“Cash for Clunkers, ethanol subsidies, the Post Office, and military profligacy” make government involvement in health care more devastating.

Cars, fuel, postage and defense compete with or are factors of production involved in producing health care. When the government interferes in these lines of business, it inadvertently also interferes with heath care.

Two things I would look if I was analyzing the issue are: 1) The allocation of common factors of production between the various industries. 2) The distribution of the burden of taxation among remaining free market industries.

Another problem a free market in health care has to tackle is information asymmetry. A healthy person that knows they are healthy might not want insurance. The sick person that knows they are sick will want to buy the maximum of insurance. This is Akerlof’s Lemons problem. The insurance company has to charge everyone more because they don’t know who to charge less to.

Peter B., as I understand it, this is due to insurance companies being forced to pool everyone together (and perhaps told how much they can charge as well) and thus unable to charge different rates based on the health of the insured. If they could, they’d charge the person in ill health a higher rate, and those in good health a lower rate.

I would suggest a very careful reading of George Reisman’s excellent pamphlet regarding the healthcare question. I think it is called “the real right to medical care…” or something. I found it to be highly enlightening. It did an excellent job of explaining why the partial socialization of medicine in this country (which has many manifestations) is responsible for the near limitless rise in medical care costs. After studying this work over and over again, I was led to the for me bizarre conclusion that if we are going to have socialism in medicine at all, then we should probably just go all the way with it. The rising costs created by the monstrous hybrid of a system we currently have are the most damaging to the weak and vulnerable in society, and this seems to me a cruel injustice.

Have fun with that…cheers!

We currently have two systems of health care operating in parallel. There are the 3rd party payer insured (private and public), and the self insured. The self insured is basically the patient paying out of their own savings for health care. This is arguably a test of free markets and what they can do for health care. And for many transactions, they aren’t doing as well as the 3rd party payers. Insurance companies pay less for service than the uninsured patient does. Shouldn’t free markets have driven the cost down below these top down alternatives? But they haven’t.

So why not? One possibility, is this is price discrimination. The uninsured are willing to pay more. I have heard that the uninsured and private insured subsidize the Government insured. But why serve the Government insured at all then? After the private payers cover the fixed costs, the Government insured must be marginally profitable. Another side to this is the Government has monopoly buying power and the threat of force. If the uninsured and private insured, all became Government insured, then would the average cost per Government insured go up?

Another problem a free market in health care has to tackle is information asymmetry. A healthy person that knows they are healthy might not want insurance. The sick person that knows they are sick will want to buy the maximum of insurance. This is Akerlof’s Lemons problem. The insurance company has to charge everyone more because they don’t know who to charge less to. When Government forces everyone to join the system, they at least have the advantage of bypassing this problem.

Of course the problem all 3rd party payer solutions have, is the patient will spend more than they need to or would have if it was their own money. An offered solution is the Health Savings Account. Only so called catastrophic problems are covered by insurance. This moves the problem to the relatively rare case that something really bad happens. But what is ignored here, is it is these rare events that cost so much.

I would love to see what you think about these problems.

Part of the problem: government track records are data compiled by the government itself. But more importantly, the current dominant histories do not take into account Austrian theory and hence, serve hagiographic purposes. They reflect the general populace’s sentiment that is akin to an 18th century “seeing is believing” attitude. Is the general populace ready for the Bastiat “What is seen and not seen” lesson?

Even if Art puts together a finely detailed account exposing the opportunity costs of national socialist healthcare it will be extremely difficult to get people to even want to read, never mind understand or accept, the economic calculation argument, especially in a one-off paper. If Art gives a fully nuanced description he might overwhelm people; too little, and they will think nothing of it or misinterpret it to be merely an office accounting problem or other such mundane nonsense. I have read a bunch of stuff from Mises and others (rec’d from Inquisitor et al.) on this maybe most important argument (sorry Bryan Caplan) against socialized medicine and can’t say I have mastery.

Finally, discussing the inherent structural disincentives in any nationalized or government industry, while being easier to explain, might just get you labelled a cynic to boot.

We ‘got your back’ here though.

Tu ne cede malis!

Greetings from Switzerland
Cedric

Greetings from Switzerland
Cedric

The Swiss healthcare system changed dramatically in 1996, when the so-called Krankenversicherungsgesetz (“health insurance act”) came into effect.

The law made the following changes:
* Every Swiss citizen needs to have basic health insurance, called Grundversicherung (“baseinsurance”).
* The government regulates what has to be covered by this basic insurance. Insurers can’t remove or even add anything.
* Insurers are not allowed to make money off of the basic insurance, they are not allowed to charge different rates to different people or age groups and they are not allowed to refuse anyone.

There are a lot more things of course, but I think these are the three most important points.

Now, ever since the law came into effect, we have had problems with rising costs in our healthcare system. The costs rise only slowly (at least slower than in other countries) but still faster than people’s incomes can keep up. I see two main reasons for this. First, because the cost for everyone is the same, people spend more and more money on healthcare and don’t check prices. Second, because politicians keep adding more and more things to the “basic insurance” because of pressure from special interest groups. Originally, the basic insurance was supposed to only cover the most basic things, but nowadays it covers practically everything you could think of.

