More examples of signals rather than causes

Being a homeowner makes one responsible.  More likely: Responsible people become homeowners.

Going to preschool improves ones chances of success. More likely: Having parents that do a lot of things, including sending kids to preschool, improves ones chances of success.

A college degree increases your earnings. More likely: Ambitious folks find ways to make more money. I’ve heard of studies that look at non-college graduates that have similar ambition and work ethic as college graduates that show that they have about the same earnings as college graduates.

Countries with government health care have better health, as measured by life expectancy and infant mortality, than the U.S. More likely: Other factors like health habits, diet choices, demographics, lifestyle choices and differences in the way these health stats are tracked from country to country have bigger impact than whether the health care system is provided by government or not.

Can you think of any?

Another reason we spend so much on health care

We hear lots of reasons why the U.S. spends so much on health care. But, there’s one obvious reason that I don’t recall hearing all that often.

On a recent EconTalk podcast, guest Esther Dyson offered this reason:

…one reason health care costs so much in the United States is that we are so unhealthy.

Could be.

It would be interesting to break down health care spending across various indicators of a person’s health to see if there’s anything to that.

Government caused the pre-existing condition problem

In this post I explained why I think the tax advantage to employer-provided health insurance, over individually purchases health insurance, is the government-induced cause of the pre-existing condition problem that most folks prefer to solve by introducing even more government, rather than addressing the root cause.

In John Cochrane’s health care essay, he agrees.

Before ACA, the elephant in the room was the tax deduction and regulatory pressure for employer‐based group plans. This distortion killed the long‐term individual market and thus directly caused the pre‐existing conditions mess.  Anyone who might get a job in the future will not buy long‐term insurance. Mandated coverage, tax deductibility of regular expenses if cloaked as “insurance,” prohibition of full rating, barriers to insurance across state lines – why buy long term insurance if you might move? – and a string of other regulations did the rest.

 

Anecdotes are powerful political tools — but shouldn’t be

I just had to add this passage from John Cochrane’s health care essay:

The critics adduce a hypothetical anecdote in which one person is ill served, by a straw‐man completely unregulated market, which nobody is advocating, with no charity or other care (which we’ve had for over 800 years, long before any government involvement at all).  They conclude that the anecdote justifies the thousands of pages of the ACA, tens of thousands of pages of subsidiary regulation, and the mass of additional Federal, State, and Local regulation applying to every single person in the country.

How is it that we accept this deeply illogical argument, or that anyone in making it expects it to be taken seriously? If you can find one person who falls through the cracks, the government gets to regulate the whole market, not that we craft a minimal solution to fix that person’s problem.

But wait, will not one person fall through the cracks or be ill‐served by the highly regulated system? If I find one Canadian grandma denied a hip replacement, or someone who can’t get a doctor to take her as a medicare patient, why do I not get to conclude that everyone must be left to the market?

 

What if it doesn’t work?

A moderate/liberal, but mostly uninterested in politics, friend of mine recently told me that he may not vote for Obama next week.

Why?

I’ve worked with this friend for years.

One thing I influenced him on over the years was the idea of emergent order. I pointed out that success stories are often a matter of random luck and the best way to ensure a company’s success is to try as many of the happenstance of random luck as possible.

We saw it over and over at our business. Many things that seemed like they should have worked, didn’t. Some things that seemed like they shouldn’t have worked, did. Many of those things were discovered by accident.

I pointed out to him that centralized management and politically powerful constituent groups in the organization stifled the emergent order that is evolutionary, random, experimental discovery. Stifling that process led to lackluster results — unless the company happened to be very lucky.

My friend said health care was the issue that made him reconsider his presidential vote. Obamacare is a centralized system that will stifle discovery and innovation. It doesn’t allow us to experiment with plans B, C, D, etc. if Plan A doesn’t seem to be working. It only allows for us to keep tweaking Plan A — which puts us on the same path as a mature company that can only manage to tweak its core products, rather discover new ones.

My friend has seen Plan A not pan out enough times that he thought Romney’s approach of letting the states experiment seemed to make more sense.

I don’t know if he will follow through, but it’s good to know that I’ve at least caused him to think about it.

Free Market Masterpiece

I agree with Don Boudreaux, of Cafe Hayek, that John Cochrane’s health care essay is a must read.

I first titled the post, “Health Care Masterpiece,” but then changed it to “Free Market Masterpiece”. In his essay, Cochrane does a masterful job of contrasting free market success stories to our government-restrained market for health care.

Here are a few snippets.

