Archives: 03/2009

There Ain’t No Such Thing as Market-Based Universal Coverage

Over at The Corner, Harvard Business School professor and Manhattan Institute scholar Regina Herzlinger urges conservatives to support universal coverage – but in a market-oriented way. That is an absurdity. Once the government adopts a policy of universal health insurance coverage, a free market is impossible and the casualties begin to mount.

As a model, Herzlinger points to Switzerland, “which enables universal coverage without any governmental insurance through this system.” Switzerland requires all residents to purchase “private” health insurance; dictates the content of that insurance; and dictates the price. As I explain in a recent Cato paper, once the government controls those decisions, you’ve got socialized medicine.

My colleague Mike Tanner observes that the Swiss government’s power to control the content of “private” health insurance allows special interests to lard up people’s health insurance with their services – whether Swiss consumers want them or not:

The expansion of benefits has driven up the cost of insurance…As Uwe Reinhardt has noted, “Over time, the growth in compulsory benefits has absorbed an increasing fraction of the consumers’ payment, thus compromising the consumer-driven aspects of the Swiss system.”

Tanner also reports that the government’s power to dictate health insurance premiums is harming the sickest Swiss:

Evidence shows that the community rating requirements are…leading to the over-provision of care to the healthy and the under-provision of care to the sick. In addition, the prohibition on risk management discourages the development of new and innovative products.

In this Cato paper, University of Chicago business school professor John Cochrane explains how such price controls harm sick patients and suppress innovative new products.

Herzlinger is an extremely passionate and knowledgeable advocate of market-based health care. But when it comes to universal coverage, readers of National Review are better counseled by the magazine’s editors, who write:

to achieve universal coverage would require either having the government provide it to everyone or forcing everyone to buy it. The first option, national health insurance in some form or other, would either bust the budget or cripple medical innovation, and possibly have both effects. Mandatory health insurance, meanwhile, would entail a governmental definition of a minimum package of benefits that insurance has to cover…

Republicans should go in a different direction, proposing market reforms that make insurance more affordable and portable. If such reforms are implemented, more people will have insurance.

Some people, especially young and healthy people, may choose not to buy health insurance even when it is cheaper. Contrary to popular belief, such people do not cause everyone else to pay much higher premiums. Forcing them to get insurance would, on the other hand, lead to a worse health-care system for everyone because it would necessitate so much more government intervention. So what should the government do about the holdouts? Leave them alone. It’s a free country.

Herzlinger is correct that “it is 2009, not 1992.” If we want America to remain a free country in 2009 and beyond, we must reject universal coverage.

You Don’t Say

President Obama recently indicated that he would cut the fiscally irresponsible (yet minimally market distorting) direct payments that flow to farmers regardless of their production. An outcry from farming groups has, predictably, ensued.

Just as predictably: “A source in the administration says the proposal is being reconsidered because of the opposition it has received.

Corruption Rewarded in Government

In Downsizing the Federal Government, I discussed some of the corruption surrounding former Senator Ted Stevens:

Another example of abuse engineered by Senator Stevens involves Alaska Native Corporations. Because of rule changes slipped in by Stevens, these shadowy businesses based in his state are allowed to circumvent normal federal procurement rules and win no-bid contracts. The result of such loopholes is that taxpayers do not get value for their money. For example, in 2002 a half billion dollar contract for scanning machines at U.S. border crossings was given to a native corporation with little experience in the technology, instead of established leaders in the field who were not allowed to bid.

The Washington Post did a good job of bringing the scandal of ANCs to light a few years ago. Did the spotlight on ANCs and connections to disgraced Senator Stevens convince Congress to move ahead with reforms? Hardly. From Government Executive today:

In fiscal 2008, companies owned by Alaskan regional and tribal corporations earned a record $5 billion in federal contracts, nearly 10 times the $506 million they earned in fiscal 2000 … ANCs earned two-thirds of the $24 billion they accumulated in prime contracts since fiscal 2000 through the Small Business Administration’s 8(a) Business Development program … Federal acquisition specialists said the data shows that the program, which was designed to help small and disadvantaged companies, has been undermined by a system that rewards companies that earn hundreds of millions in annual revenue.

In the story, Steven Schooner, of George Washington University, summed up the scam well: “The ANC program, as currently implemented, is a blunt instrument that distorts the procurement system, injects well-founded cynicism into the process, and reinforces the belief that government procurement is more about allocating political spoils than ensuring that the government receives value for taxpayer money.”

President Obama has promised procurement reform. He could start be eliminating ANCs and other forms of procurement favoritism.

