Friedman on Health Care

LCJ -
RE: "I don't believe you. And I view anything typed by you with suspicion. Sorry, but from my point of view, you've done this to yourself… it was not fair of me to call you out and incite a response from you"

What response is there to incite?!?!?!? I've never come close to supporting single payer, and I'm skeptical of any public plan. Is this how we're going to play this game – randomly attribute positions to people and insist we don't believe them if they refuse to admit it? There's no shame in supporting single-payer… why would I deny it? Trust me – I don't support single-payer for exactly the reasons I stated for agreeing with Friedman, above.

Is the moral of the story that people have to take a leap of faith? Which is to say let the health system be a free market in the way other services are? The usual retort is that if a cancer cure was found but was rather expensive such that few could afford it then people say "subsidise it so everyone might be cured" but then it would be said that "making it artificially cheap doesn't allow research into production-efficiency hence it will stay expensive but seem cheap with subsidising". Alternatively, in the field of movie players the release of a Blu-Ray player doesn't cause people to clamour for subsidisation so everyone might enjoy it rather it has to find its own level.

I'm glad you posted this. When people email me about potential healthcare fixes I often refer them to this article. It really is a classic.

On a related note, Dr. Boudreaux, I posted this last night and thought you might like it:
Healthcare: Moral Equivalent of Slavery?

>> 'Do you mean the idea of healthcare being a basic right'

John, the author of the column I commented on claimed that the fact that some people don't have health 'insurance' is the moral equivalent of slavery.

And I should say – I'm not sold on a public plan. I just think Friedman has made a good case for (1.) being wary of third party payers and (2.) in favor of MSA's. He just hasn't made quite as good a case against public plans as he has for those other two things, and he seems to admit it quite candidly.

David -
Right. When I said "public plan" I was refering to the plans now being discussed, not Medicare and Medicaid. There is still a huge paradox that Friedman points out and that we really can't just ignore if we want a real solution.

DK and other healthcare-as-an-entitlement proponents,

In 2007, over 980 billion dollars (or .98 trillion) of the 1.95 trillion spent on healthcare was done by the federal government alone; this did not include the states' spending on healthcare. As Friedman pointed out in his piece, "We are headed toward completely socialized medicine—and, if we take indirect tax subsidies into account, we’re already halfway there."

But the crux of Friedman's piece lies in these paragraphs:

The Changing Meaning of Insurance

Employer financing of medical care has caused the term insurance to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur—major catastrophes, not minor, regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions.

This is partly a question of the size of the deductible and the copayment, but it goes beyond that. "Without medical insurance" and "without access to medical care" have come to be treated as nearly synonymous. Moreover, the states and the federal government have increasingly specified the coverage of insurance for medical care to a detail not common in other areas. The effect has been to raise the cost of insurance and to limit the options open to individuals. Many, if not most, of the "medically uninsured" are persons who for one reason or another do not have access to employer-provided medical care and are unable or unwilling to pay the cost of the only kinds of insurance contracts available to them.

If the tax exemption for employer-provided medical care and Medicare and Medicaid had never been enacted, the insurance market for medical care would probably have developed as other insurance markets have. The typical form of medical insurance would have been catastrophic insurance (i.e., insurance with a very high deductible).

If the above quoting isn't compelling enough, consider that insurance such as property or life insurance is paid for by the insured through premiums. And these premiums reflect the risk of events being triggered by those who are in the same insurance risk pool, the differentiations in the premium's amounts being closely linked by the increased or decreased risks of each individual who is insured within the risk pool.

If the government gets involved in providing insurance (if not outright healthcare), the premiums that individuals will pay will have nothing to do with risks [expected consumption of healthcare resources by the insured] but will have everything to do with the so-called ability to pay for the premiums.

In other words, the wealthy, no matter how much they consume in healthcare, will pay an incredibily large portion of the premium for the amount that they use while the less wealthy will free ride off their [the wealthy's] generosity that the state has coerced them into.

This is morally repugnant and is state-sanctioned theft merely for political expediency and to retain political seats come election time. In my opion, the people who support this probably fall into four camps: those that feel guilty about having so much while other have not as much; those that will benefit without incurring the seen costs; those that enjoy seeing the state consolidate power at the expense of private industry; and those that are divorced from reality and are naive enough to see healthcare as somehow different that any other service industry and that, because of this, advocate for making this an entitlement that only government can provide efficiently. And, the voting people that support this are more numerous than those voters who do not support it and generallty will not find themselves paying the true cost of it; Alexis de Tocqueville had this correct!

David -
Re: "I'm not sure why not having an "airtight case against some sort of public plan" provides impetus to create another public plan."

It doesn't

Gil,
I'm sorry, I misunderstood.
I don't think the dvd analogy works well because I don't think economy of scale applies to health care.
Or maybe it does and someone can enlighten me.

David -
As I said I'm not sold on it. I don't know what to think about it. I certainly am opposed to single-payer, less decided on other public plans. The most convincing argument for a public plan to me seems to be the monopoly power of the current private insurance market, which would also explain how we have one of the least socialized systems but ridiculous cost inflation. Some sort of public plan seems like it could help with that. But of course – we know that you don't actually need multiple companies in an industry to provide competition, because of the threat of entry. So I'm no 100% sold on it, but there seems to be a case. I'm certainly not wildly enthusiastic for the idea.

I think the health savings accounts and the elimination of the tax priveleges of employer benefits are far more important to lead the effort with. I've voiced my support for the elimination of the tax privelege several times on here at this point.

