Wednesday, September 16, 2009

Health Care 2

In the previous post in this series, I argued that the federal government's role in health care should be decreased, contrary to the will of the Democrats in Washington.

But what about the much-talked-about soaring cost of health care? We're constantly told about the higher and higher percentage of GDP that is consumed by that type of expense. To the extent someone other than the consumer (i.e., employers and other taxpayers) is paying the bill, that is a legitimate concern.

That's why I want to minimize the degree to which health care consumers aren't directly faced with the costs they incur. To the extent the consumer bears the cost, either through out-of-pocket payments, or insurance (with premiums that fully reflect the exposures that are covered) that is structured only to cover large, unexpected expenses, then that consumer should be able to spend how much, or how little, he or she wants. If they want another MRI, or elective surgery, that should be up to them. If that results in U.S. aggregate health care costs being x% higher than in other countries, that would reflect people's exercise of free choice with their own resources, and shouldn't be considered to be A Problem.

What about people who are deemed to be uninsurable by commercial insurers? In other words, the pre-existing condition issue. One answer would be for government to subsidize what, in other lines of insurance, is called an assigned risk plan. That's kind of like the so-called public option, but that seems intended to be available to anyone who thinks their current coverage is too expensive. These assigned risk plans should only be available to people with chronic conditions that put them outside the underwriting guidelines of the private insurers.

If a public option were broader than that, it could put all private-sector competitors out of business. With the backing of the federal Treasury, and the political will to give voters the impression that they're getting something for nothing, political forces would push the public option to offer terms against which no private entity that is subject to market forces could compete. That is the sense in which those of us who are critical of President Obama on this issue believe that he would be introducing socialized medicine by stealth.

Obama says "if you are among the hundreds of millions of Americans who already have health insurance through your job ... nothing in this plan will require you or your employer to change the coverage or the doctor you have." That may be true in a narrow, legal sense. And that's the way that a law professor turned legislator turned government executive, such as Obama, would look at it. But, those of us who have competed in the private business world can see how market reality can trump political rhetoric.

Those who cannot afford to pay for health care on that basis should receive government assistance to obtain care. I have no detailed plan for that, and the details of such a thing do tend to be tricky. Ideally, it wouldn't weaken recipients' incentive to take a job, or a better job, by abruptly withdrawing benefits when the person's income exceeds a certain level. In other words, the negative income tax principle, where the benefits decrease according to a sliding scale as the income increases, should be applied.

Government should never have started paying for the medical care of elderly people who can afford to pay for it themselves. Medicare, started by Democrats 40-some years ago, and greatly expanded by Republicans earlier in this decade, has always been a mistake. We shouldn't abruptly withdraw Medicare from current beneficiaries, but it should be phased out, as soon as is feasible.

Government would necessarily play a role in setting prices, in those areas in which it would still be involved, under my proposal. But, I consider it important to minimize the extent to which a free market is inhibited in that way.

When government imposes a maximum price on any good, that is below the price that would be produced by supply and demand in a free marketplace, shortages ensue. When the market price of oil rose above the maximum price imposed by the federal government in the 1970s, we waited in line to buy gasoline. I, for one, don't want to wait in line in a similar manner, for medical care.

It's always tempting for politicians to play with the price mechanism in that way, to appear to be benefiting the buyers of the affected products and services. And, when they want to placate the sellers (e.g., farmers), they've been known to set minimum prices, and thereby produce gluts.

In the health care debate, with Obama and other politicians talking about reducing costs, the pressure is clearly on, to distort the price mechanism. If they leave us all waiting in line, it will be difficult to see how that has improved the system.

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