Vinod's Blog
Random musings from a libertarian, tech geek...
Tuesday, June 10, 2003 - 04:12 AM Permanent link for Healthcare

I suppose it was only a matter of time before I blogged about healthcare (can a Linux article be far behind?).   A commentor on a previous blog article that referenced nationalized healthcare wrote:

I'm going to assume that I'm reading the statements in this blog wrong. Are you seriously advocating privatization of health care rather than public health care system?

Actually, I'm deadly serious about this  ;-).    And this is an issue that has been discussed in MASSIVE volume all over the place.   I looked a tad on the web / blogosphere to see if any representative articles were out there that captured the classical liberal / NeoCon perspective on health care & economics.  Sure enough, 2 of my favorite econ commentators - Arnold Kling and Thomas Sowell, come through:

Kling writes and comes out swinging:

America's most expensive health care problem is mental illness. I'm not referring to depression, schizophrenia, or other commonly-diagnosed psychological disorders. I am talking about the neuroses that cause us to remain attached to a complex system of corporate and government involvement, rather than relying on individuals to make their own choices about health care and health insurance.

He argues, and I wholeheartedly agree, that the root cause for wayward healthcare costs is the utter obfuscation introduced by the layers upon layers of bureaucracy.  Few individuals truly know what the real cost of their medical care is and, as a result, individuals are fundamentally impotent in their ability to make their own choices, & shop around.  (This, BTW, leads to my own personal theory for why alternative / herbal / witch doctor medicine is such a hot area these days - people feel far more empowered here vs. traditional avenues for securing care.   Too bad this sense of empowerment comes at the detriment of their actual health....).

These perturbations play themselves out on the supply side as well, few practitioners feel that they really "connect" with their patients and the layers upon layers of red tape strangle the "life" out of their work.   Sometimes literally.  Elaborate rules around who can do what type of work where have an almost Soviet-inspiration.  Even worse, the healthcare R&D machine has an abnormally low incentive to pursue process technologies which lead to reduced costs and instead prioritize research on product technologies to secure new benefits but explode the cost. 

Kling argues that medical coverage should work similar to auto insurance - a required purchase but with relatively high deductibles and focused primarily on catastrophic coverage (heart attacks, strokes, and the like) leaving all other issues up to the individual + practitioner to decide.   In exchange for the government requiring that all individuals purchase coverage from some insurer, hospitals are required to accept catastrophic coverage from any individual.

...this is how auto insurance works, "but our automobile insurance does not cover gasoline or oil changes." Health care policies that pay for routine doctor visits are the equivalent of auto insurance that covers gasoline and oil changes.

The problem with most of our system is that even the trivial is handled the same way as the catastrophic.  How much would it cost for individuals to purchase their own catastrophic health care coverage?   Kling provides one, personal anecdote:

...After over half a century of employer-provided health care coverage, the American people have developed a phobia of paying for health insurance themselves. In 1994, when I left Freddie Mac to start my own business, I obtained catastrophic coverage for my family of five for less than $4000 a year (rates have gone up since).

$4000 / year in the grand scheme of things pretty dirt cheap.  And the universality of this number has some "backend proof" - about 14% of the US's roughly $36K/person GNP goes into healthcare today -- a number which is approximately $5000/year  (note that there's a good chance that we're confusing per-person and per-family stats here). 

For the truly poor / needy, this is an easily voucherable sum.    And I'd much prefer this "demand-side" solution for a social safety net versus the "supply-side" solution most often envisioned by "universal health coverage" advocates. 

I have a personal theory for why "their" minds automatically gravitate to a solution 'imposed' on the suppliers --> they want to give their hands an opportunity to engineer an even bigger part of the national economy.   They think "supply" comes essentially for free or is a social obligation and that those in demand are the victims who need to be saved.

"Trust the people" is a central political issue for me.   And government bureaucrats treat their constituents with FAR more contempt than any market player and its consumers.  There are many examples of other markets where products are super complex and the cost of mistakes is high but the market finds solutions to these "information assymetries"  (having just visited my Tax accountant last week, I can tell you about this first hand  ;-) 

Thomas Sowell, an economist I do NOT quote frequently enough writes:

Whenever I hear about how many Americans do not have health insurance, my usual response is to wish that I were one of them. That does not mean that I want to continue paying taxes and insurance premiums without getting the benefits. It means that I would rather pay doctors and pharmacies directly, without sending the money through bureaucratic channels in the government and the insurance companies, with all the restrictions and red tape that bureaucrats produce.

...Virtually everything that the government does costs more than when the same thing is done in private industry -- whether it is building housing, running prisons, collecting garbage, or innumerable other things. Why in the world would we imagine that health care would be the exception?

When people talk about the government's bringing down costs, what they really mean is that the government can impose price controls. But bringing down costs is wholly different from not allowing those costs to be paid in full.

I'll borrow some phraseology from one of Sowell's books (my review is here) and argue that this is a classic example of the difference in perspective between the "tragic" vs. "annointed" world view.   The tragic see healthcare delivery as fundamentally and perpetually subject to perturbation because it's the product of man.   All we can do is construct a system that internalizes as many checks and balances in as efficient a manner as possible.   For me, as I argued in this articule in tribute to VDH, that internalized system of checks & balances is the market rather than politics.  

The annointed however, see perturbations as simply a problem of not engineering the System properly.   If we put enough smart people together, they can / will come up with a System that delivers quality healthcare at reasonable prices (whatever that means).   Failure to realize this ideal isn't considered intrinsic but is rather accidental product of some oversight in the way the system was Engineered.   My commentor tacitly reveals this:

I don't know the detailed plans of the nationatized (sic) system that has been proposed.

It's not a problem in the details of a particular nationalized system, this type of problem is endemic to all types of nationalized systems - particularly supply side solutions.   Once you've framed the question of "nationalized" health, harsh tradeoffs made via a political process are intrinsic.   And political processes favor tradeoffs with focused, visible beneficiaries and costs absorbed, and hidden from as many vantages as possible.   Think of the mohair subsidy but affecting a sector that comprises over 14% of our GNP.

In some cases, these tradeoffs -- particularly in the case of the Canadian and European healthcare systems -- involve silently "shipping costs offshore" to the US.   Except the "cost" we're talking about here is R&D and the part they're silent about is the future utility of that research (drugs, procedures, etc.).   The American consumer & research machine fund the medical innovations that the Brits, Canadians, and French get to take for granted.  And they get to price the drug at it's marginal cost, turn around and say "look, we've got cheap Prozac and free hospitals!" with ZERO recognition of the underlying market forces that brought the drug into existence in the first place.   Sigh.

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