Another problem arising from the fact that insurers can’t charge different people different rates is that there is no penalty for having an unhealthy lifestyle. In a free market system, people who for example smoke a lot or drink alot would pay more because they have a higher risk of becoming sick in the future. But not in Switzerland! However the government knows that this is a problem. So in order to “fix” the problem they created, they have heavily increased taxes on cigarettes and alcohol up to the point where we see increases in crime rates because people are smuggling in goods across the border.

And of course, because the government dictates what I my insurance has to cover, I can’t even choose what medical treatments I want to pay for! Only recently for example the decision was made to include so-called “Alternative Medicine” (like homeopathy) in the basic insurance. Now, I don’t care if someone believes in homeopathy. That is none of my business. It’s just that personally I don’t believe in it and that means I don’t want to pay for it let alone subsidize it’s practice. But just as I don’t want to pay for Alternative Medicine I don’t except anyone to pay for Science-Based Medicine it they don’t want to do so.

Now politicians know that something is wrong with our system and that at some point people simply aren’t going to be able to afford to pay for their healthcare anymore if costs keep rising. The problem is that no party has been able to gain enough support for their ideas yet. Even smaller changes are resisted by the Swiss people, which have to vote on the laws. Pretty much any law that had anything to do with healthcare reform in the past years have been voted down. And of course, the left always blames it on “big pharma” or some other bullshit. For some reason they never think it’s their own fault…

Now, with all that having been said I think our healthcare system is still a lot less crazy than those in other European countries like France, Germany, Britan, Italy or Austria. Hospitals and doctors are luckily still mostly free to “do their thing”, and since people have to pay a small percentage of their medical bills themselves at least some people are starting to wake up and beginning compare prices. It’s still a long shot from being a free market, but at the end of the day I’d rather live here in Switzerland than in France.

Art Carden

I’m working on a piece about health care for FEE and wondering what in the government’s track record suggests that replacing the profit motive with the political motive is a good idea. I’m willing to be convinced: which programs offering twelve- and thirteen-figure pots of free money have been implemented effectively and sustainably (i.e., accomplishing their stated goals while remaining actuarially sound)?

I was thinking of auto insurance in Canada. Just a personal, anecdotal example, if I was a new driver SGI (Saskatchewan Government Insurance, go figure) would charge me about $800 a year for insurance. $620 after discounts for a safe driving record. Shopping around in Alberta, in order to get a similar policy, would cost me about $3000 a year. SGI doesn’t receive government subsidies and is run sustainably. I don’t know how much the government policies in Alberta affect auto insurance in the province, or if they do affect them anymore than any other business that are run competitively.

Although SGI might not be a good example. It isn’t actually run by the government but is really a crown corporation that is left to be run on its own where it needs to finance itself and remain sustainable while following a mandate to offer cheap insurance to Saskatchewan residents.

Looking round the world, the US fails this test. The NHS in the UK has it, even for tourists, but it fails the quality test.

It fails to provide decent care (it kills 20-80K per year from mistakes). It can’t keep the hospitals clean, one alone killed nearly 200 from the C-Diff bug.

The reason for the failure is the provider, the insurer and the regulator are the government. They won’t self regulate because that means paying compensation. People don’t even know the cost. If they did they would be angy.

So you need a system where regulator is not insurer is not provider.

The next one relates to debt. The NHS, and the French system have massive pension liabilties. They are running a ponzi scheme. End result is that the price for future generations will go up, they will be paying for the health care of previous generations.

So looking around the world which is the best?

It’s the Swiss. You have to insure. Regulator isn’t provider. Provider isn’t insurer. There is a mixed model of provision. Not for profit insurers, private hospitals, local government hospitals. This means there is competition and different levels of service. If you want a hotel style room, 5 star food, your insurance will cost more.

The interesting question is how to deal with expensive patients. Here insurers can refuse, but they then get given these patients pro rata. It’s a good system because everyone knows they get insurance at a standard cost. Insurers know they won’t be picked off by bad risks.

Now comes the question of risky behaviour. Here there is the use of franchise clauses in insurance. If you agree to pay the first X francs of your insurance claims you can get a reduction. Now, here people are making a judgement about how risky a client you think you would be for an insurer. If you think you are low risk, you accept paying the first 500 francs as an example. Again strikes me as reasonable. There is a lot of behavioural finance on this matter.

Since its insurance based, you have no tail payments to make. You don’t have to pay out the pensions for the next 60 years.

The last part you need to address, what if people are too poor to afford health insurance?

It’s the same as what society does if they are too poor to afford food and shelter. Make it a benefit.

Nick

On the payments as benefits, there are better ways than the UK too. Peversely, its force people to save when they can, and allow people to spend their own money when they need it.

It’s a libertarian view too. If you are going to tax people to redistribute their money, at least make sure people have tried to help themselves first.

To bleg is to write a blog entry or comment for the sole purpose of asking for something.

People think the insurance companies operate in a free market, and are frustrated by the ever-increasing prices (never mind the regulation, barriers to entry and so on.) So they think the market failed and are willing to give government a shot at it.

There are cases where we don’t perceive any free market alternative at all because the government has monopolized the service. Again, the government does it badly (post office, military), but since there is not a free market alternative to examine, people have trouble imagining that the market could, or would, be better, and in a “fair” way of course.