Remarks on Health Care Reform

Ted Everett

(notes for debate presentation – 11/04/09)

In these remarks I want to make one general argument against further federal control over health care.  There is much more to talk about, but I will stick with one big theme for now.  The main case, as I understand it, for federalizing health care in the US is that health care is a basic need, and that some (hotly disputed) number of Americans cannot afford to obtain adequate health care on their own despite the existence of Medicare, Medicaid, SCHIP, and other federal health care programs.  We are told that the American health care system is “broken”, and that it urgently needs to be reformed for a variety of reasons, but this is the core argument from the left, the one that really drives the debate: low-income Americans need health care, they have a right to it, they're not getting it, and so we must provide it to them through a new national program.  I want to argue that this should not be done in any of the contemplated forms, whether through total economic socialism as in Cuba, or through a state-run medical service as in Great Britain, or through a national single-payer insurance program as in France or Canada, or through a so-called “public option” for health insurance as has been recommended by the President and other progressive Democrats in the United States.  There are reasonable reforms that can be made, and some federal involvement is appropriate to guarantee reasonable access for all Americans, but nothing like the disruptive major-overhaul proposals that dominate the current political discussion.  A discussion of the ways that we satisfy most of our other basic needs will shed some light on how we ought to proceed with health care.

So, what is a basic need?  I take it that a basic need is any good or service, without which human beings cannot be expected to live a good life.  Some basic needs, such as gravity and sunlight, are essentially beyond the power of governments to produce or withhold on any large scale.  Air is similarly not produced by human society, though it can be regulated in some ways for quality.  Certain other needs are too personal and private to be very interesting to politics: friendship, family, love, and matters of ordinary prudence like bathing and getting out of bed.  But other needs are economic; they require human provision and protection, and their distribution can be made subject to political decisions. Here is a list of some such basic economic needs: water, food, shelter, clothing, health care, education, transportation, and employment.  For each of these needs, there is in some sense a national “system” of production and distribution.  Thus, there is an American housing system and an American food system in the same sense as there is an American health care system.  None of these other systems is as widely seen as being “broken” or in crisis as the health care system.  We have complaints about these other systems, to be sure, but we see little of the desperate political urgency that has been invested in the health care debate with respect to all these other basic needs.

For example, what is the American food system like?  Here is a need that is more basic than health care, and it is needed much more often– at least two or three times a day for everybody in the country.  Is this system in crisis?  No, it is not.  Why not?  Well, here is how it works.  The ordinary American goes down to a local privately-owned grocery store, and buys some food and takes it home and cooks it and eats it.  Alternatively, one orders food delivered from a variety of privately-owned services, or one chooses a local privately-owned restaurant and has other people purchase and cook and serve the food and wash the dishes, all for a higher price.  There is always plenty of food in grocery stores and restaurants throughout this country, and it’s pretty cheap and pretty good, concerns about sugar and fat content and such things aside.  Americans get pretty much whatever food we want, in whatever amounts we want, without having to stand in line for more than a few minutes, and we like it, and we look forward to enjoying it, and we don’t even complain very much about the cost.  Now, where does all this food come from?  It comes from farmers, and processors, and wholesalers, and distributors, and grocery and restaurant chains, all of them private businesses ranging from conglomerates like Kraft and Nestle down to local hot dog stands.  And who controls this massive system?  Nobody.  That is, nobody in particular.  It’s just a vast network of contracts and relationships involving millions of people, and it works more-or-less by itself.  And the prices are acceptable, because people make their own choices with their own money, and we won’t buy food that we don’t like (even if it’s called “New Coke”), and we always have plenty of alternatives to any one choice.  The federal government does get involved with food in a variety of minor ways, but it does not try to control the system.  There are necessary regulations regarding food safety, and various policies, some good and some bad, affecting milk and sugar prices, and maintaining the highways that delivery trucks use, and inspecting local restaurants for cleanliness, and so on.  But there is no food socialism, or anything like it – no federal grocery service, no single payer food insurance, no “public option” cafeterias to keep the other restaurants honest.  But what about the poor?  Surely they need food just as much as everybody else, and sometimes they can’t afford it.  Why doesn’t this produce a crisis?  Because we give low-income people cash and food stamps, neither of which interferes with the ordinary production, distribution, and pricing system for food.  The poor participate in the same, wonderfully diverse and efficient food supply system as the rest of us, and we solve the low-income access problem with subsidies to individuals, not through coercive centralization and political controls. 

Consider housing, another generally effective system of production and distribution, with relatively little government control over ordinary transactions.  You want a house?  Go buy a house.  You want an apartment?  Go rent one.  Poor people need housing too, of course, and so it too is provided for them in some form.  Unlike the food system, our housing system has frequently offered separate public accommodations for the poor, often with massive housing projects such as Pruitt-Igoe and Cabrini-Green.  But these turned into nightmares for everyone involved: unbelievably expensive, crime-ridden hellholes that ultimately had to be blown up, along with many other public housing projects in American cities.  It turns out that it just doesn’t work to put people in socialized housing, especially when this is physically separate from the ordinary housing system.  Another bad housing alternative in many cities has been to disrupt the ordinary, functioning pricing system with government rent controls, which have reliably led to diminished total housing, exorbitant prices for housing outside of the rent-controlled buildings, and rampant corruption (as we see so clearly in the case of US Congressman Charles Rangel, who has recently been found to be occupying four separate rent-controlled apartments in New York City simultaneously).  The most effective current program under HUD for low-income people is housing vouchers, which are roughly equivalent to food stamps.  These are targeted at individual poor families, and integrate them into the existing system of choice-based housing rather than giving them separate treatment or, worse, “reforming” the entire housing system through greater centralized controls.   

