Health and Individual Choice

Healthalicious has responded to my post the other day about how we might be seeing the first steps towards a Republican shift towards universal health care.

Steve Verdon at “Outside the Beltway” is misreading or misunderstanding my comment about moving away from an employment based health system. For now, I will give him the benefit of the doubt. In fact, I do not want to replace the private employment based system with a government system. At all.

I didn’t misread or misunderstand anything. As James correctly points out, the implications of Heathalicious’ post were wide open, but definitely hostile towards employer provided health insurance benefits. Based on that I speculated (i.e. guessed, wondered “aloud”, etc.) if we were seeing the first steps towards some sort of Republican support for universal health care. Personally it seemed to fit with the movements of the Republican party of late (expanding Medicare by hundreds of billions of dollars over the coming years), and other massive spending.

Healthalicious then goes on to write,

That’s why I criticized Maryland’s “government knows best” tax and spend health care mandate. Instead, I want a private system where individual health care patients and consumers have more choice and more responsibility. Why should GM or GE or anyone else pick the health care plan for me and my family?

Fine, but then we get the following,

We need to change the crazy WWII era tax code that binds health care coverage to employers and unions and break free baby! Give me individual choice. I will make better choices with those tax dollars than an employer.–emphasis and bold added

Uhhhmmmm what? On the one hand we have Healthalicious writing that we shouldn’t have a “tax and spend health care mandate”, but at the same time he is writing about spending tax dollars more effectively? I’m confused at this point since exactly what taxes is he talking about? Currently we do not have a “tax and spend health care mandate” save for Medicare (which Republicans seem eager to expand beyond all bounds).

Yes, the government has a role. It should help provide tax credits or other support for low income people who cannot afford coverage entirely on their own. But I don’t want big government or big labor or big business making health decisions for me. Do you Verdon? Get my drift?

No, I don’t get the drift as the post seems amazingly muddled. On the one hand we shouldn’t have the government telling people what health care decisions to make…unless they are poor. Then it is okay to tell those people what health care decisions to make. Individual choice for me, but not for thee.

And there is another problem as well. Health care can be amazingly expensive and suppose a young single healthy male decides not to buy health insurance, but then through misfortune needs it. What then? Seems to me he falls into the catagory of: can’t afford it so have the government bail him out. This set up, which strikes me as consistent with Healthalicious’ preferred policies is a sucker’s game for the young and reasonably healthy. Of course those who are not young and healthy (or who simply have assets that could be seized) will be left holding the bag.

This once again gets back to the problem of activist government policy, which Healthalicious and Senator Frist seem so enamored with. I’ve blogged on this topic of time inconsistency previously (see here). Here is how it would work in this scenario. The government announces that it will end the end the tax favored statust of employer provided health benefits and it wont bail people out of financial hardship if they fail to act responsibly and don’t purchase health insurance. Then a person gets sick. The government can achieve a higher level of “social welfare” by bailing out the irresponsible who don’t purchase health insurance. So the initial policy announcement is not believed and some people (notably the young and healthy with no substantial assets) don’t purchase health insurance (note that this is a fully rational decision). We see the same thing with people living in flood zones, areas prone to hurricanes, and earthquakes. Why buy insurance for these things when the government will come in and bail people out.

Healthalicious appears to have the same view as President Bush, that government can work if we just get it juuuuuust right (government helps those who can’t help themselves view of government). Get the right people in there, get the right policy/incentive scheme and things will be peachy. Nevermind the long history of government ineptitude in doing things that were previously provided by the marekt place. When government gets involved the idea that some people have to go without becomes a politically unpalatable outcome. So it is a race to make sure that everybody has “a chicken in every pot and a car in every garage”. President Bush and Senator Frist aren’t part of the solution to bloated government spending they are the problem. And so are the Democrats for that matter. The Democrats complaint about Medicare Part D (the prescription drug plan) is that it isn’t big enough and that it isn’t intrusive enough on the economy (e.g. giving the government the coercive power to set drug prices below the market value).

It is true that our current health care system is broken. There are all sorts of laws and regulations that lead to perverse incentives. For example, no hospital can refuse to treat a patient based on ability to pay. Hence, the young and healthy with few seizable assets have little to no incentive to purchase health insurance. If you do need serious health care, you’ll still get it and since you are basically lawsuit proof why bother spending hundreds of dollars every year on health care? Fixing it by tweaking how the government does things and how employers do things probably isn’t going to work.

FILED UNDER: Economics and Business, Health, US Politics, , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Anderson says:

    So Steve, given these perverse incentives, are you opposed to the government’s providing universal healthcare, at least at some basic level? And if so, why?

    (Bonus points for not using “nanny state” in your answer.)

  2. madmatt says:

    A national healthcare plan would also have the benefit of reducing the myriad levels of bureacracy that is where approximately 35% of the money goes currently….lets stop letting corporations profit off the illness of others.

  3. Steve Verdon says:

    madmatt,

    I don’t buy that 35% argument for a minute. The idea that simply because our (hugely bureaucratic government) is going to take things over is going to reduce the size of the bureaucracy strikes me as pissing on one’s self and believing it is rain.

    Anderson,

    I’m opposed to that as it will likely be enormously wasteful and we run the risk of the government containing costs via limiting access to health care. I’ve blogged on this before.

