Thursday, July 19, 2007

Hillary-Care on the Incremental Plan

When Bill Clinton tried to implement universal government supplied health care in 1993, the public backlash was strong enough to result in the 1994 Republican Revolution, which brought strong GOP majorities into both houses of Congress.

Having painfully learned that the front door method was a hard sell, advocates of socialized health care instead went for the incremental back door approach. And it has worked out very well for them, but not for health care consumers. In the years since the backlash, supporters of medical socialism have gradually expanded government health programs, steadily increasing the numbers of Americans (and non-Americans in the country) covered by these programs. It is no coincident that health care costs in the U.S. have skyrocketed along with this incremental expansion of government meddling.

This strategy has worked so well that Democrats, now holding both houses of Congress for the first time in a dozen years, are poised to increase the rate of incrementalism in socialized medicine until most Americans are covered by at least one government health program. And it’s not just Democrats, but Republicans that have forgotten what small government is all about. For some of these folks, any government program can be justified if it assays to spend a little less than Democrats want to spend.

Senator Orrin Hatch (R-UT) is among Republicans that are happily gliding down this slippery slope. Hatch has worked closely with Democrats and big government Republicans in the Senate on passing legislation to extend the State Children's Health Insurance Program (SCHIP) that was originally passed in 1997 and signed by President Clinton. President Bush has threatened to veto the legislation. Why? Well, because he’s an evil Republican that hates poor children and wants to see them suffer and die. At least, that is the rhetoric coming from his critics.

Actually, Bush criticizes the expansion of the program to cover people earning as much as 400% of the federal poverty rate. That’s $82,600 for a family of four. As noted by David Hogberg and Paul Gessing in this article, “children in families that are in the top 25 percent of income-earners would be eligible for government-funded health insurance.” Bush also dislikes the expansion of SCHIP to cover many non-children, including single adults up to 25 years of age. This would increase the cost of the program from its current five-year cost of $25 billion to $85 billion; although, a compromise would spend “only” $60 billion.

Senator Hatch and Senator Chuck Grassley (R-IA) have publicly called on the president to forego his veto threat. They say that they have negotiated the best deal that they can get with a Democratically controlled Congress, and that their “conservative compromise … addresses many of the concerns conservatives have with states which are covering adults and children with well-off parents with SCHIP funds.” But there is no guarantee that their compromise will be reflected in the final legislation that goes to the president’s desk. Both Hatch and Grassley know this. They are betting that it will. The president on his side is making it clear that he will permit no expansion of the program from its current form.

SCHIP proponents can point to a recent BYU-Arizona State study that found that “kids who drop out of SCHIP end up costing states more money because they shift away from routine care to more frequent emergency care situations.” It’s just that the costs show up elsewhere in the budget. SCHIP proponents almost always refer to those covered by the program as children of the working poor, when many participants come from well-to-do families or are even adults. The program’s advocates seem to regularly measure the program’s success by the number of individuals covered by the program, while ignoring the market effects of the program.

Although the market effects of SCHIP have not been specifically studied, other studies have found (see here) that “the introduction of Medicare was associated with a 23 percent increase in total hospital expenditures (for all ages) between 1965 and 1970, with even larger effects if her analysis is extended through 1975.” The study cited did find some benefits arising from the introduction of Medicare, but an unintended side effect has been the increase in medical and health insurance costs for those not covered by Medicare. We can safely assume that the SCHIP has produced similar results.

Another study has found that publicly funded health insurance is crowding out private coverage at the “rate of about 60%.” Hogberg and Gessing explain that this means that “for every 10 kids signed up for SCHIP, the number with private insurance drops by 3 to 8.” In other words, the government is competing with private industry and is interfering in the market. While this makes us feel good socially, this meddling prevents the market from producing solutions that would better benefit those now covered by the government programs. It causes employers to drop health insurance plans, and it causes private insurance companies to increase rates and reduce coverage.

Hogberg and Gessing suggest that the ultimate result of government meddling in the health care market will be to produce a system implosion, where costs are so high and care so inadequate that a crisis results. Of course, the crisis will be blamed on greedy insurance companies and doctors, rather than on government interference in the market. This will “[open] the door for a single-payer system.” They do not say whether this is “by design or not,” but certainly some advocates of socialized health care favor this strategy. Hogberg and Gessing comment here on two other pieces of health care legislation that will ultimately increase health care costs in the name of accomplishing a moral good.

Does the government need to provide health care/health insurance?
There are certainly elements in our society that require government control. Roads are the classic example. There is probably no feasible way to satisfactorily run all of our nation’s roads and highways as a private industry; although, it is probably more feasible today to consider more market oriented approaches even to this industry than at any time in the past.

