Topic: Health Care & Welfare

Thud, Part III

Stuart Butler responds here to my critique of his paper/proposal to break the “health care reform stalemate.” As one might expect, the Heritage guy and the Cato guy agree that federalism is good because “state experimentation permits a comparison of approaches to solving social problems.” Those social problems include low-quality, unaffordable health care and other consequences of excessive government.

My skepticism of Stuart’s proposal stems from the fact that he would have the federal government (1) offer financial incentives that induce states to conduct policy experiments and (2) judge the success of those experiments. That actually runs counter to the idea of federalism and sets up a process where advocates of markets are bound to lose.

State officials know that if they don’t maintain or improve quality of life, people and jobs leave. Thus the freedom to choose one’s state of residence both encourages policy experiments and holds states accountable for them. That decentralized accountability mechanism pretty much cannot be fouled up unless a state prohibits its residents to leave or (more likely) finds some way to shift the costs of its experiments to other states.

Having the feds offer states cash to induce policy experiments would favor collectivist over government-limiting experiments. First, it would shift the tax burden of collectivist experiments to other states and therefore make such proposals more attractive to state legislators. (That is the #1 problem with Medicaid.) Proposals to limit government would be on the losing end of that concentrated benefits/diffuse costs problem. By definition, rolling back government involves taking something away from an organized interest group. Were any state to deliver such a proposal to Stuart’s commission, it would have to arrive tied to other proposals that buy off those interest groups. Thus states would present Stuart’s commission with proposals that either increase government intervention or (at best) have no impact on government intervention. On net, that means more government intervention.

Stuart has more confidence than I do that states would propose market-based reforms. As evidence, he cites recent experiments with defined contributions and health savings accounts in Medicaid. But here I think Stuart makes my point for me. As I explain elsewhere, those are not government-limiting reforms. Vouchers and HSAs make Medicaid more like cash assistance, and therefore just trade some of Medicaid’s current problems for problems associated with cash assistance (read: welfare checks). As long as Congress keeps giving states a dollar-for-dollar incentive to expand their Medicaid programs (what I call “pay for dependence”), vouchers and HSAs likely will increase Medicaid spending.

But suppose a state proposed a fantastic health care reform: eliminating the tax exclusion for employer-provided health insurance and lowering marginal tax rates. That and other tax-based reforms would probably fail because even some people who are generally supportive of the concept (like me) would oppose giving the feds the ability to write different tax rules for different states.

It is true that Congress could reject the inevitably collectivism-heavy package of proposals that the commission would submit. I personally have no confidence that any Congress would do something so sensible, much less that this Republican Congress would. But even if we could rely on Congress to act sensibly, why tempt them?

Finally, having the feds judge the results would create a centralized accountability mechanism susceptible to special interest lobbying, which Stuart acknowledges “would probably help those who want to expand government.” It is in the forum of Stuart’s commission, rather than in society at large, where I fear market-based approaches would not survive.

Common Misconflations

A recent Ezra Klein post is a much more interesting read when decoded using this key:

U.S. health care sector ≠ free market

For-profit ≠ free-market

Non-profit ≠ public provision

Non-profit ≠ tax-exempt

Chuck Grassleyfree-marketeer

Public provision ≠ better medical care

VA ≠ superior care

(Okay, so the Chuck Grassley one is not so common.)

HSA Realism

John Hood has a column today on Health Savings Accounts that cites Michael Cannon’s recent paper on the topic.  As Hood notes,

You can learn more about some of the issues involved – fairness to the health and sick, tax benefits for the wealthy and poor, adverse selection and the stability of health-insurance pools – by reading an excellent paper out last month from the Cato Institute. Michael Cannon, director of health policy studies at the libertarian think tank, has produced one of the better policy studies I’ve read on any subject in a long time. It takes the concerns of critics seriously – studying carefully and then rejecting some, studying and agreeing with others, and proposing changes that will make consumer-driven health care make more sense for more Americans over time.

Health Savings Accounts are one of the most important health care innovations of recent history, with the potential to significantly increase consumer involvement in health care decision-making.  But they are not a silver bullet.   The Left has long had a “utopian complex,” believing that some simple legislative change can solve this or that complex problem.  Lately, too many conservatives have fallen in to that trap as well.  Cannon’s paper is an important contribution to the debate that should be read by both supporters and opponents of consumer-driven health care reform.

Thud, Part II

In an email, Stuart Butler of the Heritage Foundation took issue with my characterization of his proposal (which has now been introduced as federal legislation) to foster health policy experimentation among the states. So I thought I might elaborate. (Readers can get the particulars of the proposal in Stuart’s paper.)

