Monday, September 24, 2007

The "Market" Versus The Real World

My proposed headline is above; I’m not sure I fully understand the editor’s choice, but apparently this was an appreciated column because I got the bottom position rather than the left-hand rail. If you want to read their editorial, it’s available here, and the newspaper version of my response is here. This now makes about a dozen times that I had no clue what to write about for Sunday’s column, only to pick up the Thursday paper and decide that I just had to respond to their latest libertarian outrage.

East Valley Tribune, Sep. 23, 2007

Last Thursday, the Tribune denounced Sen. Hillary Clinton’s just-announced health care plan. Providing universal coverage through government, they say, will make health care more expensive, health insurance less available, and give Americans fewer choices. Instead, the libertarian way to reduce health care costs is to provide "genuine market-based options."

To which I say: Compared to what? As Jonathan Cohn wrote, conservatives like to note that Medicare costs a lot. And so it does; we have the ability to provide a lot of health care in this country, and it's expensive. But what conservatives forget is that our system of private insurance costs a lot more.

Medicare has far lower transaction costs than private insurance, 3 percent overhead compared to the average insurance company’s 14 percent. (It’s attributed to Newt Gingrich that "one man’s $200 billion in waste is another man’s $200 billion profit stream.") All the complaints about Medicare -- that it’s bureaucratic, inflexible, costly -- apply with even greater force to private insurers. And Medicare doesn’t have to pay large executive salaries, fund stock options, or advertise.

Some people complain about the U.S. Postal Service, conveniently ignoring that when it comes to bad customer service, the USPS is a bunch of pikers compared to such private-sector stalwarts as the airlines or your cable guy. Health care providers hate dealing with Medicare -- until dealing with private insurers, who treat them worse.

Would providing universal coverage through government plan need more taxes? You bet. But my own business last year paid two-thirds of what we paid in all payroll taxes -- state income and unemployment, federal income, and FICA, and Medicare, and FUTA -- for health insurance premiums. And not everybody takes health insurance; those with spouses working for larger employers don’t, because big employers can offer better coverage than we can. If you hiked the employer share of all payroll taxes by 50 percent but relieved us of paying for health insurance, we’d increase our bottom line by tens of thousands of dollars.

Then there’s the other myth, that a more "free" health care "market" would fix these problems. Have you shopped for health insurance lately? We have to hire a broker to sort through all the various options. It’s worse than buying a home appliance, where every store can promise the lowest price on a particular model because the manufacturers give each retailer a different model number. We’re highly educated and Internet-savvy, but we can’t easily compare offerings because of all the permutations.

We’re also hampered because of a problem ignored by the Tribune, namely adverse selection, the huge economic incentives for private insurers to "cherry-pick" only the healthiest for coverage -- and to drop anybody who gets sick as fast as possible. One of my colleagues has a pre-existing condition, so we’re stuck. We can’t switch insurers without risking everybody’s access to so-called "reasonably-priced" coverage.

Sure, health insurance isn’t a perfectly free market, but the changes desired by the Tribune would make our problems worse. Without laws preventing insurers from dropping people with pre-existing conditions, or requiring disclosure and rate filings, or providing certain basic coverages mandated by state law (here in Arizona, such things as ambulatory surgery, mammograms, and coverage for adopted and handicapped children -- you got a problem with any of those?), we’d be worse off in a more free market.

This whole "trust the market!" rhetoric is pretty odd. What the Tribune wants is for people to refuse to pay for care their doctor recommends by balancing it against a cost-benefit analysis by the "consumer." As Ezra Klein noted, what libertarians want is for people to have financial incentives to ignore their doctor -- because if there aren’t any financial incentives, then people might decide to get a colonoscopy every week, just for the fun of it! Excuse me if I’m dubious.

Democrats want to offer everybody a choice of health insurance, like the federal employees program or Medicare. Republicans, and the Tribune, want to offer people a choice of tax deductions. Tax deductions are nice if you’re really rich and really healthy, but if not, you really ought to choose the health insurance.

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