[ExI] Healthcare and governments thinking long range

[dan_ust at yahoo.com]

--- On Thu, 6/18/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
> Date: Thursday, June 18, 2009, 9:04 AM 2009/6/18 <dan_ust at yahoo.com>
>> 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%.
> 
> That's right, the government money in the US is wasted.

We agree on that.

> People without
> insurance are not provided adequate health care throughout
> their life,
> so they are sicker when they finally claim Medicare or end
> up in
> hospital emergency departments, which can't turn anyone
> away.

I'm not sure if that's the case.  Also, just providing health insurance to people with high time preferences (i.e., who are much more present-centered) might not improve their long-term health.  I work in a firm which, as mandated by law, provides health insurance.  Few opt out of this, but most people look at me like I'm from Mars when I talk about eating healthier, exercising, taking supplements, and get frequent blood tests.  Almost no one here does those things.  And the few who do are often people who've already had a major health issue or are ideologically similar to me.  So, we might be talking about culture here -- and not whether there's universal coverage.

> Having
> free or cheap universal health care, especially primary
> health care, would prevent some of this.

Maybe, maybe not.  And what would the cost be, since one will have to define primary down to the point where the system can work -- and it's likely to be more expensive than anyone projects, as seems the case with all government programs (costs are underestimated beforehand -- perhaps to "sell" the program, perhaps because they really don't have a clue -- and mushroom once the program gets underway).

>> 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.)
> 
> Also correct, the medicos control their numbers and
> therefore their
> incomes. It happens in the US and in Australia, but I
> believe in some
> European countries such as Germany they have too many
> doctors.

Who decides on the number of doctors?  In a free society, it'd be an interaction between those desiring to be doctors (of various levels of competence) and those desiring to fund them -- not some monopoly board, government agency, or the legislature.  (In other words, there'd be no central planner deciding how many doctors there should be and then coercively enforcing that decision.)  While such free interaction wouldn't achieve perfection, I think it's clear it'd be much more sensitive to the actual demand for doctors rather than merely some central planner's guess of what that number should be at any specific time.  (And if central planning works in doctors, why not in all other professions?  Why not centrally plan the whole economy?)
 
>> 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.)
> 
> Couldn't an employer offer the employee the money instead
> of the
> insurance, even if due to tax benefits this would be less
> money than
> the insurance would cost to buy independently of the
> employer?

People have suggested just this, but the tax code in the US makes that option -- opting out of the employer provided health plan and purchasing insurance on one's own -- less lucrative.  Why?  You don't receive the full amount the employer would've paid for the health plan.  I don't know the actual numbers currently, but usually the amount paid is in the thousands of dollars per year.  If you opt out, you don't get that.  You merely get back whatever the employee contribution is.  This usually is a tiny fraction of the payout to the plan.

Were this not the case, one could imagine many employees, especially younger ones or ones who happily experience few medical issues, opting out completely and spending the money on other things they desired.  (In general, health insurance for young adults is a big waste.  It's kind of like the warranties they sell on electronics -- costs more to the consumer and almost never helps with actual problems save for in a miniscule percentage of cases.)
 
>> 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?
> 
> The insurer wants to charge as much as possible while the
> employer
> wants to pay as little as possible to the insurer.

Seems correct.  The employer, though, IIRC, also has an incentive to put something in here -- as opposed to raising the taxable portion of the cost of the worker.  (IIRC, all this came into effect during WW2, when wages, along with other prices, were fixed by law.  So, employers found it hard to attract workers.  Health insurance was used as a lure, after the appropriate enabling legislation was put into place.  Again, because of a short-sighted government policy -- price-fixing -- we have untold long-term damage to the economy -- a sick health insurance system that periodically needs reform and the reforms of which only worsen the problem.)