The system Stuart proposes seems predisposed to increase government health care spending and to produce little or no free-market reform.

Under his proposal, states would petition Congress for the funding or flexibility to experiment with different reforms within their borders. If the past is any guide, states would be more likely to request more federal money than either deregulation or less federal money. For example, we could count on states to ask Congress to fund expansions of government programs or the creation of state-chartered “purchasing pools.” It is less likely that states would request market-based reforms, such as capping and block granting federal Medicaid spending. Proposals to expand health savings accounts or eliminate the exclusion for employer-sponsored insurance in certain states would never get off the ground, for they would run afoul of the Constitution’s requirement that “all Duties, Imposts and Excises shall be uniform throughout the United States.” (Stuart argues that “other site-specific programs involving federal tax changes, such as enterprise zones, have passed muster.” But even if we could have the feds devise different tax rules for different states, would we want them to?)

Even if some free-market reforms could get approved, they would be less likely to survive than big-government reforms. To qualify for reauthorization, reforms would have to meet “clear and measurable goals, including coverage increases and quality improvements.” Yet new government programs would always have an advantage at “increasing coverage” because the state could always claim “you’ve got Medicaid!” even if you can’t get a doctor’s appointment. Free-market reforms – by definition – do not force coverage on people. With regard to quality, government programs whose funding is in the balance could force delivery of whatever the feds label “quality” health care, even if some patients get hurt. Meanwhile, if patients’ preferences deviate from the quality measures, market-based reforms lose because markets actually try to satisfy those diverse preferences. Finally, government-expanding reforms generally bestow benefits on concentrated interests, while market-based reforms (e.g., HSAs) produce benefits that are more diffuse. Thus big-government reforms would have a leg up in the political process that sets and evaluates compliance with performance measures. In short, free-market advocates don’t exactly dominate health policy, and would not dominate this process. The proposal thus ignores the lesson of O’Sullivan’s First Law.

It’s not that this is designed to be a big-government proposal. But it is not designed to be a limited-government proposal, which makes it almost certain that it would be hijacked by the forces of big government. That is why my initial impression boiled down to: Congress creates a commission, gives more money to the states.

But hey, I might be wrong. I’d like to hear Stuart’s thoughts.

Time to Boycott AMA Members?

A quick look at the press releases coming from the AMA during their annual meeting this week revealed numerous protectionist or otherwise paternalistic positions taken by the physician lobby. The august AMA House of Delegates approved resolutions that called for:

  • greater efforts by health insurers to make price information available to patients (physician, heal thyself)
  • a prohibition on direct-to-consumer advertising of every new drug until physicians feel they’ve had enough time to learn about the drug (pity the poor MD who doesn’t know the answers to his patients’ questions – and First Amendment be damned!)
  • regulation of nurse practitioner-run clinics, which offer affordable access to basic care (and pose a threat to physician incomes; blogged previously here)
  • ending alcohol ads on college sports telecasts, smoking bans, warning labels on video games,” etc., etc.
  • urging the Food and Drug Administration (FDA) to revoke the ‘generally recognized as safe’ (GRAS) status of salt and to develop regulatory measures to limit sodium in processed and restaurant foods,” etc., etc.
  • requiring Americans to purchase health insurance (which increases the appetite for physician services; blogged previously here)

Paging Dr. Bastiat …

But not all was venal and meddlesome in Chicago this week. On a (barely) positive note, the AMA gave a “cautious green light” to the practice of “solicitation of organs from potential donors who have no preexisting relationship with the recipient.” So for all of you who are reading this while your blood is flowing through a dialysis machine, and who don’t want to be one of the thousands who will die on the kidney transplant waiting list this year, if you go out and try to find someone who will give you a kidney so that you can live, the AMA has decided that would be “ethically acceptable.” There. Feel better? 

Voluntary Charity vs. Government Charity

Chris Edwards’ post on FEMA brought to mind a 2002 New York Times article, which I recently found on FreeRepublic.com. The article concerned fiscal shenanigans at the United Way, and FreeRepublic.com allowed readers to post comments. The following were representative:

“Why anyone would give money to (through) the United Way so they can skim their take is beyond me. Pick your favorite charity or cause, and give to them.”

“If anyone at work asks you to give through United Way, point them to the Salvation Army. The difference is like night and day.”

Pity we never see comments like:

Why anyone would give money to FEMA is beyond me. Pick your favorite charity or cause, and give to them.

If anyone at work asks you to contribute to Medicaid or Food Stamps, point them to the Salvation Army. The difference is like night and day.

As I told a (hostile) room of graduate social work students this morning, when charity is coerced, charities don’t have to try nearly as hard.