I bet you didn’t know:

About 70% of hospitals and 85% of health‐care employment is in non‐profits,whose legal and regulatory treatment protects much inefficiency from competition.

Maybe for‐profit companies pay too much attention to stock prices. But non‐profits can go on inefficiently forever, with no stockholders to complain.  The whole point of a non‐profit is to pursue goals other than economic efficiency.

Here he summarizes the competing goals of various government actions in health care:

…here we have the government forcing small size in order to boost competition with one hand, stopping entry to protect hospitals from competition with another, trying to force larger “networks” through “Affordable Care Organizations” to obtain the needed economies of scale with the third, but laws preserving doctor independence with the fourth.

And:

On reflection, it’s amazing that computerizing medical records was part of the ACA and stimulus bills. Why in the world do we need a subsidy for this? My bank computerized records 20 years ago.

Why, when you go to the doctor, do you answer the same 20 questions over and over again, and what the heck are they doing trusting your memory to know what your medical history and list of medications are?

He answers that question (read it to find his answer) and OMG:

No, we did not get cheap and amazing cell phones by government ramping up the pressure on the 1960s AT&T. Southwest Airlines did not come about from effectiveness panels or an advisory board telling United and American (or TWA and Pan AM) how to reorganize operations. The mass of auto regulation did nothing to lower costs or induce efficient production by the big three.

When has this  ever worked?  The post office? Amtrak? The department of motor vehicles? Road construction? Military procurement? The TSA? Regulated utilities? European state‐run industries? The last 20 or so medical “cost control” ideas? The best example and worst performer of all,..wait for it…public schools?

I will post more quotes later. But, I also agree with Boudreaux that you should take the time to read the whole thing.

Folks can buy health care like they do cars, vacations and groceries?

John Goodman makes the case here (via Don Boudreaux at Cafe Hayek).

Goodman opens with a story about how a person faced with spending $2,800 of her own HSA money on a CT-scan, called around and got one for $400.

He then explains one major problem in our health care system:

For the most part, no one ever sees a real price for health care services – not doctors, not patients, not employers, not employees.

The reason patients never see the prices is because third-party payers (insurance companies, employers and government) negotiate with providers – leaving patients with a small co-pay under traditional insurance. Because no one sees what services cost, individuals have every incentive to over-consume and caregivers to over-provide, resulting in waste of precious health care resources. And without real prices, there is no basis for third-party payers or anyone to negotiate the lowest possible prices.

Good reading

Sheldon Richman explains that the “market does not ration.” (HT: Cafe Hayek)

I liked how Arnold Kling worded this:

My own view is that these are two areas [health care and education] where outcomes depend largely on factors other than the services provided. Meanwhile, we have succumbed to the claims of suppliers that their services ought to be heavily subsidized. The subsidies lead to over-provision of education and health care services, well past the point where the marginal return from additional spending becomes negligible. In health care, this is known as the flat of the curve hypothesis. Perhaps the hypothesis also applies in education.

Eating apples is a good thing. But it’s not good to continue eating more and more apples every day.

George Schulz in this weekend’s Wall Street Journal, gives some good advice to would-be Presidents. When I read this, it made me think about the short-term thinking of Keynesian economics:

The political people would come in and say ‘You’ve got to be careful, Mr. President. There’s gonna be a recession [if the Federal Reserve tightens the money supply]. You’re gonna lose seats in the midterm election.’

“And he basically said, ‘If not us who? If not now when?’ And he held a political umbrella over [Fed Chairman] Paul Volcker, and Paul did what needed to be done. And by late ’82 early ’83, inflation was under control, the tax changes that he made were kicking in, and the economy took off. But it took a politician with an ability to take a short-term hit in order to get the long-run results that we needed.”

Government’s role is not to smooth GDP.  It’s job is to predictably protect our freedom:

“Let’s talk about football. . . . You want to know the rules and have an impartial referee, but you also want to make sure somebody isn’t going to come along and change the rules in the middle of the game. . . . Now it’s as though we have all these people who have money on the sidelines and we say ‘Come on and play the game,’ and they say ‘Well what are the rules?’ and we say ‘We’ll tell you later.’ And what about the referee? Well, we’re still struggling for who that’s gonna be. . . . That’s not an environment designed to get people to play.

We all learned this on the playground as we were growing up, didn’t we? We stopped playing tag and kickball with the kids who changed the rules in their own favor after every play. It wasn’t worth our time. Stop changing the rules.

