Monday, June 29, 2009

Scratches and Dents

In the first four parts of this series (part 1, part 2, part 3, part 4) I presented the concept that our current employer provided health care system is accidentally designed to reduce liberty, increase costs, and reduce satisfaction. I also explained the paradox that our competing private and public health care subsidy systems raise costs more than would having a single system one way or the other. I briefly mentioned what a more ideal system would look like. In this final segment I will explore this in a bit more detail.

David Miller’s 6/19/09 Pursuit of Liberty post highlighted a Downsize DC post that simplifies the health care issue down to two questions:
  • For whom does your doctor work?
  • Do you pay for your health insurance directly?
These questions are important because they drive to the incentives of the people involved in the health care system. Each of us responds to the incentives in the systems in which we operate. This is true on the road, in the home, workplace, supermarket, city council chamber, church, clinic, etc.

I once knew a family that lived in an area where it was determined that the properties in the area had been required to install private septic systems due to an error by the municipality. To bring the city into compliance with state requirements, the city agreed to pay to hook these few homes to the sewage system. The contractors hired by the city did the job per the city’s specifications. But the families were unexpectedly left without water for several days and their yards were left a mess. Every interaction between the families and the contractors turned into problems because the contractors were working for the city, not for the families.

The Downsize DC post aptly states, “If your doctor tailors his or her care to the policies of your insurance company, or some government program, then you don’t really have a doctor who works for you….” While your health care providers may be sympathetic to you, they respond to the incentives offered by their paymasters in the insurance companies and in the government. This limits innovation, cost cutting, and customer service incentives.

How often do you make claims to your homeowner insurance? Quite rarely, I’ll wager. Shouldn’t it be that way with health insurance? Wouldn’t it be better to be free of the oppressive rules that require you to carry a heavy health insurance burden so that you can buy the coverage that suits you best? Wouldn’t it be better to deal directly with health care providers instead of every interaction occurring through a bureaucratic screen? Downsize DC says:
“It’s really that simple. As long as insurance policies and/or government programs fund most of your health care, doctors will work for them and not for you.

“The same holds true for health insurance. As long as our health care coverage comes mostly from employer controlled insurance or the government, we won’t have a competitive health insurance market, and the cost of both insurance and health care will grow constantly.

“When Americans care about the impact that their use of health care has on their insurance premiums in the same way that they care about the impact that speeding tickets and minor scrapes have on their car insurance, you’ll know that our health care system has really been reformed.”
Since we are in charge of most of our home and auto maintenance issues, we are incentivized to take care to reduce the chance of making an insurance claim. We take steps to keep the kids from breaking windows with baseballs, for example. We try to avoid getting dents and scrapes. Shouldn’t our approach to our own health be like that?

But isn’t it true that people’s physical bodies are not created equal? Some have health problems due to no fault of their own. As far as I know, nothing I did contributed to the fact that I have Multiple Sclerosis. Wouldn’t the healthy bear much lower expenses than those with problems? And what about the elderly? Don’t we all generally have more health problems as we age, regardless of how well we care for ourselves? What about the poor or sick that can’t find affordable insurance?

There are parallels to this in housing. Even poor people somehow manage to carry homeowner insurance policies, even if it occurs through paying rent. In a freer system we could develop myriad ways of helping the poor and dealing with those with greater health care needs without hamstringing an entire industry. Greater liberty does not necessarily translate into fewer people having their needs met and meeting people’s needs does not require coercive policies.

The U.S. today seems intent on creating a health care system that is even worse than what we currently have. Instead of continuing to shackle themselves to coercive systems that promise security, Americans should instead consider how to increase individual liberty for all parts of our health care system.


Frank Staheli said...

I forget which book I read it in ("Who Killed Healthcare"??), but it was the observation of the author that before the advent of Medicare in the United States, there were, as you say "myriad ways of helping the poor and dealing with those with greater health care needs without hamstringing an entire industry". Most of that has dried up as doctors no longer work for us, their patients.

Americans' biggest blind spot in our current health care debate is to think that we're comparing our supposedly free market health care system with the socialist systems of other countries. If we're not as socialist as Britain, Japan, Germany, etc., we're pretty darn close.

Scott Hinrichs said...

The main difference being that we have a private element in our socialization of insurance. This subsidization has effectively killed the actual free market in health insurance. Where can people buy health insurance that is not tied to a government program? This has become one of the rarest commodities in the U.S.