Grade-school education is more like health care than housing and food are, in that the basic need involved is primarily for services rather than goods.  And there is much more government involvement here than with either housing or food, so perhaps this makes a better case for increased government involvement in medicine.  Here, there plainly is a public option, namely public schools.  But how does the system actually work for the people who use it?  To begin with, there are no federal grade schools at all, except for those in Washington D. C. and on Indian reservations, both famously bad.  What we have instead are local public schools throughout the country, together with a smaller number of private and parochial schools.  These public schools are under the control of local boards, and function under state regulations far more than federal ones.  Rich people typically opt out of the local public schools, in favor of fancy private ones with more prestige and low student-to-faculty ratios.  Middle-class people sometimes also use private or religious schools, but more frequently choose to settle in neighborhoods and towns where the public schools have good reputations for safety and academic quality, and control spending by voting on local property taxes.  Low-income people are less mobile, and have fewer political as well as financial resources, so they are typically more-or-less forced to send their children to the very worst and most dangerous of public schools.  So: excellent, luxury education for the rich, good education at safe, semi-private local schools for the middle class, and horrible, coercive public schooling for the poor.  This is a serious problem, as all political sides admit.  So, how do we propose to fix this situation, where the middle class and wealthy have a choice of superior services, and the poor get stuck with what the government assigns them?  Nobody, I think, is saying that the entire education system ought to be federalized in some way because only the rich and middle class are receiving good services at present.  Most people say one of two things: either we should put more resources into the existing public schools in poor areas, or we should find a way to let poor people participate in the broader system of mobility and choice.  The first option is what we have been doing, in the main, for the last several decades, and it hasn’t worked.  For example, per pupil spending in Washington DC has now reached about $24,000*, which is $10,000 more than private schools cost, on the average, in the same area – but they are still among the most dangerous and ineffective schools in the country.  The other main option is to provide individuals with entry into the choice-based middle-class system with the equivalent of food-stamps or housing vouchers, namely school vouchers.  These have been shown to work well in the few experiments that have been tried, and they are very popular with low-income parents.  Nevertheless, school vouchers are currently restricted to a very few localities, due to political pressure from teachers’ unions and other politically powerful interests with an entrenched stake in the existing, coercive system.   

The existing health care system in the United States is in various ways unlike the other systems I have mentioned; we can always find differences for any analogy.  But I think the main principle is clear enough.  What we need to do in health care is what already works best in all of our other systems for providing basic needs.  Allow the rich and middle class to maximize their own choices in their own self-interest, creating an essentially non-governmental system of ordinary contracts.  For the most part, such people are already satisfied with the health care that they and their families obtain.  Then let low-income people have full access to the normal system through appropriate individual and family subsidies, presumably some kind of health care insurance vouchers.  This would work, I think, much better than the collection of programs and services that poor people currently rely on.** This way the pricing and distribution arrangements that already work reasonably well for most people will not be disrupted, and will be available to low-income people on essentially the same basis of free choice.  Indeed, many of the problems with the existing middle-class system can be solved by instituting greater, not lesser, freedom of choice into the system.  One very useful reform would be to decouple health insurance from employment.  There is no good reason for most of our medical insurance to be paid through our employers, rather than through direct purchase by individuals, like our auto insurance.  This American practice is almost unique in the world, and only exists through a historical fluke, stemming from federal wage controls during World War II.  If we removed the existing tax incentives for employers to provide health insurance instead of higher wages, and replaced them with equivalent incentives for individuals to buy their own, this would lower average costs through greater competition, and the problem of people risking or losing their insurance whenever they change jobs would simply vanish.  An additional benefit would be fewer people staying in jobs they dislike, just because they are dependent on employer-provided insurance (and there are a lot of such people).  There is also no reason on earth that federal law should forbid people purchasing health insurance across state lines, but it does.  This is a very easy change to make, and one that would also reduce insurance costs for most Americans.*** All in all, the more decentralized our production and distribution systems are for goods and services, the more freedom each of us, including low-income people, has to choose something else, the more efficiently the system runs, and the happier we all are with the results.  This is just as true for health care as it is for housing, food, and education.

* derived by dividing the 1.2 billion dollar 2008 budget by the 50,000 students enrolled. 

** Mainly Medicaid for those who take the trouble to sign up, plus subsidized and free clinics of various sorts.  Sadly, many low-income people find it more convenient just to use hospital emergency rooms for any kind of problem they run into. 

*** There are other legal reforms as well, that can be used to drive down costs, but which do not further centralize health care system.  One widely supported reform would be to enact some changes to our civil legal system with respect to medical malpractice cases (so-called tort reform).  Our doctors and hospitals pay by far the highest malpractice premiums in the world, and necessarily pass most of these enormous legal costs onto consumers.  For example, individual obstetrician-gynecologists pay about $200,000 in many states, including New York, for malpractice insurance.  Reasonable tort reform could bring such unreasonable costs more into line with those in other advanced countries, and lower all of our insurance rates, as has already happened in some states.  It would also diminish the incentives hospitals and doctors now have for practicing “defensive medicine”, which raises costs through unnecessary tests and procedures that are performed only out of fear of unreasonable lawsuits.