June 22, 2006 10:21AM

Health Care Spending

Ezra Klein writes,

So much of medicine is probabilistic. If you wanted to really cut costs, you’d take a coldly statistical view of the whole thing, with those who ended up on the wrong side of the numbers regrettable sacrifices. As a society, we’re not ready or willing to do that — and rightly so. But this is the essential conflict: politicians and hospital administrators look at the global budget, while doctors and patients look at the individual’s health. The latter militates for constantly seeking the lowest possible error, the former for going with the statistics and saving money where you can.

He should read the chapter, “Dollars and Decisions,” in Crisis of Abundance.

So, if there were a procedure that cost $10 million, and it could reduce the probability that Ezra would get cancer by one ten thousandth of one percent, would Ezra spend that money? Or would he say that “society” is obligated to spend that money?

I am sorry, but there really are cost‐​benefit trade‐​offs in medical care. You can hide your head in the sand and pretend that they do not exist, but in the end they are going to have to be made somehow.

June 21, 2006 5:48PM

School Choice Programs Proliferate in Arizona

The AZ legislature has been busy. Back in the spring, it decided to allow businesses to take a tax credit for donations to tuition scholarship organizations. These organizations help low‐​income families pay for tuition at independent schools. The bad news is that the legislature originally capped the total value of such creditable donations at a mere $5 million annually. The good news is that they just doubled the cap to $10 million, and put it on a track for reaching $21 million within four years.

Lawmakers also created two new voucher programs: one for disabled students and another for children in foster care.

Not everybody is happy about it, but the families who will benefit from these programs are lucky indeed. And with the passage of these bills, Arizona inches closer to the time when every family in the state will be able to easily choose the public or independent school best suited to their kids.

One thing to watch out for: while education tax credits have already survived constitutional challenge in Arizona, vouchers have not. The two new voucher programs may well be challenged by the public school employee unions and their fellow travelers on state constitutional grounds, and if so the outcome is not at all clear.

Even if the voucher programs are challenged and struck down by the courts, however, a combination of donation and personal use tax credits can provide universal access to the education marketplace.

The future is freedom. The monopolists just haven’t realized it yet.

June 21, 2006 5:46PM

Big Government Health Care

I have been trying to make the point that we cannot magically make health care affordable by having our health care services paid for by the government. I have been trying to use Medicare and Medicaid spending to make that point. Now, Laurence J. Kotlikoff and Christian Hagist have found a good way to make it.

European critics of the U.S. health care system often focus on the private provision of health care and health insurance. Yet the more important difference between the United States and other developed countries is the failure to control government spending. Other countries employ global budgets and control access to expensive drugs and new technology. The United States, by contrast, has very meager spending controls. If current trends continue, U.S. government health care spending will consume an ever growing portion of national income — far more so than any other developed country

…If current trends hold in the United States, by 2050 government health care spending will claim one‐​third of GDP.

I added the emphasis on the word “government.” The point is that even if we only have government pay for seniors and the poor, our government system will outspend other countries’ government systems that pay for everyone.

What’s different about America, as I argue in Crisis of Abundance, is that we do nothing to constrain the use of premium medicine (specialists and high‐​tech procedures.)

June 21, 2006 5:22PM

Fuzzy Math

This one is a few days old, but last week the Bush administration lowered by 500,000 its rah‐​rah‐​Medicare‐​Part‑D estimate of the number of seniors with drug coverage. Seems they double‐​counted half a million veterans who had enrolled in a private Part D drug plan. Oops.

Two observations.

First, given the administration’s track record, journalists should just start using disclaimers like, “Remember, these Medicare figures were provided by the Bush Administration. Wink, wink.”

Second, I’m not a big fan of either Part D or the Veterans Health Administration. But left‐​wingers love the latter and hate the former. I wonder how they explain veterans leaving their preferred model for the one entitlement program they detest.

June 21, 2006 4:30PM

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.

June 21, 2006 4:09PM

Chamber Shows Villalobos the Door

For the first time in its 90 year history, the Florida Chamber of Commerce has pulled the plug on its backing for a political candidate. State Sen. Alex Villalobos, who received the Chamber’s endorsement in 2005, was dropped today because of his votes on several key issues. Paramount among them: his opposition to school choice.

The only surprise is that it took so long. Business leaders are beginning to understand that our state‐​run education monopolies are just as harmful — if not more so — than monpolies in any other field.

Let’s hope other chambers of commerce follow Florida’s lead.

June 21, 2006 1:40PM

What’s Worse than Corruption?

Visiting Ireland, Washington Post columnist Steven Pearlstein writes about the death of former prime minister Charles Haughey:

In recent years, Haughey’s reputation has been badly tarnished by revelations that he diverted millions of dollars from party coffers to finance his lordly lifestyle, that he carried on an affair for years with a newspaper gossip columnist, that he tapped the phones of political journalists, and that he had to sell his large Georgian estate to pay more than $6 million in back taxes.

But Haughey was also “the father of the Celtic economic miracle … that transformed Ireland from one of the poorest countries in Europe to one of its most prosperous and dynamic.” So the column raises an interesting question: Would you rather have an honest, abstemious Puritan who taxes, regulates, and plans an economy into stagnation or worse — or a high‐​living, philandering cream‐​skimmer who transforms your economy from the world’s leading exporter of talent into a Celtic tiger?

In his book Prosperity versus Planning: How Government Stifles Economic Growth, David Osterfeld discussed two kinds of corruption. As John Mukum Mbaku explains, Osterfeld “argued that in a heavily regulated economy, one can find two distinct types of corruption: ‘expansive corruption,’ which involves activities that improve the competitiveness and flexibility of the market; and ‘restrictive corruption,’ which limits opportunities for productive and socially beneficial exchange.” In other words, when a trade official takes a bribe to allow imports in, or a regulator issues a business license for a piece of the action, they’re making economic activity happen. But when a regulator embezzles public funds or takes a bribe to prevent a business from opening, he is reducing competition and economic activity. So the problem isn’t corruption per se; it’s corruption that restricts productive activity.

Haughey’s case is slightly different: wiretapping journalists and evading his own taxes are not market‐​expanding activities. So maybe he offers the political choice in starker relief: was Ireland better off with a corrupt prime minister who kick‐​started economic growth than it would have been with an honest socialist who kept Ireland in poverty? I’d say so. They should have gotten Helmut Kohl to speak at his funeral. Kohl could have made his own case there: I served 16 years as German chancellor, I ended communism in East Germany and reunified the country, and along the way, to stay in power, I helped my party skim a few million off arms sales and privatization deals. Not as good a case as Haughey would have, since Haughey opened up his country’s economy and improved growth, while Kohl allowed the German economy to slow and stagnate – but I’ll bet a lot of Germans still think it was overall a good bargain.