Charles D said...

How about these questions:

1. If you can't afford to pay your doctor and hospital directly without insurance or government help, should you just stay sick and die?

2. If your community was not large enough or wealthy enough to support a doctor through direct fees to patients alone, should you just do without? Lord knows the doctor will move somewhere he or she can get paid for his work and thus payoff his bills from med school.

3. If you had to beg for public assistance in order to get care for your child, would you swallow your pride and do it? Should you have to?

Your system does remove the middleman but it leaves us with a 2-tier health system that provides comprehensive and first-rate care to wealthy people and middle class people who aren't sick, but still bankrupts families and leaves poor and sick folks with inadequate second-rate care.

Scott Hinrichs said...

"Your system does remove the middleman but it leaves us with a 2-tier health system that provides comprehensive and first-rate care to wealthy people and middle class people who aren't sick, but still bankrupts families and leaves poor and sick folks with inadequate second-rate care."

We have parallels to this in food, which is arguably more essential to life than health care. Yet we do not think that forcing everyone into a massive bureaucratic system of third-party payment for food is good or useful. Such systems have ultimately failed everywhere they have been tried.

Yet people manage to get sufficient to eat and to develop useful relationships that permit almost everyone to get adequate food. We have a network of both public and private efforts that help the indigent and the poor. While these systems are far from perfect, they accomplish the goal without forcing everyone into a huge bureaucratic system.

I am not arguing that we cannot have systems to help those that can least afford medical care of that would otherwise have poor access to medical care. But no one anywhere has ever been able to explain why forcing everyone into a modern throwback to the Soviet health care system is the best way of doing that.

You seem to think that freedom in health care cannot work and that servitude is preferable. You discount the incredible capacities of human ingenuity that are released when people have more freedom. In every other facet of life where more freedom is permitted, resources are better allocated and people's needs are better met. More freedom in medical systems would produce similar results.

Charles D said...

Yes it is possible to sustain life by eating at McDonalds and Taco Bell, but fifth-rate health care can kill you.

Providing health care to all is not a throwback, it is an advance. What you call freedom is not freedom, it is merely consumerism. We need a population free of the threat of bankruptcy due to medical bills (currently the main cause). We need a population free to avail themselves of the best medical care they can find regardless of their ability to pay. The freedom to buy something when you have the money to do so puts those without funds in slavery to those who do.

Scott Hinrichs said...

Slave owners also claimed to be doing only what was in the best interest of 'their' slaves. One of the greatest dangers is people that assume they can design whole complex systems that gloriously benefit all. This is always how servitude is purveyed -- as a public good. It is sad that you have so little faith in the ability of your fellowmen to exercise freedom properly.

Charles D said...

I think it's sad that you have so little faith in your own government to think it can't improve our health care system.

The individualist/libertarian approach is great theory, but it simply has no basis in reality. In reality, the private insurance corporations are only interested in one think - increasing their profits and their stock price. The only way they can do that is to take in more money than they pay out.

In the insurance business that means they must charge too much, they must do their best not to pay out any excess claims, they must seek to insure only the healthiest people and dump the unhealthy from their rolls. That is exactly what they are doing.

If we eliminate employer-based health plans without replacing them with a government plan, then the clout that permits larger employers to negotiate more reasonable rates and pressure for more adequate coverage will be lost. Each individual or family will be forced to choose from a small set of even more expensive plans that will be even more unlikely to pay claims, and will dump them in a heartbeat if they get sick. It will be a disaster for everyone in this country except the insurance and pharmaceutical companies.

Scott Hinrichs said...

I think you completely missed the point of the series. The big employer provided insurance system is BAD. It is a massive privatized socialist boondoggle that only survives due to the fact that it is publicly financed via subsidy. It is just another facet of the current government centric health system.

If people were permitted to buy their own health insurance WITHOUT going through an employer and WITHOUT going through government, there would be as many permutations of health insurance arrangements as there are today of homeowner, renter, and automobile insurance arrangements. As with those insurances, most people would choose to cover ordinary matters on their own while having insurance coverage for unexpected and/or major services.

As I said, this does not preclude developing systems that protect the poor and the chronically ill. But as I also said before, no one can prove that we must force everyone into a 'progressive' one-size-fits-all, massive government-run health plan.

I used to work for the government and I find it absolutely laughable that you would encourage me to trust these people with my health care.