harmonicminer

A young friend of mine (a graduate student in music) recently sent me an email, detailing his conversation with a friend on the virtues of government (universal) healthcare, and his sense of having inadequate answers to his friend’s points, even though my musician friend is generally conservative in his approach to most things.

Herewith, his questions, and my responses:

1. What would be the ideal solution for the healthcare situation?

This is the wrong question, if you believe that society has to look for a perfect solution in which everyone has all the healthcare they want or need. It is simply unattainable. I didn’t say hard, I didn’t say expensive, I said unattainable. Not a single society has managed it. What in the world makes anyone think we can? In Canada, people often die of cancer waiting for an MRI to diagnose it. Or, if they get the MRI, they die waiting for the surgery. Read here.

Do a Google search for various combinations of the words, “death, Canada, medical, wait, surgery, MRI” and any other words that come to mind. That’s how I found the link above. I didn’t know about it before beginning this post. It took about 25 seconds to find. There are others.

The choice is simply NOT between what we have now and perfection, because perfection (if defined in terms of the result that “everyone has all the healthcare they want or need at a price they don’t really notice”) is simply not available.

Let me put it another way: expensive cars tend to be safer. Many people died last year because they drove a cheap car. Some died because they rode a bike (couldn’t afford a car trip) and got hit BY a car, cheap or otherwise. What would happen if we decided, as a society, that everyone should have the same level of car safety, no matter what decisions they make personally about what they’re willing to buy?

You know, and so do I.

Right now, it is in line with the conservative principles of “Free Market” but it’s going terrible thus making this Universal Healthcare disaster look all the more appealing! Are things the way they should be?

No, things are not as they should be. The government has affected the way healthcare is distributed in the USA in several ways, some good, some bad, some indifferent. I’ll focus here on the bad, since we’re wondering how things “should” be.

First principles: when more of something desired is available at no apparent cost increase to the consumer, more of it will be used. When something desired costs the consumer in proportion to its use, less of it will be used than if the consumer pays no cost difference.

The first major way the federal government screwed up healthcare coverage was during World War II, as an unintended consequence of wage fixing in a limited labor market. Employers had to compete to find workers, because so many were off fighting the war, yet the government forbade them to raise wages, so they introduced the notion of “fringe benefits”, including health coverage. Since this coverage was pooled among all an employer’s workers, the net result for any given employee was a disconnect between how much health care they consumed and how much they paid for out of pocket. Providers of health care discovered they could charge a bit more without losing customers, because the cost was “spread around”, and wasn’t felt much by any given individual. That was the beginning of our current problem with prices.

When social security was created, there was no official “retirement” age. The age of 65 was chosen to begin benefits, because very few lived that long. It wasn’t going to cost much to fund, and everyone felt good about knowing someone’s grandma was getting money from the government (read, all of us). The result is that by the 1950s age 65 or so had become the EXPECTED retirement age. Yet, people were living longer and longer, and consuming more and more healthcare, during the period of time AFTER retirement when they no longer had “employer funded” healthcare. In any earlier time, more people would have worked longer, keeping their medical coverage if it was “employer funded”.

So, the combination of wage fixing/labor shortage leading to “employer funded” healthcare, and the effect of Social Security on retirement expectations combined with longer life spans, was that “more old people couldn’t afford healthcare”, whose prices had been steadily rising precisely because costs were hidden from the people actually consuming the healthcare, allowing providers to jack up prices a little at a time.

This led Congress to react by creating Medicare for the elderly (read, age 65, after employer health coverage stopped), which FURTHER insulated people from the effect of providers charging more. A hospital could get away with billing unnecessary charges, because no individual cared that much about controlling it. So could doctors. In fact, they could get away with setting fixed prices (HIGH ones) for particular procedures/tests, whether or not there was any direct relation between the expense of the test and the expertise and time it took to do. Have you seen those fixed prices in your automotive repair garage, “Brake jobs: $119 front disc”? Did you ever see a sign like that at the doctor’s office, or in the hospital? People USED to ask what something would cost, and providers USED to bargain with patients. These days, that happens precious little. Medicare really boosted the ability of providers to disconnect their pricing from consumer awareness and reaction, a guaranteed way to increase usage (demand), and therefore encourage prices to go even higher.

And when the standard Medicare price for, say, an xray became a certain amount, that amount became the FLOOR for pricing the same test for other patients who weren’t on Medicare. And so it went.

Now people live longer and longer, and retire sooner and sooner, and spend more and more time on government funded healthcare, and the predictable result is that ALL of our prices go up. We’ve increased demand, but not supply. It’s really pretty simple.

In addition, by regulating (FDA) the release of new medications so severely (and expensively), making it easy for patients to sue providers for outrageously out-of-proportion awards, and generally discouraging people from acting like actual consumers with choices based on price and need, we’ve seen a great deal of damage from government involvement in healthcare.

