[ExI] Healthcare and governments thinking long range/was Re: those damn greedy workers

[dan_ust at yahoo.com]

--- On Wed, 6/17/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
>> I'm not.
>> But insurances must be a private enterprise, with a
>> rational management
>> of costs and incomes. They must give a service and
>> profit from it, so
>> they will continue to give a service in the future.
> 
> The government insurer also tries to do this, and in the
> case of
> health insurance, does it more efficiently than the
> private
> alternative. This is evidenced by the difference in health
> costs and
> health outcomes in the mostly privately funded US system
> compared to
> the mostly publicly funded systems in other OECD
> countries.

There are a few problems with this claim.

First, the government portion of funding of the US system is larger than any other healthcare system.  So, one could argue that the government footprint in healthcare is larger in the States than in Europe -- even if in terms of percentage the government funds only about 45% of the total here, whereas in OECD countries that figure is, IIRC, more like 70% or 80%.

Second, the US healthcare system is heavily regulated -- and mostly so in terms of having more layers of management.  This goes for the private sector -- not just the public sector.  (I needn't mention, I hope, too that the US system has a monopoly -- the AMA -- in charge of delivery of most medical services.  I believe, however, this is not something that the OECD countries lack.)

Third, the US method of funding private healthcare money is really a four party system mandated by the federal government.  This involves patients (the consumers of healthcare services), the medical professional (the providers of healthcare services, who typically only directly pay for a fraction of these), insurers (who directly pay for most of healthcare services), and employers over a certain size (who, because of tax laws, pay for healthcare services).

This particular system, mandated by law, has worked to increase healthcare costs even apart from direct government subsidies (the 45% mentioned earlier) and tends to dilute market effects.  Why is that?  The consumer of the service is decoupled from paying for the service.  The employee, e.g., does NOT experience any increase in her income should she use her healthcare money wisely.  (In other words, the consumer isn't able to gain anything from doing things to spend less on healthcare; there won't be more to spend on anything else -- things she might expect were she paying directly for healthcare without any government interventions manipulating her spending.)

This four party system also creates perverse incentives.  The consumer has little incentive to control prices, but the insurers and employers do, while the providers generally have an incentive to increase their price.  Imagine if we used the same method for purchasing iPods or food.  Would you expect costs to go up, down, or remain the same under such a scheme?  Would you expect the quality of food to rise, fail, or remain the same under ditto?

Finally, given the perverse incentives created by this system, the direction of reform in the US is unlikely to work in favor of lower costs and increasing quality.  (This is leaving aside the pollyanna view that one can have lower costs, high quality, and universal coverage all together -- i.e., without any tradeoffs.  Private individuals could, of course, decide how to allocate their resources and make personal decisions on healthcare, but the present system AND the likely direction of reforms is more in terms of an unrealistic approach that stifles personal choice while pretending to lower costs, raise quality, and bring more people into the system at low cost and with high quality.)

>> Governments and large bureaucratic companies like GM
>> (without a real
>> owner) have not the right incentives to manage
>> rationally the costs and
>> to plan rationally for the future. Their personal
>> future horizon is 3-5
>> years, not decades. Why do sacrifice today when the
>> profits will be
>> reaped by others? Why do not enjoy today and leave the
>> bill to be footed by others tomorrow?
> 
> You have this the wrong way around: private enterprise
> generally only
> looks a few years into the future, while governments
> undertake
> projects that might not show a reward for decades.

Were this true, one would expect to see all governments running surpluses instead of deficits.  Instead, we see most governments running deficits.  Why is that, if they have such a long range view over private individuals?  It's because government officials don't directly experience the cost of bad policies.  They can usually direct the immediate profits of a policy -- usually to themselves, their supporters, their friends, and to persons or groups that need to be bought off -- but they do this by socializing the costs of these policies.

A case in point in the US was the prescription drug benefit program signed into law under the Bush Administration (and, IIRC, when his party had the majority in the Congress).  The original program was billed as only costing so much and quickly ballooned.  Why is that?  Because the government had such a long range outlook, but merely lied to the media and the people?  Or because they really don't have much of an incentive to keep costs low or even monitor them in the first place?

> For example,
> governments may take measures to mitigate global warming,
> assuming it is believed to be a problem,
> which private corporations would have no
> incentive to do anything about.
> At best, a private corporation may
> invest in enterprises that would benefit from global
> warming, provided
> that the investment was going to show a return in a few
> years;
> otherwise, the shareholders would sack the board of
> directors for wasting money.

You're merely pointing out that governments can often adopt policies without worrying about the costs.  Yes, there might be such policies that, happily, are beneficial in the long run -- meaning their costs are lower than their benefits.  But this would be by chance -- not by the incentives of any government.

And private individuals and firms do long range planning too.  People plan for retirement, for instance.  Firms often get 99 year leases.  (Of course, these days this doesn't happen as much because of the kind of perverse incentives created by government interventions.  For instance, inflation, which has been the major feature of money systems during the 20th century and is likely to remain so this century, creates a disincentive to long range planning -- whether in the form of an individual saving long-term (why save if the value of money is falling, often at an unpredictable rate, over the long run?) or firms making long range plans.)
 
>> Private markets punish people that don't plan well and
>> reward people
>> that planned well. The alternative is, like today, to
>> punish people for
>> good planning and rewarding people for bad planning.
> 
> It certainly looks like you are opposed to insurance. To
> the extent
> that adverse events are under anyone's control, insurance
> consists of the careful subsidising the careless.

I don't think that's necessarily so.  The problem is when insurance is mandated -- i.e., someone is forced to pay for insurance or an insurer is forced to insure someone.  In those cases, the market for insurances is distorted and all kinds of unintended consequences (unless we presume that the interventions were designed to cause the problems, which might be the case sometimes*) arise.

Regards,

Dan

*  Typically, those asking for regulations and the like are NOT the poor or the general public.  It's often those who can effectively lobby the government: the wealthy, the elites (including so called "consumers groups" -- as if consumers couldn't effectively "speak" by simply choosing to take their money elsewhere), and the established firms.