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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.

Friday, February 08, 2008

Denying what works

Bill Easterly has some thoughts abouts recent statements made by Bill Gates:

Profit-motivated capitalism, on the other hand, has done wonders for poor workers. Self-interested capitalist factory owners buy machines that increase production, and thus profits. Capitalists search for technological breakthroughs that make it possible to get more output for the same amount of input. Working with more machinery and better technology, workers produce more output per hour. In a competitive labor market, the demand for these more productive workers increases, driving up their wages. The steady increase in wages for unskilled labor lifts the workers out of poverty.

The number of poor people who can't afford food for their children is a lot smaller than it used to be -- thanks to capitalism. Capitalism didn't create malnutrition, it reduced it. The globalization of capitalism from 1950 to the present has increased annual average income in the world to $7,000 from $2,000. Contrary to popular legend, poor countries grew at about the same rate as the rich ones. This growth gave us the greatest mass exit from poverty in world history.

The parts of the world that are still poor are suffering from too little capitalism. Foreign direct investment in Africa today, although rising, amounts to only 1% of global flows. That's because the environment for private business in Africa is still hostile. There are some industry and country success stories in Africa, but not enough.

Mr. Gates also announced his foundation is starting "a partnership that gives African farmers access to the premium coffee market, with the goal of doubling their income from their coffee crops." This is fine as a modest endeavor to help a few Rwandan and Kenyan coffee farmers, but it's hardly going to remake capitalism. The main obstacles to exports in poor countries are domestic ones like corruption and political strife, not lack of interest from rich-country buyers for premium coffee.

Moreover, how do philanthropists choose just which product is going to be the growth engine of a country? Much research suggests that "picking winners" through government industrial policy hasn't worked. Winners are too unpredictable to be discovered by government bureaucrats, much less by outside philanthropists. Why did Egypt capture 94% of Italy's import market for bathroom ceramics? Why did India, an economy with scarce skilled labor, become a giant in skill-intensive IT and outsourcing? Why did Kenya capture 39% of the European market in cut flowers? Why did tiny Lesotho become a major textile exporter to the U.S.? Why did the Philippines take over 72% of the world market in electronic integrated circuits? Because for-profit capitalists embarked on a decentralized search for success.

Sure, let those who have become rich under capitalism try to do good things for those who are still poor, as Mr. Gates has admirably chosen to do. But a New-Age blend of market incentives and feel-good recognition will not end poverty. History has shown that profit-motivated capitalism is still the best hope for the poor.

Points worth reemphasizing:

The main obstacles to exports in poor countries are domestic ones like corruption and political strife.

Much research suggests that "picking winners" through government industrial policy hasn't worked. Winners are too unpredictable to be discovered by government bureaucrats, much less by outside philanthropists.

...for-profit capitalists embarked on a decentralized search for success.

History has shown that profit-motivated capitalism is still the best hope for the poor.
Help and encourage institutional reform consistent with local culture and then see what happens.


Many Europeans think of their generous welfare states as being quite civilized while considering the American model to be nearly barbaric. In light of this, I rather like this take:
Bruce Thornton, a classics professor at California State University, is the latest to take up this thesis. In Decline and Fall, he makes the case that a number of factors—including unsustainable welfare states, dwindling birthrates, undiscriminating immigration laws, a society disconnected from the transcendent truths of Christianity, and a failure to confront the gathering threat of Islamic jihadism aggressively—are leading Europe to commit “slow-motion suicide.”

Government largesse may seem an unlikely source of civilizational decline...

To the contrary, the point of the welfare is that it acts as a solvent upon all of the civilizational ties that made men independent of the state. Once you have individuals completely atomized they're easy to control. They've traded liberty for security.

That's why the Left fights against the Third Way so hard, even though it advances their putative goals. Sure it can provide universal education, housing, health care, unemployment insurance, etc., but by doing so in a way that makes the citizenry independent it strikes at the core of the secular statist project.

Demographic and financial factors mean that the Europeans should hit the wall before we do. A welfare state that provides services and benefits in a manner that promotes dependence rather than independence creates citizens who are more resistant to competing in and adapting to a changing world. Just like the failure of socialism, the proof will be in the pudding.