If not, what is the conservative solution to the absurd prices and difficulty in obtaining coverage for many?

Different consumers make different judgments about how much and what kind of healthcare they want to pay for. The common statistics about how many people are “uninsured” do not account for all the young, healthy adults with jobs sufficient to buy health coverage, but simply choose not to, in order to have a more luxurious lifestyle. It’s always a gamble, of course, but if a person is in their 20s and healthy, they may elect to buy a fancier car instead of health insurance they don’t expect to use much. Also, there will be young people in good health, just starting out, whose first job or two won’t offer health insurance as a benefit, but who will move up to a job that does.

These statistics also don’t account for other people who simply choose to take the gamble, preferring to buy lifestyle instead of insurance. The stats don’t account for people who are simply between jobs, with healthcare in each, but are currently uninsured, perhaps for a few weeks or months (and by the way, even though people often decide not to pay for it, coverage is available for such people, by federal law).

There are also people (including children in poor families) who cannot buy health insurance privately, but are currently covered under a federal or state program anyway. They are counted as “uninsured”, though the reality is different.

The BIG LIE is simple: it is that those millions who are currently uninsured are ALL people who can’t afford it now, and won’t be able to afford it next year. This is simply NOT the case. There is a group of “hardcore” uninsured adults who cannot afford to buy any level of health coverage, but it is far smaller than most people think.

I invite you to try to find true numbers that account for all these factors. It will be harder than you think, because the advocacy organizations who bandy about the stats don’t really want you to know. For example, they will say that some number, say, 45 million, were uninsured “sometime in 2005”. They don’t separate out the various groups I mentioned above, because it would RADICALLY change the numbers, and since it doesn’t help their case, they just don’t mention it. If you subtract illegal immigrants, young people who don’t need it or choose not to buy for reasons of their own, people who are between jobs at the point of measurement, etc., the number is around half of what they report. And a very large proportion of them are children who are covered by various existing government programs, but are still listed as “uninsured”.

So, does that mean ALL those people were without coverage ALL YEAR, and did not make economic decisions on their own, valuing other things over health insurance?

Of course, it does not.

2. In a debate on the universal healthcare issue with a staunch liberal, I was stumped when he cited the success of governmental control over such intities as Gas, Water, Electricity and the successful regulation of these utilities. He explained that we are all safe because the government sets standards concerning what can be in the water and how much of it etc. Is it good that the gov. is involved in these things?

Your friend is misinformed, or is distorting the situation, I’m not sure which, since I didn’t hear exactly what was said. I certainly agree that we need some reasonable set of standards for what constitutes safe drinking water. However, is there any reason to believe that private companies, suitably licensed, couldn’t do it as well? One of the characteristics of privately owned enterprises is competition, which includes a constantly improving product quality. Our water, however, is worse than it used to be in some ways, is it not? Regulation (and the stagnation it encourages [pun intended]) often means setting a lowest common denominator above which no improvement is likely.

What would happen if private water companies had to bid, maybe every 3-5 years, for the contract to put water into the public system? What if the criteria involved some combination of quality improvement and minimum price? And what motivation does ANYONE now working for or managing a public utility, with a guaranteed market and no competition, have to even adhere to current standards, let alone aspire to higher ones? Of course, they don’t do it REALLY badly, or they’d lose the gig… But they can be minimally sloppy about it all with no real consequence.

There is an extensive literature on privatization of public utilities, some pro, some con. Just type “public utility privatization” into Google. I think the pro position is winning on points. Britain (land of socialized medicine!) privatized many utilities under Margaret Thatcher in the 1980s. They actually improved on the US situation, with less regulation, and as a result there is actually some price competition and incentive to be more efficient.

3. Electricity was regulated in California until Enron people lobbied to degregulate and allow the free market to handle it. Then the Enron scandal was born and we are still paying the inflated Electricity prices today. What can we as Free Market advocates say about this? Or about the deregulation of the airline industry that is reported to be unsuccessful my some. Or the horrible gas prices of today?

It is a mistake to confuse simultaneity with cause and effect. It is a mistake to evaluate a reasonable policy by the results achieved when corrupt people implement it.

California was DUE an electricity crisis, with or without regulation, because it wasn’t building generation stations, but was increasing demand. The deregulation initiative was partly to try to allow the market some flexibility to deal with the fact the California simply wasn’t making enough electricity, and needed to get it from other states (trust me, I live here, and California wasn’t suddenly overcome at the state level with conservative economic sentiment… they were grasping at straws). But this is like using a generally good health strategy, such as eating right and getting exercise, to treat a serious disease that arose from previous BAD health habits. You will still be sick, and may get sicker, but if you blame your new health regimen for the disease, you’ll be seriously confused about cause and effect.