> The health provider
> wants to charge as much as possible and the insurer wants
> to pay him
> as little as possible. The employee wants the employer to
> charge as
> little as possible since that would mean more money for
> salaries or
> other benefits. Maybe if you cut out all the middle men and
> had the
> patient paying the health provider cash this would
> increase
> efficiency, since at the very least it would remove a layer
> of
> administration and profit-skimming (one of the main
> economic benefits
> of single payer insurance schemes), as well as making the
> patient more
> responsible for his health and more sensitive to
> overservicing.
> However, this is a general argument against insurance.

It is to some extent.  The point is to allow people themselves, as individuals, to choose to have insurance or not and at what level within the context of their resources and wants -- not have third or fourth parties deciding this within the framework of a labyrinthine tax code and byzantine health insurance legislation.  This sort of voluntary system, while not perfect, would surely be better than the current mess and much more responsive to consumer demand.

>> 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.)
> 
> Apparently the "pollyanna view" is what in fact happens,
> since most
> OECD countries have cheaper, universal systems which result
> in better overall outcomes.

I'm not completely familiar with all the various national programs, but my understanding is quality is lower, cost is higher, and just what is covered by the universal aspect is under political control.  You might think this is great, but then I'd wonder about the people who, e.g., cross the border from Canada to get better and more timely healthcare here in the US.

> The only real argument against this that
> I have
> heard is that the US population are an intrinsically
> unhealthy lot
> compared to the rest of an OECD, so they need higher health
> care spending just to keep up.

Well, it might be the only argument you'll accept.  :)  I haven't studied the various systems closely enough to judge what's the case here.  Basic economic theory tells us that nationalized anything should be worse, all else being equal.  So, that points in the direction of explaining why this would be different with healthcare.  (Note: theory tells us how to view the data here.  Without a sound economic theory, we're left with torturing data to get whatever policy recommendations we prefer.  Also, without a sound economic theory, you really don't know if whatever statistical set you're dealing with is telling you something important -- like socialized healthcare works better than a free market system -- or is just caused by other factors, or even just an anomally.)
 
>> 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.
> 
> Remember that in the recent financial crisis it was
> *private* indebtedness that was the root cause.

And if this were so, what caused this?  Why would people in the 2000s suddenly decide to take on extra debt?  (This is kind of like saying that the cause of the financial crisis is the decline in home and stock prices -- and then recommending raising these prices to make it go away.  Well, what caused the decline and what caused the rise beforehand so that such a decline would occur?)  Again, inflationary monetary policy appears to be at the root of all this.

> Shareholders don't look more
> than about five years into the future; they hope to make a
> killing in
> the short to medium term, and then bail out if it looks
> like the current enterprise is going to run out of steam.

Some shareholders do this, but so what?  Everyone doesn't have to think long-term.  If a free economy, what you'd have though is people choosing their time horizon based on their preferences and their resources -- not based on the government making easy credit the rule (either to bail out Wall St., to garner votes, to fund public spending, etc.) and then distorting what would've been people's preferences.  Surely, people who think short-term would face long-term risks, but allowing them to experience the costs of these would likely alter their thinking here much better than you or I trying to dictate the correct time horizon for them to focus on.  (Also, if you want, proselytize; just don't force.)
 
>> 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?
> 
> But competent governments do look ahead even when in the
> short term it
> seems that there would be a political backlash. What
> incentive is
> there for a country like Norway or Kuwait to save money in
> their
> sovereign wealth fund against the day when the oil runs out
> when they
> could just use that money for handouts?

Actually, my understanding is Norway, though generally thrifty as a nation, has experienced serious financial and cultural problems due to its oil wealth.  No doubt, some in government are taking the long view, but so what?

> Why did the Australian
> government increase the retirement age for government
> pension
> eligibility in expectation that an aging population would
> result in
> funding shortfalls, when this is unlikely to have an impact
> for decades?

