions put us at significant risk?

    Probably, so while we gather more data to better understand the risk, we should take the most obvious steps, such as a massive push for nuclear power and a general upgrade of our electrical grid

    How about smoking in restaurants?

    That’s entirely up to the owner of the restuarant. It’s their property. If you don’t like their choice, eat somewhere else.

    Or, you know, securitizing debt, and massively leveraged consumer banks?

    Of course, made far worse by government interference

    Finally, what about the premature and preventable death of a constructive, albeit unfortunate, member of society? Isn’t there the opportunity cost of their future contributions to the GDP? Aren’t there risks inherent in the future activities of their orphaned children?

    Certainly if he fails to provide for his children’s future, he has caused and externality. That is true whether or not his death was preventable. However, the loss of his future contributions to the GDP are not an externality. Society has no claim to his future productivity.

    Where’s the line?

    Very, very far to the right of where you seem to want to draw it.

    So now, a question for you. What limits do you see on the government’s power to manage your life ( for your own good )? Can they outlaw junk food? Mandate exercise? Prohibit premarital sex? Homosexuality?

  30. 30 30 Vangel

    “So long as those representatives answer to the electorate, they can try and legislate however they want.”

    I think that the Nuremberg trials established that is not exactly true. There are such things as natural rights and no legislature has the legitimacy to take them away. If 51% of the electorate decide that we have to force the top 5% to pay for the care of the bottom 25% they may have the political power but will never gain the legitimacy to do wield that power effectively.

    “I’d rather wager on the good faith of public servants than on the good faith of executives.”

    Relying on the good faith of public servants is not enough because they have never proven to be competent at producing any good or service at a better price than the market. Health care is a good and as such should be obtained in the unhampered market just like food, computers, televisions, etc. Frankly, I don’t care about the good faith of executives in the food industry because as a consumer I have the ability to reject those that do not meet my needs to my satisfaction at a good price.

  31. 31 31 Cos

    Ben Alexander: In response to bouncing b, you write “The only prescriptions I saw were for HSAs and removing the tax deduction for health insurance.” You missed a very big one that I think bouncing b is referring to: Landsburg recommends *against* having public insurance options. bouncing b is correct in saying that other countries solve this problem by using public plans – in some cases universal, in other cases as options along with private plans.

    AK: You’re correct in stating that the term “insurance” generally means something different than it does when used here. What we call “health insurance” is more accurately a form of social infrastructure, akin to the criminal justice system, police, roads, and public water systems – except that we have so far provided it largely through competing private for-profit companies, something we mostly don’t rely on as the core of these other forms of infrastructure. You can hire private security guards, but they’re not the first resort, so that model is similar conceptually to Britain’s NHS + the option of private extras.

  32. 32 32 Marty Murphy

    Back in the ’60s when Medicare was first passed, Adam Walinsky, an aide to Sen. Robert Kennedy, said “… the only way this is going to work is for us to give every senior citizen a pet, and they have to die at home.”

    Think about it. The presence of a pet in the home will keep the seniors active and cheerful. And dying at home will reduce a great deal of the onerous cost of end-of-life hospitalization.

  33. 33 33 Steve

    I think you’re missing the point on the public option. The big idea is that the government will use its influence to negotiate (impose?) lower prices. In the long run this should allow the government to take over insurance in this country and basically dictate how much we spend on insurance. The reality is that we’re all irrational and want a lot more health care than we need. Someone has to stop us and the only candidate for coordinating that is the government.

    Also, I think you’re a bit too optimistic about how much of the money saved from Medicare cuts would go to the poor. You said it yourself–the government sucks and rarely helps or care about the poor.

  34. 34 34 John F. Opie

    Hi -

    Thoughtful post, but you fail to touch on the perhaps biggest problem: the high cost of malpractice insurance, which on the one hand leads to unnecessary testing (driving costs up further) and on the other hand is unavoidable as long as you don’t include tort reform to limit extremely large financial settlements and practically ensures that a trial lawyer service industry arises, as they make their living off a percentage of high-value settlements.

    If the Obama Administration and the Democratic Congress want to remove the profit motive from health care – which is the gist of current legislation – then I say we might want to remove the profit motive from legal representation in malpractice suits first to see how that can reduce unnecessary testing and extremely high insurance costs as well.