To preserve liberty and freedom of choice, government must not directly compete with private business. Government may appropriately regulate, only to the extent absolutely necessary, as long as regulations apply equally and foster competition rather than impeding it. It is also important to understand that each regulation imposes costs (ultimately on individuals) that limit positive (as well as negative) options available to individuals and businesses, so that only essential regulations should be pursued.

What is needed with respect to health care, then, is for government to get out of the business of competing with private business. Rather, government’s role should be to provide a legal structure that fosters the greatest amount of competition and personal choice.

A very good start to fixing our health care industry’s problems would be to decouple health insurance from employment. This link exists mainly due to our tax laws, which give employers tax breaks for providing health insurance to employees. The actual insured individuals are most concerned with getting the highest quality appropriate level of health care at a cost they find acceptable. Employers are mostly concerned with keeping health insurance costs down. Health insurance providers market their plans to employers (relatively few) rather than directly to those insured (many). This creates a barrier in the provider-consumer relationship that distorts the market. Insurance companies do not experience direct market pressures from consumers that would cause them to respond to consumer desires.

Things are different in the automobile insurance industry. States establish regulations that all auto insurance providers must follow, but individuals are free to purchase insurance from any qualified provider. They are free to purchase any insurance product that at least meets the minimum required by law. Consumers can terminate this relationship at will. Auto insurance companies experience direct market pressures due to their direct relationship with consumers. They create flexible products and compete for customers via pricing and product design. Allstate promotes its safe driver discounts. GEICO promotes its 24-hour nationwide claims service.

The life insurance industry functions differently than the health insurance industry as well, despite the fact that many employers offer life insurance benefits. Competition in the life insurance industry has driven the cost of term insurance down dramatically over the past decade and a half.

Removing the artificial employer barrier to the insurer-insured relationship in health care would bring to bear market forces that would revolutionize the health insurance industry. Insurance companies would suddenly be competing for individual customers instead of competing for contracts with employers. Lower cost and more flexible products would result. Consumers would have more choices available than ever before. Health care providers would respond to these new market pressures as well and would focus on providing the level of care desired at a price acceptable to the consumer.

But this system would only work well if the government were not directly competing with the industry. Instead of providing health insurance itself, government should focus on figuring out how to incentivize the market to provide for the less fortunate among us. A stipend or voucher for purchasing health insurance would be far superior to any government-run health insurance system.

As politicians from both sides of the aisle debate how much or how quickly to socialize medicine, what is actually needed is market-friendly reform. We do not need socialized medicine. We need consumer-friendly medicine.


Charles D said...

Your "analysis" is riddled with inaccuracies, but rather than get bogged down there, let me just point out that you don't address the moral issue. That is, when we put private profit above the health our fellow citizens we are committing an immoral act. When we make our political or economic ideology more important than our concern for our fellow citizens, we are committing an immoral act.

The question is not about whether the government should compete with private industry, but whether the market has demonstrated that it can provide effective and comprehensive care for a reasonable cost - it has not and cannot. The question is whether our fervent devotion to the God of private profit will blind us to the suffering of our neighbors.

Anonymous said...

Good analysis as usual. I have some co-workers that were asking some questions this week that you just answered.

DL is correct that we need to be sensitive and responsive to the suffering of our neighbors, but poor health and injury are not the only kinds of suffering.

The market effects of socialized medicine (as well as other government programs) have a further reach in the way they affect our society. It does not matter the quality of the fish, if you give a man a fish you can only feed him temporarily. Personal responsibility and voluntary acts of kindness are better for individuals and society than government programs can ever be.

Paying taxes is not voluntary kindness, but it creates an excuse for people to quit helping their neighbor because the government will do it for them. It can also erode my personal responsibility for myself because when I'm feeling depressed or lazy I can rest assured that I can get a handout from the government without feeling like I am causing a particular burden on my friends and family.

Scott Hinrichs said...

Personal liberty and freedom from tyranny (government intrusion) has proven to be the most effective method of improving the lot of the poor and of the less fortunate among us. Yes, it results in a diversity of income levels. But even those at the lowest level are far better off than in socialized systems. Thus, allowing people the greatest amount of personal freedom to operate as they wish is a highly moral stance that seeks to help our neighbors far better than any socialized system ever could.

The claim that private industry is incapable of adequately providing health care is odd, mainly because it has not been attempted in the history of modern medicine. The government has competed directly with private industry for seven decades. Even on the private side, we have had government policies that have fostered monopolies rather than free competition. These factors are the barriers to private industry providing what health care consumers demand.

Again, government's role is to provide a regulatory and legal structure that fosters the greatest amount of free competition in the marketplace, while establishing minimum levels of safety and quality. When government competes directly with business, market pressures are impeded, innovation is stifled, costs rise, and everyone loses.

Charles D said...

So we should let our neighbor suffer and die because providing government-paid health care to them might make them irresponsible. That's about the most condescending statement I can think of.

