if you can’t decide who is going to pay for the chronically ill, then the number one game in town is the selection game. It is way more important to make sure that “the other guy” pays for the chronically ill. You even end up in situations where you don’t want to be too good at treating the chronically ill, lest all the chronically ill select your plan which is still a net negative.
I think the libertarian reluctance to admit these are going to be socialized costs has led to a patchwork of payers with more interest in playing the selection game then playing the cost control game. It’s also the case that their opponents in the cost control game, providers, have a lot more leverage over a divided foe then a unified foe (either single payer or strong government regulations on cost/utilization).
I think it is fair to point out that our health insurance market as it has emerged gives health insurance companies stronger incentives to hide from costs than to reduce costs.
Another point is that the politics of health care make it more attractive for politicians to help many people who are relatively healthy to handle routine low-cost illnesses, obtain birth control, etc., than it is to try to target support for the people who really need it. Hence, you get the shell game of Obamacare, where you try to give healthy people the sort of benefits that seem to help them, but stick them with premiums that include the cost of subsidizing the people with chronic illnesses.
Politically, what you want are policies with lots of beneficiaries. But the requirement of compassionate health care policy is a policy with few beneficiaries. (For a determined libertarian, this means placing very high expectations on charity.)
Hence, we play shell games. One of them we call “employer-provided” health insurance, as if employers simply give it away. In fact, if an employee is worth $40,000 a year to the company and health insurance costs $10,000, that means that the rest of the paycheck has to be worth no more than $30,000 a year. The cost of health insurance is borne by workers. That means that the workers with illnesses that require expensive treatment are subsidized by workers who are generally healthy.
Another shell game is Medicare. Old people undergo a lot of expensive medical treatments. This cost is borne partly by taxes on the young. It is increasingly being deferred to taxes on people in the future. This Ponzi scheme faces a day of reckoning, which is likely to come within a decade. That is, if you believe the CBO analysis of Medicare, and I thought that fact-based people were supposed to believe in the CBO.
Relative to a policy of honestly taxing the healthy to pay for the sick, these shell games are inefficient. They cost more in terms of lost economic output. The labor market is distorted by “employer-provided” health insurance, leading to less employment and output. The health insurance market is distorted by Obamacare, and in fact that market is in trouble. Subsidized health insurance under Obamacare is sort of working. Mandated health insurance on the exchanges is imploding.
The largest part of our healthcare system is based on an age old distortion: wage controls in the aftermath of WW II. Employers began providing fringe benefits, mainly medical insurance, as a way of circumventing wage controls, and the weird system of employer based insurance was born. The rest, as they say, is history.
So, given real world constraints and your own policy preferences, what do you think the “best case” scenario is going forward? It seems to me that, for a small l libertarian (I’m not one but I think I have a pretty good understanding of, and some sympathy for, the underlying assumptions & policy preferences), the least bad option might be some form of single payer financed by “honestly taxing the healthy to pay for the sick.”
That assumes that more free market alternatives are politically impossible. Of course if you also believe that single payer is politically impossible, I guess we’re back to square one. But I think that the dynamics of the situation moving toward public support of single payer. If so, surely that’s a better option that the current “shell game?”
Market alternatives are politically impossible. But so is single payer. Megan McArdle is fond of pointing out that Obamacare is the kludge it is because that was what was politically possible at the time. I don’t think much has changed in favor of single payer. Though I suspect things will break in favor of single payer before they will break in favor of market solutions.
So the shell game will continue, at least for a while, because the pain will not be acute for enough people.
Is change possible? Someday, sure, why not? But not with these Republicans in charge of a united government. Some other Republicans, maybe. The Democrats, maybe.
My personal take is that
a. Something like 40% of the population has rather too elaborate coverage via ’employer provided’ insurance – and that 40% will have zero tolerance for getting less and paying more.
b. Another 15% or so have medicare, with all its flaws, but have consistently shown virtually infinite willingness to fight cuts to it.
You will not that those numbers add up to about 2/3 of the population – an easy majority to maintain the status quo, and a very easy majority to oppose transferring healthcare consumption from themselves to anybody else.
I now assert that the risk pool division ’employer provided’ healthcare creates is part of why ACA exchanges will fail.
I further assert that if it were all replaced with some wonderous single payer system, it would still cost 1/6th of GDP if not more, and the tax system would still be manipulated with awful shell games.
Setting aside the quibble that those numbers add up to 55%, not 2/3:
I think the dynamic may be changing because employer provided insurance is suffering some of the same problems as the individual market – higher cost and more cost sharing. And of course it’s always been the case that employer provided insurance is a case of the healthy paying for the unhealthy.
Much of the above is invisible to the typical recipient of employer provided insurance. But that’s becoming less true, and will become even less rue over time. That may shift – arguably is already shifting to some extent – the dynamic on single payer.
I’m reasonably convince that this is (long term) the trajectory of health care in the U.S., whether it takes 4 years (plausible) or a decade or two. That’s obviously good from a left perspective, but IMO also (compared to the status quo) good from a small l libertarian perspective.
True.
My personal take is that single payer will never fly in the US, if for no other reason than that three of the larger single payer systems in the world are already here (Medicare, Medicaid, VA) and two of them have very poor reputations.
(If I recall the numbers correctly, Medicaid “covers” more people than the population of any country in Western Europe, and Medicare comes close.)