  4. Maybe I am missing something, but isn’t there a third way between employer based health care and state run health care. Specifically, health insurance financed by the individual.

    This would provide the portability of health insurance coverage. In theory, it would be cost neutral to employers as they would pay the employees what they pay now. Tax incentives or credits might be a part of this (e.g. tax deductability or tax credits to help cover individual health insurance for the poor). The libertarian side of the republican party would like the idea of individuals making the choices using their own money. The small government side of the GOP would be glad that it helps to solve some of the present problems without adding a new government program. The national security side of the government wouldn’t care other than a government run health care would compete for defense dollars. The religious side of the GOP would not be opposed to it, though they might push for some faith based initiative funding to help fill in the cracks.

    Also, the US health system is very much broken to emergency health care, but that does not mean the whole system is broken. As to fixing that aspect, has an idea like shielding hospitals from lawsuits if they refuse health care to individuals who have outstanding bills and don’t show a means of paying when they check in. Yes there would be some heart wrenching examples of people in terrible circumstances, but I suspect that a large portion of voters would support such a measure.

  5. Anderson says:

    Steve, what about the reports that Medicare’s admin costs are actually less (proportionately) than the private sector’s?

  6. Steve Verdon says:

    Steve, what about the reports that Medicareâ??s admin costs are actually less (proportionately) than the private sectorâ??s?

    I haven’t seen such reports, and I’d be curious as to how such costs are measured.

  7. Steve Verdon says:

    YAJ,

    So long as you have an activist government, and we do thanks to both Republicans and Democrats, your third way wont work the way you think it will.

  8. Steve,

    Regarding healthalicious, I think you’re getting up on poor sentence structure on his part. He’s saying people can use their own money better, not really tax dollars (they won’t be tax dollars once they are returned to their owners).

    Having said that, I’m not confident that these portability schemes are worthy. It would be far simpler for the government to get rid of the deductability of employer-based health care and use some of the extra revenue to offer more subsidies for those who lose their coverage due to the change. That alone would remove a huge distortion that causes people to overconsume healthcare.

  9. ken says:

    Steve,

    Aetna announced today that its projected payout for the year rose to 80% from its previously projected payout of 79%. The payout is the amount of each dollar that goes to pay medical costs.

    On this news the price of Aetna shares fell steeply and closed with a 17% loss for the day.

    That 20 cents on the dollar that Aetna does not pay out to hospitals, doctors, nurses, etc it pays instead to:

    1) Insurance agents in the form of commissions.

    2) An army of claims adjusters whose job is to argue with patients and hospitals in order to deny payments.

    3) An army of lawyers whose job it is to defend Aetna for not paying out claims.

    4) A whole host of lobbiest to bribe law makers with money in exchange for favorable laws that would give Aetna them an undeserved economic advantage.

    5) Administraters and exectutive officers.

    6) Debt payments

    7) 4 cents a year annual dividend to shareholders for a yield, at today’s closing price, of .1% (one tenth of one percent)

    This system of private health insurance being the major source for medical care is screwing both the public and, as you can see, the shareholders get nothing of value out of it either.

    It is time to provide Medicare, whose administrative costs are less than 3%, to everyone.

    Then if folks want to buy supplemental insurance to what Medicare provides, let them.

  10. Steve Verdon says:

    Robert,

    I’d agree, but currently we aren’t paying tax dollars to get health care. My employer is paying that for me for tax purposes. It is a subtle difference, but an important one considering that actually taxing those benefits would have important consequences.

    Ken,

    Subsequent to Anderson’s comment I’ve googled around on the topic and I think that 3% number is pure unadulterated Bravo Sierra hurled by those who favor government provided heatlh care. From what I’ve read so far, an apples-to-apples comparison between Medicare admin costs and private admin. costs is very problematic since the government isn’t mandated to keep track of them in the same manner private industry is required.

    So, you’ll pardon me if I don’t buy your arguments without some better evidence than has been so far presented.

  11. Steve,

    Hmm. Leaving the existing tax breaks in place has a cost as well, though it isn’t visible. Overconsumption for those most able to afford it (tax breaks on very generous packages) is the most obvious.

    Ken seems to be a fan of static scoring, as he can see no farther than his nose, if that far. Why do so many doctors refuse to take Medicare if it’s so great? If its phiolosophy were applied to the entire country would the populace get more or less health care? My guess is less, as evidenced by the other countries that have socialized medicine.

    Not mention the things that do happen because of the awful profits that ken despises. Like the drug companies that make money off of other peoples’ suffering. Without profits, there will be fewer drugs. The example applies equally well to other products and services in the medical industry.

  12. ken says:

    Robert Prather, idiot.

    Virtually every American over age 65 is covered by Medicare as primary ‘insurance’ for medical care. Any doctor that treats seniors must, unless they treat only the extremely wealthy, accept Medicare otherwise they will have no patients.

    And it is thanks to Medicare that our seniors get more not less medical care today than they did before it was implemented. But you wouldn’t know about such things of course cause you are a fan of ideology instead of reality.

    You are also, typical for a conservator, confused. You mistake Medicare for Medicaid, which covers the poor and disabled and is a state program, and which some doctors do not accept.

  13. Steve Verdon says:

    But you wouldnâ??t know about such things of course cause you are a fan of ideology instead of reality.

    Dammit another irony meter broken.

    Note To Self: Turn off Irony Meter prior to reading ken’s comments.