The reason California wasn’t building new generation stations was REGULATION, on many levels. It takes time for the market to undo the damage done by years of regulation. De-regulation is not a “quick fix”, it’s an overall good strategy for developing sufficient capacity and getting it where it needs to go.

Enron was a special case of corporate skullduggery combined with influence peddling and willful conspiracy on the part of certain government actors. Others have written about this in some detail, and I defer to them. There is a case to be made that Enron was unmasked in spite of regulation and government influence peddling, not because of it, and that de-regulation had nothing much to do with the timing of the debacle.

But, just to test the idea: if a large pharmaceutical company was found to be doing something illegal like deliberately cheapening its medications in a way that made them ineffective, and selling them as the original item, and cooking its books and lying about its financial status, and perjuring itself about its business practices, and lying about the scientific tests demonstrating the efficacy of its medications, would that be grounds for nationalizing all the OTHER pharmaceutical companies? That is essentially the argument being made by someone who says that the ENRON debacle proves we need to regulate the utilities and keep them in public hands.

We are still paying high electricity prices for several reasons: we haven’t built and gotten online enough plants in CA to keep up with demand, the price of oil to generate electricity continues to climb (along with everything else affected by the price of oil… Meaning almost everything, period.), and so on. But: as a percentage of my income, I pay less for electricity now than I did at the age of 25, per kilowatt hour (though I use more hours… And that’s part of my point; when demand goes up, supply has to go up, or prices will.). And we STILL do not have adequate competition in the generation/distribution business.

Similarly, we have high gas prices for very simple reasons: we have more people wanting oil (around the world and in the USA), but haven’t increased the supply, either of crude or refining capacity. We haven’t increased the supply of oil because Congress won’t let us drill on the north slope of Alaska (affecting about 1% of the “pristine tundra”), or off the coast of California, Oregon and Washington, or in the Gulf of Mexico, or for shale in the West, or develop coal to liquid technologies, or about twenty other things. And they’ve made sure that we have to burn oil to create electricity by making it essentially impossible to build a nuclear power plant.

Ask all the MILLIONS of people who have been able to fly (not just at lower prices, but fly, period) since airline deregulation, if they think the prices should have been kept artificially high, with no competition between the airlines.

Other factors

Without question, one contributor to costs in healthcare is the proliferation of new and expensive tests and procedures, many of which, though wonderful, are simply far beyond the scope of what medicine could do in some earlier era when medical care cost less. For these tests and procedures, it is even more critical that consumers know what they cost, and pay more to get them. But the current system tries to provide 21st century top flight care to everyone when most people still want to pay 1950s prices. One reason many procedures cost more than they used to is because the excess charge is used to fund the losses incurred by newer procedures whose cost cannot be fully passed on to the consumer and insurer. It’s hard to quantify how much this effect is, but it’s there, and won’t be solved by any amount of government intervention or regulation.

Medical science is going to advance. It is not beyond possibility that methods for extending life to a couple of centuries will be available in a few decades (I think I’m being conservative, actually). If those methods are very expensive, will the government decide that everyone must have them, regardless of cost? This is just not realistic. The economics of medical care can’t be ignored anymore than the economics of automobiles. We can’t all drive the safest car, and we can’t all get the best medical care, and that will be true essentially forever, or until such incredible advances in efficiency exist that medical care is a negligible part of the budget for almost anyone. After all, we CAN all drink the best cola beverage.

Conclusions

The bottom line for all of this: it’s very difficult to put the genie back in the bottle. The people have been misled about what it is reasonable to expect. They have been duped about the real cost of things. They are told the government is helping them, when nearly the exact opposite is the case, in terms of long term effect on the experiences of most people.

In very many ways, the government and regulation IS the problem in health care delivery. It is beyond me to explain why anyone would consider MORE of the same to be the solution, when it has created many of the problems in the first place.

We are going to have people who don’t get as much care as they need, or want. Period. The only question is whether they are “the uninsured” in our current system, or are on a waiting list in a nationalized system. But there will be people who don’t get the care they need when they need it, and people who get much more than they need, regardless of what system we adopt. The “uninsured”, in our system, at least have a chance of changing some of the aspects of their lives that have resulted in them being uninsured. People on a waiting list in a nationalized system have no options at all… except, perhaps, to come to the USA and buy the care they need.

In the meantime, there is simply no question that the USA is the world leader in healthcare innovation, and the reason is because the government isn’t in charge of all the research, and companies who DO the research stand to make some money from it.

Unfortunately, there will always be imperfect results in the world. And if we act prudently, and try to move the USA healthcare system away from the regulatory precipice, there will be people who individually experience negative effects from the change. Nevertheless, it is the right thing to do, for all those people who will positively benefit from making our system more efficient, not less, and more competitive, not less.

We can, however, create a great deal of suffering by trying to repeal the laws of economics.

Tags: economics, healthcare, market