Health care in America (2 Feb 2007)

Though the Bush plan for health-care reform (an attempt to shift the tax subsidy for health insurance from employers to individuals) was pronounced dead on arrival, it did prompt some lucid analysis of the many problems with the American system, which is largely the product of an accident. Post WWII wage controls encouraged the end-around provision of benefits to lure workers. Health benefits became a standard part of the package and have remained so, even though it makes little sense and discourages people from self-employment or quitting bad jobs. In my 20s, I was told countless times that I needed to get a "real job": This was not a job that made me feel fulfilled or socially useful; this was a job that gave me health benefits. And the lack of benefits is the bane of the freelance existence -- it becomes prohibitively expensive to insure yourself, especially if you have even the slightest whiff of a preexisting condition. When you don't want a corporate job, or work nine to five (what Jim Kirkland would call the dork schedule or the family nerd hours) this inconvenient arrangement can seem conspiratorial -- that you are being forced to sell out and play the bourgeois game if you want any kind of assurance that you won't be bankrupted by medical bills. But in truth, corporations would probably like nothing more than to get out of the insurance business, which saddles them with overhead costs and phalanxes of HR staff that might then become superfluous.

So there is some agreement across the political spectrum that employment and health insurance shouldn't be associated. But liberals and conservatives have radically different solutions, as economist Paul Krugman explains well here. Conservatives think the main problem in American health care is economic inefficiency -- no one has any incentive to be careful about what they spend on medical care. The sick, because they are spending the insurance company's money, don't comparison shop and look for bargain treatments; neither patients nor doctors have any incentive to pinch pennies. If the sick had to spend their own money, the theory goes, they'd think twice about having unnecessary tests administered and prescriptions filled. Thus conservatives want people to pay for their own health care, seeing it primarily as a private rather than social issue. Hence they envision a system where people buy their own insurance with their own money and deduct it from their taxes. People would have stripped-down insurance to cover catastrophic scenarios and would pay for the rest with tax-free dollars from an HSA. Having less insurance (forcing people to surrender their overgenerous "gold-plated" health plans) would make health-care "customers" more careful about what they pay for and encourage them to research into how to make the most of what they spend.

Underlying the conservative view is a philosophical position that essentially rejects the idea that society has a collective responsibility for tending to the health of all of its members. Instead, health is a personal matter, your own business. If fate deals you a nasty cancer, this line of thinking implies, that isn't the rest of society's fault, and no one should force your neighbor into helping you pay the costs of your misfortune. It's every person for herself. You can see this perspective throughout Becker and Posner's analysis of Bush's plan. Becker writes

Aside from humanitarian concerns about the wellbeing of others, why should it matter to the rest of us if individuals and families, many of who are young and healthy, do not have health insurance? The main reason usually given is that since all persons must be accepted for treatment by hospital emergency rooms, regardless of whether they have insurance, taxpayers and other hospital patients who do have insurance bear the cost of treating persons without insurance. Due to this "externality", persons without health insurance impose costs on others whenever they use emergency health care facilities.

Becker imagines the only reason we'd give a damn about a stranger's illness is because we don't want it raising costs on our own care. Maybe this is so in the aggregate, when you reach a suitable level of economic abstraction and the utility function seems to explain all. But at a less lofty level, the institutionalized callousness to the sufferings of others would probably be intolerably chilling. The problem of the uninsured doesn't seem to be an abuse of emergency facilities; it's more likely the psychic burden of insecurity weighting down an ever-increasing portion of American society.

Becker concludes somewhat grudgingly that there should ultimately be a subsidy for individuals to get insurance, but Posner can't see any reason society should provide that:

if there were no tax subsidy for health insurance, probably much less would be purchased, which would be fine. People might even be healthier, because diet and other life-style choices are substitutes for medical care and thus for health insurance.
The fact that millions of people have no health insurance does not strike me as a social problem. It is true that they are free riders, but so to a considerable degree are the insured, since their premiums don't vary much or at all with how much health care they obtain. As Becker points out, the quality and conditions of charity medical treatment (such as long queues in emergency rooms) discourage overuse of "free" medical care--it isn't really free, because the nonpecuniary costs are substantial; among those costs are the fear and discomfort associated with medical treatment.