Obama Administration Agrees with Cato on Auto Fuel Efficiency

Well, sort of.  The Obama administration signaled last week their belief that it would be better to have one national fuel efficiency standard than a multiplicity of different state fuel efficiency standards.  Now, we have long maintained that fuel efficiency standards — federal or state — are a bad idea.  Consumers should be free to buy whatever sort of car they want without government economic coercion.  But if we must do violence to consumer sovereignty, better to do so via one national standard rather than via a hodge-podge of differing state standards.

This is the very argument I made late in January over at The New York Times when asked about California’s petition to establish its own fuel efficiency standard as a means of addressing greenhouse gas emissions.  Alas, I was pilloried on the NYT comments board at that time for all sorts of sins against man and nature.  Now it appears that President Obama has come over to the dark side.  Welcome to my world, Mr. President.

Put Surveillance Cameras on Police Guns, Not Street Corners

Mayor Daley of Chicago is planning to put a surveillance camera on every corner to aid first responders and deter terrorism.  As I’ve said before, cameras don’t deter terrorism, but they do satisfy the need to “do something” without really improving security.  Police officers prevent attacks with traditional investigation and intelligence gathering; cameras are only useful in picking up the pieces after the attack is done.  My colleague Jim Harper is cited in this piece that addresses their utility in more detail.  Cameras didn’t stop the 7/7 bombings in London, but they took lots of pictures of the attack (creepy Big Brother shots here).  The London police doubled down on mass surveillance, but reported that the cameras have not reduced crime.  Worse yet, the British have effectively outlawed taking photos of police officers, prompting photo protests.

Chicago isn’t the first major American city to take this route.  New York did so, as did the District of Columbia.  The cameras in D.C. have not prevented crime, and this piece makes the case that they are a waste of resources - no one can point to a prosecution that used the camera footage to obtain a conviction, and several murders have been committed within a block of a surveillance camera.

Surveillance cameras can and should play a prominent role in law enforcement - mounted on officers’ firearms.  A company is now producing a camera that attaches to the tactical rail found on modern pistols and rifles.  A New York county has invested in the technology for its officers, and their experience looks promising.  Putting a camera on the guns of SWAT officers will keep them honest and prevent falsification of evidence after the fact to cover up a mistaken address or unlawful use of lethal force.

Mayor Cheye Calvo can attest to these horrors, as detailed in a recent Washington Post Sunday Magazine cover story, this Cato Policy Report, and this Cato Policy Forum, “Should No-Knock Police Raids be Rare-or Routine?”  Click here for video - Mayor Calvo calmly captures the raw shock of having your life turn into a tactical problem for a SWAT team to solve, and he is now advocating for a Maryland state statute to mandate tracking the deployment of tactical law enforcement teams.  As Radley Balko would tell you, this is long overdue.

Work, Social Production, and Inequality

Matt Yglesias links to an interesting discussion about the growth of activities that raise our standard of living without being captured in economic statistics. Wikipedia is a great example of this: it’s tremendously valuable to hundreds of millions of Internet users, but because it’s given away for free that value is not reflected in our economic statistics.

I think this general insight is right, but I don’t agree with John Quiggin’s conclusions about the social implications. In particular, Quiggin writes:

It seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes.

If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours.

The first point ignores the fact that rich people are a crucial part of many public-spirited enterprises. Jimmy Wales was able to finance the initial development of Wikipedia (then called Nupedia) because he had previously earned profits building commercial websites. The Ubuntu project, creators of an extremely popular Linux-based operating system, is supported to the tune of millions of dollars a year by successful entrepreneur Mark Shuttleworth. Brewster Kahle used the profits from his successful Internet businesses to build the Internet Archive, a crucial repository of public domain works. John Gilmore, who made his fortune as one of Sun’s first employees, has used his wealth to promote a variety of free software projects, including GNU radio and Gnash. I could provide plenty of other examples.

The important thing to recognize is that these projects could only exist because of the combination of their founders’ expertise and their money. Without cash, these folks would have been unable to provide the support necessary to get these projects off the ground. But even more important, these projects also wouldn’t have succeeded without their deep understanding of their fields. Only someone with years of experience in the software industry would have the judgment and the relationships necessary to make a project like Ubuntu successful.

In particular, if the policy option on the table is to reduce inequality by redistributing wealth from rich people to the government, there’s absolutely no reason to think that the federal government could support these kinds of projects with anything like the degree of success that these private actors have done. Congress has plenty of cash, but members of Congress and their staff haven’t the faintest clue what it takes to build an operating system. Moreover, they wouldn’t even know how to tell a competent operating system designer from an incompetent one, so if they sought outside expertise they’d likely get bad advice.