John: Third parties can't control costs as well because consumers will over consume. Think of it like an all-you-can-eat buffet. With insurance, the marginal cost of healthcare to the individual is extremely low. There is little incentive to economize on consumption and insurance has to pay for it. This drives up demand for health care and necessarily increases prices as well, even with cost-cutting done by insurance companies. There is also the tax-exempt status of medical insurance offered through employers, so people don't see premium increases as all that bad. There are a lot of reasons why third parties can't spend your money as wisely or as frugally as you can.

Friedman argues that employer-provided medical care is thoroughly illogical. Is it? Even if the favorable tax treatment of employer-provided health insurance were removed, wouldn't employees still desire that their employers offer health insurance benefits?

Employers – especially large ones – enjoy purchasing power we cannot hope to attain as individuals. Certainly, we could band together with groups other than our coworkers to achieve the same purchasing power. But why go to all that trouble? Our employers are perfectly willing to do so on our behalf.

Employers, of course, have an incentive to keep workers healthy. as I see it, there is nothing illogical about assisting employees in obtaining quality health care.

What is illogical about group insurance coverage?

Most insurance plans encourage overconsumption of health care because the marginal cost of consumption is so low. I paid $125 out of my HSA when I went to an immediate care facility for a health issue. However, last year when I was on a traditional plan, the same visit cost me $20. There are a lot more things I'm willing to go to the doctor for when it only costs me $20 per trip than there are when it costs me $125 per trip. I don't know how else I can make that more clear to you. It's pretty simple.

Insurnace companies have expertise at negotiating rates for procedures. They *do not* have any ability to control the amount of health care consumed by their customers. This is where they fail to keep costs down. There's nothing that an insurer can do to keep me from going to the doctor every time I have a cold, and because I'm using the doctor so much his or her time becomes legitimately more valuable. No matter how good your negotiation skills are, you cannot out-negotiate supply and demand.

Not to change the subject but I just thought I'd point out that we also have the company store for savings, the 401k, which is also given favorable tax treatment over what individuals can do on their own.

I like the defined contribution concept but I despise that my employer chooses my investment options. As time goes on, every time our 401k provider adds a new fund it has been a high cost (>1% expense ratio) fund.

Seth -
I think that's right on target on two fronts – (1.) your point that the greater spending is not showing up in any outcome data (which public plan proponents readily point out), and (2.) that Europeans make different tradeoffs than we do… and may cut in other margins (which public plan proponents are less willing to point out).

I don't think that kills any support for a public plan. I wouldn't support a single-payer system that eliminates all market forces deciding those tradeoffs – but given the cost trajectory that we're experiencing in the U.S., it seems to me to be eminently responsible to say "maybe making the cost/wait time trade off is worth considering". If health expenditures weren't growing so much faster than GDP, this might be a moot point. But they are, and it's worth a discussion.

I wouldn't support a single-payer system that eliminates all market forces deciding those tradeoffs – but … "maybe making the cost/wait time trade off is worth considering"

You wouldn't support X but X is worth considering…?

For clarity, in my previous post, I meant that individuals making value trade-offs has proven to work better than a small group of people making those trade-offs for everyone else.

david: " I don't know how else I can make that more clear to you."

I don't think you can. As I said before, I understand your point but I disagree with it.

david: "Insurnace companies have expertise at negotiating rates for procedures. They *do not* have any ability to control the amount of health care consumed by their customers."

I completely disagree. And the basis for my disagreement is:

- my wife's 35 years work in health care;
- the experience of my several relatives who are physicians and who deal with insuarnce reimbursements every day.

IMO, David, managed care works. It would work even better if government would leave it alone.

John, I guessed that you have some interest in keeping the status quo.

Not really. The status quo means my employer pays for a portion of my insurance, but won't allow me to cover my stepson. So I have a separate policy for him. The policy I have for myself and my wife is very expensive thanks to state regulations. I am not allowed to purchase insurance outside this state because Nanny tells me it's bad.
I'd be more than happy to take the money that my employer contributes to my plan and choose how to spend it myself.
But alas the tax structure makes that highly unlikely.

All these obstacles created by government, all these choices made for my by government, all these problems created by government, and it seems the only solution that we will see involves more government.

It's enough to drive a person insane!

I was referring to the employment of your wife and relatives, but that's ok

I agree about all of the government regulations. I believe health care would be much cheaper (and better) without them, and I'm solidly against increasing the role of government in health care, especially given the "success" of the programs we already have.

>>You're confusing me with someone else. Never thought this. Don't think it now. It's an absurd approach. ~ DK<<

I don't believe you. And I view anything typed by you with suspicion. Sorry, but from my point of view, you've done this to yourself.

With that out there, it was not fair of me to call you out and incite a response from you if I wasn't interested in seeing, what I felt would be, disingenious feedback while trying to pin you down on an issue.

John Dewey – Thanks for the perspective.

I agree that USPS is a poor competitor, but it seems to meet the basic needs of its users relatively well.

I don't think that would be the case if larger portions of its operating budget were paid by a third party.

To be clear, I'm not for government health care, but I think we need better arguments against it than what we have now.

Friedman's realization that we are 50% of the way to socialization of health care, without much to show for it, and recognition that third parties don't spend money as carefully as first parties might be those arguments if they're true and can be articulated well.

Can in the US any 18 year old finishing secondary school go to medical school, if he/she would wish so ?

In other words, do you have artificial restrictions on the supply side of medical doctors?

If yes: abolish them
If no: your health cost will always be hijacked by the chosen few.