There’s no reason at all to think that “medicaid for all” or even “medicare for all” would work particularly well.
Wait. If employer provided insurance is voluntary how can it be inefficient? The employer and the employee are engaged in a voluntary mutually beneficial exchange. (I’m ignoring the tax advantages given to employer-based insurance which is a distortion.) When it comes to employer-based insurance that is mandated (as under the ACA) it’s distortionary to the extent that the cost of the insurance to the employer exceeds the value to the employee.
Of course, my argument is not so neat when workers are heterogeneous in preferences. But what else am I missing?
Yes, there’s cross-subsidization, but it’s not self-evident that the pooling achieved in an employer plan doesn’t make all employees better off compared to the alternative of the pre-ACA individual market — especially if we bring in the tax advantage. Where are the larger employers that are going after the workers who don’t want this deal and prefer cash?
Let me see if I understand correctly. A voluntary system that gives preferential tax treatment to employer-provided insurance is distortionary. A mandatory system system is non-distortionary if the value of the insurance to the employee is not less than its cost to the employer. (Of course, as you mentioned, the heterogeneity of worker preferences is important here.)
But it seems to me that mandatory employer-based insurance is also distortionary because it anchors workers, especially those whose health has worsened, to their jobs. The result is lower productivity, since the benefit to workers of finding better matches is smaller in comparison to the cost of leaving their current job. In addition, reduced mobility would increase market power for firms in the labor market, decreasing overall compensation and output. Should I reconsider that?
I am not always a determined libertarian, but I do place a very high expectation on charity – given that coercion has not stepped in to beat it out of people.
Can you elaborate on “Mandated health insurance on the exchanges is imploding.”? It seems that there have been some ups and downs but if companies fear low profits then some will exit, and if there is only one company on the exchange then they can charge more and customers won’t mind because they are paying with subsidies. I have heard of the possibility of a death spiral but it doesn’t seem (to me) to be happening right now.
This customer is NOT paying with subsidies and THIS customer is mighty ticked at having to pay the price of a modest car each year to insure me and my two children. I am a small business owner (2mil rev/yr 7 employees) and it’s awful on the open market. No claims, healthy and wham! Through the roof.
You know what would be real Conservative and Libertarian? Put all government employees, local, state and federal on the open market. Voila. Single payer health care. And let’s stop taxpayer subsidies to government employees health plans. We currently pay up to 70% of their plans! It’s an absurd waste of money. Especially for House/Senate members who earn at least 170k.
A modest car? This small biz owner pays almost his mortgage to ensure his family of 5!
Sort of. There were a lot of subsidies to insurers built into the exchanges but they were temporary. As those phase out a lot of them are jacking up premiums, which is causing worries of a death spiral.
“Relative to a policy of honestly taxing the healthy to pay for the sick, these shell games are inefficient.”
Yeah.
“Politically, what you want are policies with lots of beneficiaries.”
Eh, not necessarily. Free condoms has lots of beneficiaries, but most people understand that you can afford you own condoms. Some even see it an an unnecessary cost addition to insurance.
I think what most people want is:
1) If I get cancer, I get treatment
2) If my child is born with some terrible ailment, they get treatment
Right now if you get cancer your uninsurable the second your forced to renew as an individual. That’s unacceptable to most people, even though most people don’t have cancer.
By contrast the mandatory coverage categories for Obamacare are often considered excessive.
“Another shell game is Medicare. Old people undergo a lot of expensive medical treatments. This cost is borne partly by taxes on the young.”
Most old people don’t think of Medicare are pay as you go. They see it as “all that money I paid for 40 years is now being paid back to me.” I understand that’s not technically correct, but its been drilled into their heads and they are going to be pretty angry if they find out someone took their money and gave them nothing in return.
In the Obamacare case, Medicare reimbursement got cut to pay for exchange subsidies. That seems a lot like taking money from old white people to give you young brown people. Which is a harder sell then “taking one for your children.”
Where’s the part about cost-benefit analysis & cost-effectiveness analysis. Medicare prohibits the former and ignores the latter.
My mother got a notice to come in for her Medicare-paid mammogram when she was 90 and had advanced Alzheimer’s. Is that cost-beneficial?
Meanwhile her Medicare-provided walker, toilet seat extender, shower seat, etc. were billed to Medicare by the ever-so-helpful free-equipment providers at more than six times what the equipment cost at Walmart. Is that cost-effective?
Neither the government or insurance companies pay for healthcare. Healthcare is paid for by individuals. So the question is about redistribution, do you trust the government or the insurers to be more equitable about redistributing costs? Both have created tiers of care and payment. And who do you think will be more efficient? Medical loss ratios keep insurance profitability in the 15% range. Medicare has an overhead of about 5%, and oddly enough, Medicare outsources it claims work to those insurance companies that require a greater profit.
The big shell game is something you might call “public choice moral hazard”. That is, policy makers know they can be cavalier about the long-term solvency of any program that commands sufficient public esteem so as to guarantee a bailout in the event of a budget crisis.
For example, recently the Disability trust fund was ‘saved’ (i.e. bailed out) by diverting a sizable percent of Old Age revenues into it. And we know the post office and certain pensions and other programs will get bailed out too.
The bailouts all kind of cascade upward until, eventually, general revenues are one day left holding the bag for all the smaller bailouts, and the bag will prove too big.