Topic: Cato Publications

Health Care Provider Finds No Tragedy in This Commons

An article from the Minneapolis Star-Tribune on competition between physicians and nurse practitioners includes this endearing quote, which encapsulates how some providers see the U.S. health care sector:

The American Medical Association is against giving full autonomy to nurse practitioners, stating as its official policy position that a physician should be supervising nurse practitioners at all times and in all settings…

“There is an element within the physician community that gets a little antsy. … They think it’s going to take away revenue and business from them,” said Dr. Jan Towers, director of health policy for the American Academy of Nurse Practitioners. “Really, there’s more than enough for everybody.”

Cue “We’re in the Money”….

For more, be sure to check out Medicare Meets Mephistopheles, to be released by the Cato Institute in September.

“Crisis of Abundance” Makes Executives’ Reading List

The leadership of the National Chamber Foundation (the educational arm of the U.S. Chamber of Commerce) recently recommended to its board of directors a list of 10 “Books that Drive the Debate.”  Among the recommended titles was Crisis of Abundance, a Cato Institute book by adjunct scholar Arnold Kling and the only health policy book to make the list. 

The foundation’s board is a bipartisan group of influential figures from the business, political, and policy spheres.  The NCF also plans to recommend the 10 titles to all Chamber of Commerce members.

The complete list is pasted below.  NCF chairman Bill Little told me today that Crisis of Abundance will be the first book they send out to their board members.

“Books that Drive the Debate”
NCF’s Top 10 Reading Selections

  1. Illicit: How Smugglers, Traffickers and Copycats are Hijacking the Global Economy by Moises Naim
  2. Three Billion New Capitalists: The Great Shift of Wealth and Power to the East by Clyde Prestowitz
  3. The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy by Peter Huber and Mark Mills
  4. In Our Hands: A Plan to Replace the Welfare State by Charles Murray
  5. Our Brave New World by Charles Gave, Anatole Kaletsky, and Louis-Vincent Gave
  6. The Sarbanes-Oxley Debacle: What We’ve Learned; How to Fix It by Henry N. Butler
  7. An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths by Glenn Reynolds
  8. The Innovator’s Solution by Clayton Christensen and Michael Raynor
  9. Crisis of Abundance: Rethinking How We Pay for Health Care by Arnold Kling
  10. Education Myths What Special-Interest Groups Want You To Believe About Our Schools – And Why It Isn’t So by Jay P. Greene

(Another Cato connection: in March, the Cato Institute held a book forum for Glenn Reynolds’ An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths.)

The leadership of the NCF evidently agreed with Marginal Revolution publisher Tyler Cowen that Crisis of Abundance “is one of the most important books written on health care.”

Why Do We Spend So Much on Defense?

Reuters alerts us to the new report from the Stockholm International Peace Research Institute, which includes a workup on global military expenditures. A few key findings:

World military expenditure in 2005 presents a real terms increase of 3.4 per cent since 2004, and of 34 per cent over the 10-year period 1996–2005. The USA, responsible for about 80 per cent of the increase in 2005, is the principal determinant of the current world trend, and its military expenditure now accounts for almost half of the world total.

[…]

The USA is responsible for 48 per cent of the world total, distantly followed by the UK, France, Japan and China with 4–5 per cent each.(emphasis mine)

The USA is today unchallenged in our hemisphere, and we enjoy friendly relations with almost all great powers in the world, depending on one’s perspective on where the US-China situation is headed. Fighting terrorism the right way–with bolstered intelligence cooperation, small-scale special forces activities and cooperation with our allies–is actually quite cheap.

But we still spend nearly as much on defense as the rest of the world combined. Why? If the threat of terrorism doesn’t justify such massive expenditures, what on Earth are we so afraid of?

There isn’t a good answer. Moreover, even this enormous level of expenditure doesn’t seem to be turning the Bush administration’s ambitious foreign policy aspirations into reality, and the unfortunate mismatch between means and ends is on display daily in Iraq. The thing to do, of course, would be to acknowledge the limits of military power, quickly pull our foreign policy goals into line with our national interests, and stop trying to reshape the culture and politics of faraway peoples that we don’t understand, and who don’t threaten us. Unfortunately, such a correction doesn’t seem to be in the offing.

For a useful and thoughtful critique of US defense spending, see this PA by my former colleague Chuck Pena.

New at Cato Unbound: Frank Levy on Education and Inequality in the Creative Age

In today’s reply to Richard Florida’s lead essay on “The Future of the American Workforce in the Global Creative Economy,” Frank Levy, Daniel Rose Professor of Urban Economics in the MIT Department of Urban Studies and Planning, agrees that creativity is more important than ever in a world where computers and foreign workers can do routine work less expensively than domestic workers. This shift, Levy says, requires better education in problem-solving. But better education can only do so much. The gains from rising labor productivity are going largely to the wealthy, Levy argues. Unless policies and norms are reinstated that spread those gains more widely, “all of the nation’s institutions will be at risk.”