This is classic moral hazard argument -- health insurance gives people an excuse not to take better care of themselves, overcoming the incentive provided by how frightening and uncomfortable seeking medical care can be. (You half expect Posner to suggest hospital visits be made even more unpleasant to provide more incentive for healthful behavior.) He's willing to grant that "most people do not court illness in order to be able to consume subsidized medical care, or demand more medical care than is necessary to treat their illnesses" but still wants to argue that "Whether money is spent by the sick or by the taxpayer is more than a detail, in part because withdrawal of subsidy might induce people to adopt a healthier style of living." But what prevents people from living more healthily isn't the promise of a tax refund or a free trip to the doctor's -- it's more that they lack the routine preventive care that educates them about healthy lifestyles and then lack the financial means to live them. Barbara Ehrenreich's Nickeled and Dimed illustrates how the complications and constraints of poverty -- insecurity, mainly -- induce stress and unhealthy choices. Tyler Cowen has a concise refutation of this view as well: "Our tolerance for anxiety is sufficiently low that I expect the future to bring more and more insurance of many kinds, whether from the private sector or from government. The cost of this insurance, in terms of induced inefficiencies, will be high, but a secure health care situation is one of the things in life that alone can make a difference between happiness and misery." For Posner, though, health is almost a matter of choice: "If people want to spend more of their money on medical care and less on food or housing because they greatly value good health and longevity, that is their free, legitimate, and authentic choice." No one, then, should be forced to be healthy by being remanded to buy insurance, and people who get sick obviously failed to choose to value health over food and shelter.

Posner does address what seems to me the key issue in health care debates: adverse selection. Insurance companies won't cover people who are likely to get sick, and only currently do so because they are lumped in with healthy, employable folks in pools generated by company payrolls. Adverse selection is the main reason liberals, who do regard health as a social problem, will argue for universal, government-supplied programs; everyone is covered, and the risks presented by those unfortunate sickly people are borne collectively by all of us. (But what about those sick people who aren't unfortunate but are instead engaging in risky behavior?) One way of accomplishing this would be to slowly and steadily extend Medicare benefits to more and more people -- an incremental solution along the lines of what Matt Yglesias proposes here and Guy Saperstein proposes in this Alternet essay. Posner argues precisely the opposite, that Medicare ideally would be abolished.

The best, though politically unattainable, reform would be to abolish Medicare, brutal as the suggestion sounds. Then people would purchase catastrophic or other medical insurance for their old age, or depend like the young on charity. If it were thought "unfair" to make elderly people of limited means pay for their entire costs of health care, there could be a subsidy, but it should be means-tested, unlike Medicare. Why taxpayers should pay the medical expenses of affluent oldsters, of whom there are a great number, is an abiding mystery, at least from an ethical as distinct from a political standpoint.

The default assumption is that people who need assistance are somehow freeloaders bilking the system and cheating other people -- eventually the existence of poor people will be acknowledged, but only grudgingly, after the terms of the debate are set to marginalize them or at least cast suspicion on anyone who uses government services. (If these damned poor people were so worried about being healthy, why weren't they working harder to get the money necessary to sustain their health?)

Rather than poor consumer incentives, Krugman suggests that the health-care problem is ultimately one of the difficulty of rationing health care fairly: "Rather than admit that private-sector institutions aren't any good at rationing, conservatives now say that patients should be induced to ration their own care by being forced to pay more out of pocket. And that's where Bush's attack on gold-plating comes from: reduce the tax advantage of employer-based care, and deductibles and co-pays might go up. The trouble is that the big money is in stuff like heart operations - areas where (a) people can't pay out of pocket in any case - they must have insurance or go untreated - and (b) people really aren't sufficiently well-informed to make the decisions." So the question is ultimately a matter of whether expensive health problems and serious illnesses should be covered for everyone or just those who can afford to pay for care themselves (or were lucky enough to get coverage before becoming afflicted). The conservative view seems to be that money is the best way to decide who gets treated and when. (Basic economics -- using price, supply and demand to distribute scarce resources.) If you can afford more health care, you get more of it. If you can't, well, you should have thought of that before you wasted what resources you had on food and housing.

There must be alternatives to that, wherein public health is seen as a public good (as is medical innovation, pharmaceutical R&D etc., which those against government-sponsored care argue will be jeopardized when the profit motive is removed from the health care industry). Not sure how the rationing problem is solved, though.

UPDATE: The folks at Marginal Revolution offer a correction for the misuse of adverse selection, in its strict definition (of which I am guilty). Cowen's post, however, reaches what appears to be a similar conclusion, that how health care should be rationed ends up being an ethical question rather than one of strict economic efficiency.