The Brass Tack

Let's get down to it.

Health Care: I fell off my horse

Posted by srconstantin on July 17, 2009

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Well, not literally. I’ve just had a major change of opinion, prompted by some reading and some conversations with friends. (I think I got some of these ideas from Mike and Dylan. Thanks for changing my mind.)

I used to be staunchly against universal health care. This used to be my “health care plan” — Milton Friedman’s prescription of ending the federal subsidy for health care, drastically reducing all insurance coverage, and essentially making medicine something that behaved more like other commodities. It’s an important argument, and worth summarizing here. The reason we have expensive health care is that most payments are being made by third parties, partly because insurance payments are exempt from income tax. This subsidy for health care makes people spend more on medicine than they otherwise would, and it puts medical decisions in the hands of employers or insurance companies rather than the patients themselves, both of which raise healthcare costs. Third-party payment adds bureaucracy and makes medicine impersonal. Friedman was advocating a return to the good old days when health insurance covered much less, when a country doctor like my grandfather was a small businessman whose livelihood depended on keeping his patients healthy and satisfied, not a harried employee of an HMO. If people had to pay out of pocket for most health expenses, we’d all spend less on health care. It’s a great vision — and, to someone of libertarian politics, especially great because it’s free. All we’d have to do is remove a tax and some regulatory impediments to turn a mess into a well-functioning market.

But I’ve come to believe that this isn’t the right way to go about things. First of all, the subsidy isn’t the only reason health care is expensive. Partly it’s that doctors over-prescribe tests and procedures, even when they don’t produce better outcomes, because they’re reimbursed by insurance. Atul Gawande wrote on this in a New Yorker article:

As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.

Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.

That is, the solution is coordinating health care as the Mayo Clinic does, collaboratively, to maximize patient recovery at minimum cost: for instance, paying doctors a salary so that they don’t each have an incentive to increase their revenue by ordering a lot of high-margin procedures. What matters is how medicine is provided. Making individuals pay out-of-pocket is no cure-all:

The third class of health-cost proposals, I explained, would push people to use medical savings accounts and hold high-deductible insurance policies: “They’d have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

He gave me a quizzical look. We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? “I’ll do three vessels for thirty thousand, but if you take four I’ll throw in an extra night in the I.C.U.”—that sort of thing? Dyke shook his head. “Who comes up with this stuff?” he asked. “Any plan that relies on the sheep to negotiate with the wolves is doomed to failure.”

This is the psychological issue. People don’t treat medicine like a trip to the mall. They don’t comparison shop. Often they can’t (changing hospitals is hard) and don’t have the information to know when a procedure is overpriced or unnecessary. And, being human, we have great difficulty treating health risk in the same abstract way we treat financial risk; we don’t want to haggle over heart surgery. But this means, if we take it seriously, that health care can never really be a market, because we trust the sellers (doctors) to tell us what we need.

So, hesitantly, I’m now in the universal health care camp. It seems that public insurance actually can hold down costs: Medicare has lower administrative costs than its private counterpart Medicare Advantage. That’s in real life, not in a hypothetical future. And a public option really could compete with private insurers by contesting the market. Yes, those cost savings are done by rationing, but “rationing” may well mean “cutting out unsuccessful procedures,” not denying care to the sick, since there’s quite a bit of waste in the system already; Peter Singer has a nice clean utilitarian case for rationing by outcome rather than by wealth. There’s even an efficiency argument for health care reform (it’s from Matt Yglesias but I can’t find the original link):

There seems to me to be decent evidence that labor market flexibility leads to employment growth. It also seems clear that America’s health care system generates substantial labor market rigidities as people with medical histories need to maintain a seamless web of insured-ness in order to remain insurable. There economic costs here seem potentially quite large, but obviously you’d need some really smart people to take a look at it.

But you knew all that, and I knew all that. It’s uncertain how we are to generate all this efficiency, because politics is a blunt instrument and senators aren’t philosopher-kings, but in theory a public plan could make health care cheaper and cover the uninsured, and the justifications have been well-known for years.

Why has it taken me so long to come around? Well, really, because I believed in absolute property rights. Secretly, not in mixed company, of course. But I found something compelling in the Nozickian view that it is wrong to force people, through taxation, to do things for other citizens. That no social insurance, really, is a legitimate function of government. That no matter how much anyone may want to make poverty less crushing or the loss of a job less catastrophic, we have no call to forcibly take other citizens’ labor to accomplish that common goal. Self-ownership, which is the basis of freedom, extends to property ownership. It’s radical, but when you’re young and nothing personal is at stake, that radicalism can feel bracing, like a strong wind when you’re well protected in a down coat.

I can’t believe in that anymore. I don’t want to sit around waiting for the minimal state while people suffer here and now. It doesn’t seem just anymore. It seems absurd. Justice is building a society that anyone would be willing to live in, rich or poor, of any race or gender or background. And yes, it is legitimate if a democratically elected government raises tax revenue for those aims. I realize that for many people this is simple common sense, but I’m a convert, and for the first time I’m realizing I actually believe in liberalism.

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