I think it’s a little bit surprising that Matt would endorse Quiggin’s argument about working hours. If you read Matt’s blog, it’s obvious that he works a lot more than the 1824 hours/year national average. I suspect that Matt works so much in part because his job involves goofing off on the Internet and because he’s excited about the mission of his non-profit employer. Moreover, I’d wager that a large fraction of Matt’s readers read his blog at their jobs while they’re theoretically “on the clock.” In other words, one of the most important but unmeasured ways that our standard of living has improved in recent decades is that more and more of us are blessed with white collar jobs with intellectually-engaging work, pleasant working conditions, and the flexibility to spend time at the office doing things like reading blogs.

Probably the best illustration of these trends is Google. Google is, of course, a fabulously profitable company. It’s also a company that’s famous for the long hours put in by its employees—one reason they offer their employees free food and other perks is so they’ll be less likely to go home in the evenings. At the same time, Google has a policy of “20 percent time” that officially encourages employees to spend company time working on personal projects that may or may not contribute to the company’s bottom line. And Google is also one of the most enthusiastic users and supporters of free software, employing a number of key free software developers such as Guido Van Rossum and Jeremy Allison.

There is, in other words, no particular reason to think that the growth of the non-monetary sector of the economy can or should lead to reduced working hours, on average. Rather than using higher wages or shorter working hours to attract employees, firms may increasingly compete for workers by giving workers more interesting work and more on-the-job flexibility. Indeed, it seems likely that an increasing fraction of the time the Labor Department considers as time spent “working” actually consists of employees reading blogs, editing Wikipedia, and otherwise contributing to the richness of the non-commercial sector of the Internet.

This Is Why Universal Coverage Is a Religion — and Not about Compassion or Saving Lives

I was invited to participate in an email/online/sorta exchange for the Washington Post yesterday.  Unfortunately, the effort was spiked after just a few rounds of emails.  But rather than let my participation go to waste, I thought I’d post one exchange that I think highlights why I’m not just being colorful when I describe supporters of universal health insurance coverage as the Church of Universal Coverage.  I could summarize the exchange, but I’m lazy.  So I’ll just copy and paste.

I wrote:

All the interest groups are meeting with all the right politicians and making all the right noises, thus the Church of Universal Coverage says the stars have aligned for fundamental reform… Everyone is at the table right now because no one wants to be on the menu.  But when the Democratic leadership makes its intentions clear, today’s love-fest will turn into a bloodbath.

Andres Martinez of the New America Foundation (who owes me a taco al pastor) responded:

I am a proud member of the church, Michael.  As New America’s own recent study on the urgency of reform – which reads like a strong courtroom closing argument – noted, how can the world’s most prosperous nation afford to have tens of thousands of its citizens die each year because they lacked access to health care?  Health care reform is a moral imperative, so your reference to a church (um, even if sarcastic) is appropriate…

I replied:

The Institute of Medicine estimates that every year, about 20,000 Americans die because they lacked health insurance, but as many as 100,000 die from preventable medical errors.  What moral code compels the Church of Universal Coverage to solve the first problem before addressing the second?

Elise Gould of the Economic Policy Institute (whose working paper, “Who is Adversely Affected by Limiting the Tax Exclusion of Employment-Based Premiums?”, I am keen to read) chimed in:

In an answer to Michael’s post about the deaths caused by lacking health insurance as compared to those from preventable medical errors, I’d argue that it’s much easier to solve the second when you have people in a common system (i.e., solving the first).

Me again:

To say that universal coverage will make it easier to reduce medical errors is pure fantasy.

The principal reason we have too many medical errors is that fee-for-service payment dominates America’s health care sector, and fee-for-service rewards medical errors and punishes efforts at error reduction.  The reason fee-for-service dominates is government.  Medicare – the single-largest purchaser in the world – pays largely on that basis.  Ditto Medicaid.  And the federal tax code encourages fee-for-service by insulating consumers from the cost of their health coverage.  If you think it’s hard for government to change payment systems now, just wait until universal coverage gives government even more control over payment systems and makes even more providers dependent on those decisions for even more of their income.  (As an aside, when consumers control their health care dollars and choose their health plans, they can change payment systems in a heartbeat.)

This is why universal coverage is a religion: supporters believe that universal coverage has magical, supernatural powers to suspend political reality and the laws of economics.  I do not exaggerate.  See here and here.

Health care reform is a moral imperative.  But universal coverage is not a moral imperative, nor is it about compassion or saving lives.

For those who are interested, the Anti-Universal Coverage Club is still accepting new members.