    Unless that is done, any reform is doomed to failure: we are, if anything, opening up liability for US taxpayers to cover malpractice cases. That way lies true madness…

  35. 35 35 Brian McCann

    “So now, a question for you. What limits do you see on the government’s power to manage your life ( for your own good )? Can they outlaw junk food? Mandate exercise? Prohibit premarital sex? Homosexuality?”

    Well, you and I have different ideas of how the government should operate. When it comes to taxation, and services, I don’t really place any limits on where government can operate. I’d like them to pay for it via progressive taxation, so I’d rather they not deficit spend. Beyond that, so long as they are accountable to the electorate, any minor damage done can be undone. As for mandates, I think they should be more careful. Obviously the things you’ve mentioned are extreme. However, if they were to slightly tax junk food, and subsidize gym memberships I might be okay with that so long as they could show me that the dead weight loss is outweighed by the cost of the externality.

    The bottom line is that traditionally we trust critical services to the government. Anything we really need to trust, they provide, be it defense, education, law enforcement, emergency services, water delivery, etc. Further, the argument that private services can not compete with public services is bogus, there are private schools, poland springs, Xe services, etc etc etc… Since I place health care in roughly the same category of service, I see no problem with having the government offer some competition in providing that service. Giving basic preventative medical care to 30M people that don’t have it is almost certainly worth whatever dead weight loss we’re risking.

    I don’t feel, for instance, that because the postal service exists, somehow my freedoms are being stripped away.

  36. 36 36 BillB

    Brian McCann, Ignorance..

    This is the best exchange of ideas I think I’ve ever seen on a blog.

    Congratulations.

  37. 37 37 John W. Heintz

    Right about so many things about health care (esp. ‘someone has to say ‘no’), Steve’s wrong about at least 4 things.

    1. Public insurance does not have to make a profit as a private system does. So it can cost less.

    2. Medicare actually costs (the taxpayer) less than private insurance plans cost their clients.

    3. Many European countries have universal public health care plans, all of which are significantly less costly per capita than current US (public and private) medical expenditures, with lower rates of infant mortality, morbidity and mortality generally.

    4. Steve’s argument applies equally well to public schools (not to mention tuition-free university education, and government-supported daycare, which work well in several European countries).

  38. 38 38 Q.N.

    When I was reading this article. The first question in my mind is why many countries having universal coverage and/or public options performs better than US while cost less ( In WHO’s new health performance ranking, US only got 37th. While France, Germany, Britain, Canada… are all in higher rank.) I saw this questions being risen up again and again above.
    Health insurance is a tool to sharing financial risk induced by diseases among rich and poor, healthy and sick. While Steve said that inefficiency occurs when missing the chance to make everyone better, we may believe that in a country without universal coverage, inefficiency exists when chances are missed to share the indigent financial risk of curing diseases to make them happier while not decreasing those who already own a health insurance.
    Singapore’s health account solution is a good way. But is useless when people face catastrophic health care spending. And it is inefficient too.
    Public insurance need to make profit too. But it need not to think everyday of how to earn extra profit to feed back their stock holders.
    And about the resource allocation for the poor, I do not think housing or education are more important to them especially when they are sick.

  39. 39 39 Rob Slocum

    Re other countries’ health care: (1) many of them are going broke with communal plans; and (2) such solutions may work better in more monocultural nations, unlike the USA.

    Re comparative outcome numbers of USA and others: (1) our poor infant mortality numbers are actually caused by our cutting-edge care. We try to save preemies that other countries abandon. We lose half these battles. But they go into our numbers, whereas the countries with “better” obstetric statistics never include them at all. Thanks to James Taranto of opinionjournal.com for pointing this out. Kristof of the NY Times has recently repeated his earlier error on this one. The *lack* of travel to, say, Bratislava by expectant American mothers is an obvious signal here.

    (2) Our life expectancy averages are affected by our high murder rates. It’s hard to see which element of the current health care debate is going to work these particular numbers down. (Thanks to Forbes Magazine on this one.)

  40. 40 40 Douglas Bennett

    Q.N. “And about the resource allocation for the poor, I do not think housing or education are more important to them especially when they are sick.”

    The point is that you don’t have any idea what each individual poor person values. Neither do I, nor anyone else for that matter. Only each of the individual people know their own preferences. Thus, rather than imposing our perceptions of their preferences on them, why not just give them cash rather than health care and allow them to spend it according to their preferences? If you want to make someone better off, it is better to give them money and allow them to choose how to allocate it rather than giving them a specific good/service that you think they do/should value.

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