I'm not as familiar as I would need to be to comment on these particulars at length, but I'm not maintaining that every last thing a government does is short range, petty, and cruel.  I'm simply maintaining that the incentives and information for government is in the direction of shorter range planning and thinking.  This is simply because government can decouple its costs from its benefits -- mainly because it has the power to use force.  Private individuals, in general, can't do that.  (Yes, some do use force, but all governments do; it's a defining feature of government to use force..)  And when one sees a government behaving well -- as in keeping costs under control (which, by the way, it needs market prices to do) -- one can't explain this in terms of how governments think long range, while people in general don't.  Instead, one has to explain how and why this particular government or part of the government overcame the shortcomings of
 government in
 general.  (My fear, too, is that any good behavior here is more the result of cultural norms or other problems restraining short-sighted spendthrift ways.)

I also grant that all governments experience some constraints on this.  We don't, e.g., see every last nation state borrowing, inflating, and doling out goodies like these are the End of Days.  (Well, and then there's Zimbabwe.)  But the tendency is to concentrate benefits in the elite and worry about tomorrow 

>> 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.
> 
> You may not agree that global warming is a problem, but if
> it is a
> problem, then what would private enterprise do about it?

Would private firms or individuals see an opportunity to do something about it?  (I don't like to use "private enterprise" because the term is often used a synonym for big business; big business is mostly firms that are really good at seeking privileges from the government to use against competitors, consumers, and the public.)  I think so for the same reason people will buy and sell "green" or "fair trade" products and services.  How do these people make money off that stuff?  Obviously, because some people are willing to voluntarily pay for stuff they believe is green or comes through fair trade.
 
> It certainly isn't my experience working in a public health
> service
> that governments don't care about costs and do things that
> they know
> are a waste of money. We have managers constantly scouring
> the balance
> sheet looking for cost savings, comparing our hospital with
> other
> public and private hospitals, liable to be sacked if they
> are found
> wanting. Do you think you could come and explain to them
> that, as a
> government enterprise, we deserve more staff, fewer
> patients, higher salaries, and longer lunchtimes?

See above.
 
>> 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.)
> 
> A 99 year lease is an asset, like owning the property. A
> private firm
> would not invest in something that was not expected to show
> a return for 99 years.

In general, people and firms plan long range when they have a stake in something -- e.g., when they own it and when they can recoup any maintenence and improvements on it.  This is why, in general, renters take less care of things than owners.

You might counter that nation states, in effect, own their nations.  (Not too perverse a view, but this would make their citizens, of course, property of the nation state.  I imagine few statists would want to promulgate that view today.)  But they don't own them in the same manner as private owners, especially not in non-monarchic systems.  (Monarchic ones are ones where the government truly is privately owned.  Therefore, there should be an incentive not to overburden the subjects because the owners can pass on the state to their heirs.  Hans-Hermann Hoppe actually makes this case in _Democracy -- the God that Failed_.)

>>> 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.
> 
> Whether you've paid for insurance privately or through
> taxes, the
> effect is the same: you are less worried about the adverse
> event against which you have insured.

Oh, but my point was to get rid of any coercive system -- whether one of government doling out healthcare money (or anything else for that matter) or one of government mandating that people buy private insurance (whether individually or as a group; the latter being the case now with many in the US).  Yes, many individuals might still opt, in a free society, to buy health insurance and some employers might even still opt to buy group plans for their employees, but there would be no legal mandate to do so.  With that in mind, under such a system, there would be no rent-seeking class of insurers and medical providers (including big pharma) locked in battle with consumers and employers.

As for me, in a free society, I'd probably purchase health insurance for catastrophic medical expenses and just have a really high deductible.  All other payments, I would do directly.  This way, my insurance outlay would be small, but I'd still be covered for highly unlikely but very costly healthcare.  And, personally, I'd probably provide charity to people who couldn't afford medical care, but this would be my decision and would go where I saw fit (or to group charities I thought were worthy) -- it wouldn't be something I'd want coerced out of me.  (Of course, in a free society, such coercion wouldn't be institutionalized and I'd have the right to retaliate against it.  Not that I'm a violent person...)

Regards,

Dan