Holt & HSAs: Perhaps Fruitful after All

Matthew Holt writes:

The argument I want to have is a theoretical one about what would happen if we had essentially a completely personalized account-based system, as he advocates in his Large HSA proposal.

Holt raises important questions about what would happen under a system of large HSAs, where workers would get a large but limited tax break for cash that they (and/or their employer) deposit in an HSA – tax-free cash that workers could use for health savings, spending, or insurance as they wish.

Holt’s first concern is that “a significant number of people would take the money and buy no or minimal insurance coverage.” That some would choose to drop health insurance is certainly a possibility. I have two responses. First, that is already an option. People can and do choose to “go bare” and use their money for savings or other spending. The large HSA approach could marginally increase the number of people who do that, but only if the newly “bare” actually put money aside for future medical expenses. (Actually, large HSAs could even encourage today’s non-saving uninsured to start saving for their health expenses.) That brings me to my second response. If large HSAs do increase the number of people who “go bare,” the only people they would add to the ranks of the uninsured would be savers. As those “health savers” build up large balances in their large HSAs, it will occur to them, “Gee, one serious illness could wipe out all the money I’ve got stashed in my HSA.” How do people typically protect their assets from such unforseen losses? Insurance. So there’s a built-in incentive for health savers to purchase insurance.

Holt’s second concern goes like this: Were we to allow people to take all of their health benefits in the form of a cash contribution into a large HSA, and let them choose how to allocate those funds (among savings, spending, and insurance), that would begin a process known as “risk segmentation.” As I describe in my paper, some people would “go bare,” many would purchase less comprehensive health coverage, and many would migrate to the individual insurance market, where their premiums (typically) would be based on their individual health risk. What concerns Holt is that sicker people would have to pay more for health insurance, to the point where many sick people could not afford it.

My response is not that sick people should not be subsidized.  (I would prefer that they not be subsidized by government, but let’s assume that all options are open.) It is that sick people should not be subsidized through the vehicle of “insurance.” Attempting to deliver such subsidies through “insurance” destroys much of the good that insurance markets accomplish. Insurance premiums cease to deliver price signals about the costs of bad behaviors (e.g., smoking, obesity, waiting until you’re sick before you buy insurance). Many consumers drop insurance rather than pay the higher-than-necessary premiums, which increases the number of uninsured and tempts government to force people to buy insurance. Most importantly, when patients are spending someone else’s money, we lose a very important ally in the fight to curb wasteful medical expenditures: the patient. Instead of nagging providers about delivering value for the dollar, patients – especially the high-cost ones – line up with providers on the side of more spending. 

My preference is to let insurance markets do all they can do to improve efficiency, particularly by encouraging patients to pay directly more often. Some people will still require assistance, though with a more efficient health care sector their numbers should be smaller. We should subsidize those who remain directly, with cash.

I’m not sure how much of this Holt will find persuasive. Given that we agree that providers are riding the gravy train, I would think that having millions of patients nagging providers about value would hold some appeal.

He and I agree on something else. HSA supporters too often ignore these issues.

New at Cato Unbound: Robin Hanson on Creativity and Smart Machines

In his reply to Rise of the Creative Class author Richard Florida’s lead essay, George Mason economist Robin Hanson argues that creativity matters less for economic growth and the future of work than Florida thinks. According to Hanson, Florida’s emphasis on creativity distracts us from the prospect of a truly revolutionary change just over the horizon: rapidly exponential growth driven by smart machines. “An economy with intelligent machines could grow very rapidly indeed,” Hanson argues, “and induce rapidly falling human wages.” Will we be prepared if we’re busy making the Creative Class comfortable?

Response to Holt

My back and forth with Matthew Holt on HSAs continues…

In my previous post, I wrote that Holt’s critique of my paper made it appear that he hadn’t read the paper very closely. As I understand his response, he is “not very interested” in doing so. He is already convinced that we need “compulsory social insurance” with “incentives for providers that induce them to provide cost-efficient care.” Fair enough.

Or maybe not. Holt continues to misrepresent my views and what that paper says. He variously accuses me of believing that his owning an HSA invalidates his criticisms of HSAs; believing that health insurance is unnecessary; and having no interest in (or proposals for) reducing the burden of expensive flat-of-the-curve medicine. These and other errors could have been avoided by carefully reading my paper.

Since this exchange seems to be bearing little fruit, I will not take it much beyond the following brief summary of my actual views on these issues.

There are some medical expenditures that should not be covered by insurance. Beyond a certain point, problems of moral hazard, fraud, low-quality care, medical errors, and loss of control over one’s medical decisions tend to overwhelm the benefits of additional coverage. (This occurs whether the excess coverage comes through the private sector or the public sector, and even if the state limits supply.) Consumers do a better job than government of establishing coverage up to that point and then stopping. That argues for letting consumers control all the dollars involved, which is at the heart of my large HSAs proposal.

In other words, if you want to subsidize uninsurable medical expenses, you don’t want to do it through insurance. You would do less damage by giving them cash.