Schulz also makes a good point about being cautious to use debt for true emergencies (and not GDP smoothing or buying votes, rewarding cronies and special interests):

Now remember something. Alexander Hamilton, our first secretary of the Treasury, and a very good one, redeemed all of the Revolutionary War debt at par value, and he said the ‘full faith and credit’ of the United States must be inviolate, among other reasons because it will be necessary in a crisis to be able to borrow. And we saw ourselves through the Civil War because we were able to borrow. We saw ourselves able to defeat the Nazis and the Japanese because we were able to borrow. We’ve got ourselves now to the point where if we suddenly had to finance another very big event of some kind, it would be hard to do it. We are exhausting our borrowing capacity.”

Finally, he reminds us what results with price controls:

“I fear that the approach to controlling costs in the health-care business is moving more and more to a wage-and-price-control approach. And one thing you know from experience is when you control the price of something, you end up getting less of it. So if you control the price of health-care providers, you will have fewer of them and that’s gonna wind up as a crisis. The most vivid expression of that . . . was Jimmy Carter’s gas lines.”

Cost containment

Here’s one possible reason Britain may spend less on health care.

Careful what you wish for

In today’s Wall Street Journal, Holman Jenkins writes about NYC Mayor Bloomberg’s ban on BIG SODA.

I know many people who believe universal health care is a good thing. But these people also don’t take the 30 seconds required to ponder the subject beyond that nice sounding intention.

It’s not long before the very same people who pushed us to provide health care for everyone, begins to tell you how to live because they determine that your lifestyle choices are costing the rest of us too much.

As Jenkins writes:

But by the state’s own estimate, it spends $8 billion annually treating obesity-related ailments under Medicaid, which is how 40% of city residents now get their health care.

Here is the ultimate justification for the Bloomberg soft-drink ban, not to mention his smoking ban, his transfat ban, and his unsuccessful efforts to enact a soda tax and prohibit buying high-calorie drinks with food stamps: The taxpayer is picking up the bill.

The next step: If they don’t succeed in changing your lifestyle, to save us money, then they will deny you access to universal health care. After all, your choices show you are too irresponsible to deserve it.

Now, to me, that doesn’t sound any more compassionate than letting the people who made bad choices in a freer health care market figure something out, but moral and logical consistency isn’t always the strong suit of universal health care busy bodies.

So, it’s not long before you discover that universal health care is not actually universal. For the hope of not having to pay for your medical costs directly, you’ve traded your choice in the matter away to a group of busy bodies. I hope your BMI and cholesterol levels meets their approval.

But, the bigger issue for me in Jenkins article is the 40% of NYC residents on Medicaid! That’s worth a WSJ column by itself.

This is the very reason NYC is the hotbed of busy body activity — because a large percentage of the population is on government health care. So, the busy bodies rationalize their busy bodiness by wanting to save everyone money.

It’s worth asking why such a large percentage of New Yorkers are on government health care. If you guessed because of previous government interventions in the market, I believe you are correct.

New York has already placed some restrictive supply requirements, or mandates, on health insurance that has driven up insurance costs there, resulting in fewer people buying it.

One such condition requires that health insurers cover pre-existing conditions. That has driven up the cost of health insurance in New York to the point where few people can afford to buy it until they get sick. Even then, many can’t afford it, so they turn to Medicaid.

I used eHealthInsurance.com to compare the price of an individual health insurance plan for myself in my zip code and Manhattan. In my zip code, it would cost me $70 per month to replace the coverage I currently get through work.  In Manhattan, a similar high deductible plan goes for $345, nearly 5 times as much. You don’t want to pay deductibles? $1,075 per month or $12,900 per year.

I also notice two other things in the comparison worth mentioning. First, my zip code has 92 plans to choose from. Manhattan only has 18.

Second, New York has a type of plan that is not offered in my zip code. It only covers hospital expenses . You pay your doctor fees out-of-pocket. That is the cheapest plan offered in New York City.

It’s not hard to see why they offer such a plan. You can save about $10,000 in insurance costs with this plan. You are betting that your doctors fees will be less than that.

So, here again, we see the result of government intervention causing unintended consequences that invites even more government meddling.

Update: The Wall Street Journal did publish an editorial sharing my concern for busy bodies using government health care spending to rationalize even more intrusion (HT: Mark Perry at Carpe Diem). Here’s the key, well-worded excerpt:

But the real lesson here is that a government that pays most health-care bills will soon be dictating the everyday behavior of its people. An America that needs government to protect its citizens from 20-ounce sodas has bigger problems than obesity.