health care musings

[updated below]

Peter Suderman, from his new perch at Reason Magazine, dissects the looming breakdown of the public option in Obama’s push for health care reform.  At the crux of the issue lies the cost, which the CBO estimates at $1.6 trillion dollars over the next 10 years.  This is a hefty pricetag.  I’ve been following all of this and reading a good deal on the subject of regulatory capture and public choice theory, and suffice to say, I’ve had some pretty eye-opening discussions especially with brother Mark on all of this, so I’d just like to revisit health care in light of what looks to be a reform bill that – when it’s done – will probably bring the worst of all worlds together into one epic reform failure.

Mark pointed out something to me that I think is too often left out of the health care debate, which is essentially that there is a pretty striking difference between subsidizing the supply side (i.e. insurance providers) vs. the demand side (consumers of health care insurance) in that the former is more likely to become a subsidy of fewer providers, whereas the latter at least theoretically would be better for competition and leave the door open to many different providers.  Thus a health insurance voucher program would at least theoretically be less likely to unduly benefit a handful of insurance companies over the rest.

This makes sense to me, though I still worry that voucher programs would meet up with a few problems – namely pre-existing condition limits, but also the fact that we already have such an entrenched system that it seems unlikely that many new health insurance providers would be able to emerge.  The system has been anti-competitive for so long, I’m not sure how we can turn it back to a more decentralized, competitive environment.

But I wonder if we should break this out a little more.  So here’s some ideas:

1)  The government should provide means-tested catastrophic insurance for everyone.  This would be a basic coverage that would gaurantee patients have some way to pay if they face some sort of major health catastrophe.

2)  Means-tested vouchers would be available for people to purchase their own insurance on the free market, and companies who accepted the vouchers would be required to not include any pre-existing condition limits.  I don’t see any other way to make sure that patients who need coverage the most would get be able to get it.  I could be wrong.

3)  Whatever public plan – whether vouchers, single-payer, etc. – emerges, it should not be free.  Nothing promises to push health care costs through the roof more than free health care, whereas modest contributions from individuals can be a huge incentive to control costs.  The flipside to this is preventative care, which needs to remain accessible and cheap because prevention and good healthy pracitices are also important factors which contribute to lower total health care costs.

4)  Insurance mandates can be avoided, but there needs to be some protection for health care providers who are left footing the bill for the uninsured.  I’m not sure how this would work, but it seems like one part of keeping health care costs low is making sure that when someone goes into a hospital they have a way to pay for their service.  If hospitals are getting hit with high costs for their uninsured patients, those costs then translate into higher costs for insured patients.

5)  A truly free, deregulated health insurance market can work, but two things need to happen in conjunction with any deregulation of markets.  The first is provisions for the lowest income brackets and for people with preexisting conditions; the second is a breaking up of the existing system, and namely the subsidization of big health insurance companies through untaxed employer benefits.

6)  And now back to the question of competition – how do we encourage a more competitive environment when insurance providers have such a large and powerful grip over the market now?

7)  And here’s a question I have about deregulation: when regulation leads to regulatory capture, that’s obviously a bad thing.  But can the same thing happen when a market is deregulated?  After all, when industries already have so much control and power, why would deregulating now, after the fact, really lead to more competition?  Isn’t it possible that now that these companies are already so entrenched that it will take more than simply deregulating and putting an end to supply-side subsidies to bring about a more competitive market?

Thoughts?  I’m warming to some of these libertarian economic theories (though I still favor strong safety nets, and believe the only way to really implement a free market is to provide these nets) but my main concern still lies in the fact that when it comes to the fools at the wheel government, actual deregulation seems to come with as many problems as regulation does.  Mark wrote:

This is why I don’t remotely understand claims byFreddie and E.D. that libertarianism, like Marxism, is too idealistic to work in the real world.  Setting aside that there is no “one true” libertarianism – compare and contrast, e.g., self-described “libertarians” Glenn Reynolds and Bill Maher – a political philosophy that is rooted in deep cynicism of human nature (with the recognition that those with power are still human) is not remotely idealistic.  Such a philosophy need not require any “purity” to “function” (even if there was such a thing as “pure” libertarianism), only a healthy skepticism of the ability of the powerful to rule in the best interests of their subjects.

My concern is of the “even the best laid plans” variety.  If government does go about the business of getting out of economic intervention, whose to say it won’t happen in a way that favors certain groups over others – in other words, whose to say that some form of deregulatory capture wouldn’t occur?  And I worry also that there is only the political will to provide economic deregulation but not the political will to provide meaningful services and protections for workers and families.  Half-measures beget half-measures….

Update.

Will Wilkinson has a really fascinating post at his blog that touches on a lot of this.  It’s a couple years old, but you should give it a read.