The idea that government provision of health care to seniors and the poorest Americans is the cause of our health care problems is laughable. There is no private insurer who is interested in covering the elderly or the desperately poor because the first group have potential costs far outweighing any premium they could afford, the the second group can't afford any premium at all.

The private insurance system and the allies in the pharmaceutical and private hospital industries are the cause of our problem, not the solution. Their constant quest for greater and greater profits and higher and higher stock prices drives the cost of everything higher and higher. The only way to stop the upward spiral is to impose controls and the only entity that has the ability to do that is the federal government.

Unfortunately even though a large majority of Americans support single-payer health care, there is absolutely no possibility that such a plan will ever be enacted. We no longer have even a semblance of a democracy in this country and unless Congress suddenly becomes a group of courageous statesmen, we will never see democracy again.

Of course, you don't care about that. You don't want democracy anyway, because it might interfere with private profit and the so-called free market that you worship.

Scott Hinrichs said...

DL, you flail away valiantly at the straw man you have constructed, but cause no injury to my thesis. Since when is providing a voucher or stipend to the less fortunate letting them suffer and die?

Government must not compete with private business, but if there are segments of the population that could not possibly be provided for by private industry, there is no reason why government should not provide a program to meet their needs. But that does not mean that government is free to expand the program to cover those that could be covered by private insurance.

You love democracy, but we have a republic rather than a democracy for a good reason. Democracies have always devolved into tyranny -- a tyranny of the majority over the minority. Democracy has been described as two wolves and one sheep voting on the dinner menu. Thank goodness our Founders understood this and established a republic with checks and balances.

Charles D said...

Providing a voucher to "assist" someone in obtaining something they require as a matter of life and death is hardly an adequate way to address the problem. If the government provides vouchers or stipends, the insurance industry will just adjust their rates to the extent needed to absorb that additional money.

We have recently, in response to the free market worshipers, moved lots of heavily regulated or government run programs to the private sector. In no case has this provided any benefit to the consumer, in fact quite to the contrary.

The market works very well for many things, but it cannot provide goods and services that are absolutely necessary to life to individuals who do not have the ability to pay the prevailing market price. Health care is not like life insurance or car insurance, you cannot choose not to purchase it nor is it wise to purchase a cut-rate version of it. Unlike most commodities, it is vital to human life and vital to our nation's health.

Providing government-paid health care will be a major boon to industry. At present, for example, we lose high-paying auto assembly jobs to Canada because automakers must pay $1500 per vehicle more in the US to cover the cost of health insurance for their workers. Is that good for our economy?

Yes, we need checks and balances and the Founders were wise to provide a framework for them, but we no longer have that framework. The Congress has abdicated its role, the Judiciary is totally dominated by pro-corporate, anti-citizen activist judges, and the Executive Branch is asserted powers far beyond anything the Founders could have imagined. Our election process is about nothing more than finding a candidate who can obtain the multiple millions in large campaign donations from special interests - at whatever price they extort. We have now a tyranny of the minority - in fact a tyranny of entities over persons - that's not democracy nor is it a republic.

Frank Staheli said...

On the subject of public insurance crowding out private: I met a family in Topeka, Kansas whose home had been destroyed by flood. I asked them if they had insurance. They said, 'No, FEMA took care of us.'

I suspect that if looked into further, the BYU/ASU study would indicate that SCHIP contributed to the rising costs of health care. Even with health care, if you make it cheap to get, the demand for it will go up (despite the straw man argument by some that heart surgery is seldom elective).

Frank Staheli said...


It's important to look at morality from every perspective. What is more immoral: private profit, or the inability of people to get the health care that they need because government has decided that this, that, and the other treatments will no longer be covered in an effort to reduce skyrocketing government-as-single-payer costs?

Charles D said...


You pose a non-existent conundrum. If government is the only payer, and it has the authority to negotiate prices, buy in bulk and has no marketing expenses, then it skyrocketing health care costs would be controlled without the need for rationing treatment.

The question is: Is it morally defensible to ration health care on the basis of ability to pay or on the need of the patient? If our neighbor is lying bleeding by the road, let's check his insurance card before we take him to the ER. We sure wouldn't want to encourage him to be irresponsible.

Scott Hinrichs said...

DL, skyrocketing health care costs are only controlled in the system you suggest by limiting services, as is the case in every socialized health care system. The reason we have the same in our current system is that it is already highly socialized. It is a hybrid that is prevented from performing its proper market function.

Your suggestion that the free market cannot supply essential goods and services is ridiculous. Food is essential to life. Yet the free market performs marvelously in this respect, despite our farm subsidies that inhibit the free market. Every country that socializes its food industry has less choice, less quantity, and worse quality. The market works the same for services. You can argue that health care is different and adheres to different rules all you want, but this is simply not true.