Monday, June 29, 2009

Keep Your Health Care, Just Give Me The Money

President Obama and his friends may want to tax employee-provided health care benefits as part of their "overhaul" of the health care system. First I reacted, then I got to thinking.

The reaction is fairly simple. What has come to be called health care simply is not worth what they say it is, and I don't want that "value" taxed as if it is income that I can use to buy whatever I choose. I'm a reasonably healthy man with a background in insurance and statistics, so I'd much rather have the money as pure salary and fend for myself on health care.

Now, of course, employers may not be willing to give me more money instead. I'll come back to this later, but for now: In most tax brackets, I would still prefer nothing to the alternative of health insurance plus tax.

Though eight years of Bush & Company, combined with a few months of Bushama, has made me long for the smallest possible government possible, I still believe that government can play a positive, necessarily limited, role in a society.

And get this, health care is one area in which this seems to be true. The two primary arguments against government provided health care are that it is socialism (implying, of course, that socialism is bad) and that a government system would be inferior to anything the free market would offer. The primary argument for government-provided health care is that health care is a basic human right. Let me address these three issues in turn.

First, health insurance, like all insurance, is socialism. Whether it is provided by the private or public sector, it is socialism by definition. Insurance is designed to pool the risk of a large group of people among which realized outcomes will be asymmetric (for example, some will get leukemia while others will not suffer from more than a hangnail), and divide the financial costs evenly among them.

So for me the "oh no, it's socialism." argument is empty even for those who are afraid of socialism.* After all does anybody really believe that if government takes over health care, that socialism will creep into the coffee-making and music industries. Besides, government control of the banking system is a much quicker path to soviet-style communism than health care could ever be.

There is a difference, indiscernable if you listen to political debate, between health care and health insurance. Insurance companies do not provide health care; they provide risk-pooling. Doctors, nurses, hospitals etc. provide health care. What the talking heads always call "health care" is really health insurance.

Second, exclusive of transaction costs, it is certainly true that a free market in health insurance would provide a better insurance product for consumers than the government. I hold this to be self-evident. However, there are huge transaction costs associated with health insurance that cannot be excluded in any honest policy debate.**

Third, I think the idea that health care should be available to everyone is noble and the sentiment is praiseworthy. It is, however, impossible. Health care is a lot of things, but it aint free. There are real costs associated with providing ANY medical service, and we cannot simply decree that our government, or anyone else, give it to us at no cost.

Anytime that anyone says that health care should be free, you should ignore everything else that that person says. She is talking about a different universe, with a different set of fundamental laws.

Continuing with the theme of the third point, present-day USA is an extremely wealthy society, and I believe that we can, at a relatively small cost, provide a limited set of health-care benefits to every human being physically present inside our borders. And I believe that we can do it through government in a way that minimizes transaction costs, making it less costly than the same service provided by the private sector.

And so, Life At The Margin's national health care proposal is this. The federal government would provide a set (Obviously there would be much disagreement about the composition of the set, but that is what political debate is supposed to be for. I never said that my solution is perfect.) of preventative and diagnostic services and treatment for a very small set of very common ailments. It would be provided to anyone who comes to one of the facilities without any type of administrative, bureaucratic red tape. And I don't mean private facilities with government paying the bills. I mean government provides the service, exactly the way the military medical system works, except with a much more limited set of services.

Keeping the set of services limited is absolutely critical. Private insurance and private providers would handle everything else with out government interference. So for example, I think things like yearly physicals, treatment for broken arms and strep throat, and initial diagnosis of any symptom should be provided in a government facility. Things like cancer treatment, pregnancy, type-II diabetes treatment and other catastrophic ailments, as well as rare disease treatment, would be excluded.

While I believe the above framework is the best path for national health care, I have observed enough to know that it is politically unrealistic. The voters want their all-inclusive single-payer system and they want it now; those who helped pay for the elections (i.e. insurance companies) want a return on their investment and they want it for years to come. The compromise is likely to leave most of us wondering what hit us.

This leads me full-circle to mild support of the tax on employee-provided health care.

Here is my reason: Employee-provided health-care is basically stupid***, and a tax on it will discourage it. As a nation we backed into this system because companies were legally restricted from offering employees more money and so had to find other ways to compete for their services; we've stuck with it to our detriment.

Efficient compensation plans are simple compensation plans: All cash across the board. Employees are often forced to join risk pools that include people with much more (or much less) risky lifestyles. Companies should use the money they spend on health insurance to increase salaries and let employees shop for their own health plans.

*Building bridges is also socialism, as is providing national defense.
**I believe that almost everybody intuitively knows this, even if you haven't thought of it as transaction costs before.
***It does make sense for some businesses to have some medical services for employees so that time missed due to illness is minimized.

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