Wednesday, October 29, 2008

A Libertarian Argument for (Limited) Single Payer Health Care (UPDATED)

Yes, you read that title correctly. Before all the hate-mail starts pouring in, let me first make the caveat that all other things being equal, I would vastly prefer a truly free market approach to health care over either outright single payer or our current employer-based approach to health care. But depending on the goal of the health care system, single-payer health care might be a vast improvement over our current system. More likely, though, the absolute ideal would be a system in which almost all elements of the system were private and individual-based and other elements of the system were public and government based, with a very clear and recognizable boundary between the two.

First, this post is inspired by this CNN article, which seeks to create a panic by implying that McCain's health insurance proposal would be the death of employer-based health insurance. Seeing this, as well as an admission by the McCain campaign that individual-based health insurance would be less comprehensive than employer-based health insurance, much of the left side of the blogosphere, including some I hold in extremely high regard, has been in effect celebrating the employer-based health insurance system as the last bastion against the collapse of decent health care coverage.

In the course of reading these various discussions, what has become clear is that the arguments in favor of employer-based health insurance are essentially:

1. Employer-based health care is important because the participation of younger workers reduces the health care costs of older workers (implicit in this is the obvious fact that younger workers pay far, far more into the health insurance system than they get out of it); and

2. Younger workers who choose individual-based health insurance (including high-deductible insurance) will receive less than full insurance coverage.

The second of these two arguments is something of a red herring - younger workers will largely receive less than full insurance coverage because they're younger and therefore are not in need of as much insurance coverage. I don't think anyone is entitled to say that those workers should be required to spend more on health insurance than they need to, especially when they could use their resulting savings on more worthwhile pursuits.

That leaves the argument that employer-based health care is important because it creates a situation in which younger workers in essence subsidize the health care of older workers. The problem is that this rationale is the identical rationale that underlies just about every conceivable system of wealth transfer or social safety net. If, indeed, this wealth transfer/safety net is the primary goal of a health care system, then employer-based health insurance is nothing other than a privately run welfare system. If that is the case, then health insurance should not be in the private sector at all - government is uniquely qualified to run welfare programs due to the economies of scale involved plus the fact that it is not charging a premium to pocket a profit (I'm hardly against profits, but there's no reason in the world that younger employees should pay a premium for the "privilege" of sending a good chunk of their paychecks to older employees' health care). And then, of course, there is the fact that you are never going to be able to get everyone enrolled in a privately-run health care system, mandates or no mandates - a fact that was the subject of much discussion throughout the Dem primaries.**

Simply put, if the primary goal of our health care system is to make sure that older employees have their health care at least partially subsidized, then the solution is not to worship at the altar of employer-based health insurance and try to get more people enrolled in employer-based health insurance. The solution is to advocate for government to run the program.

Alas, I don't think anyone this side of Hugo Chavez would argue that the sole goal of a health care system should be to ensure that everyone has the same health care coverage. Quality and availability of care is pretty important as well. And on that issue, I don't think there can be much argument that the competition and incentives provided in a free market system are the best way of encouraging innovation and creating more doctors, to say nothing of the additional problems of regulatory capture that would inevitably appear in a purely government-run system. Additionally, a free market system in which costs are reduced from their current levels is a system that will be able to cover more people than are currently covered (albeit less than would be covered under single payer).

The problem with a pure free market approach to health care - beyond the argument that it doesn't go nearly far enough in increasing equality of access - is that a purely free market approach has some unusual flaws in the context of health care (and yes, I know that this concept comes up whenever someone doesn't like the results of the free market). For example, as John and I discussed the other day, the problem of pre-existing conditions (amongst other things) can completely eliminate consumer choice on a micro-level even in an individual-based insurance regime. And it is truly a complete elimination of consumer choice - we're not talking about a situation where the result of you choosing to end your relationship with the provider just means you can't get cable TV any more, but rather one where ending that relationship means either death or a drastically shortened life span. I would think that all but the most die-hard Objectivist would find such a result unacceptable.

In the end, though, our current system of employer-based health insurance combines the worst of socialist planning and the worst of free market capitalism, with only limited benefits of either (to the extent socialist planning has any benefits). As in the worst socialist systems, individual choice is severely limited, and the individual's ability to receive medical care is a function of the "central planning" of a nameless, faceless bureacracy. Meanwhile the profit motive, normally a driving force behind innovation and quality customer service, becomes perverted due to the dearth of consumer choice and thus treats the problems associated with socialism as features rather than flaws. The result? Higher costs and unequal access to care. Fortunately, these problems have not affected the amazingly high quality and quantity of doctors in this country - but then again, the employer-based health care system at least largely leaves in tact the need for doctors to have good relationships with their patients in order to be financially successful.

Any attempt to fix the problems of health care needs to recognize that employer-based health care in many ways represents the worst of all worlds. But it must also recognize that a purely free market approach will have some results that are unacceptable in a civilized society, while a purely socialized approach will necessarily result in a drastic reduction in the quality and quantity of medical care. I'm not enough of a regulator to even suggest what the exact delineation between public and private should look like. But those contours must be abundantly clear so as to ensure the Rule of Law. At a minimum, I suspect that any solution worth its salt will involve a sizable expansion of social safety net programs like SCHIP, Medicare, and Medicaid; but it will also involve putting an end to the insanely expensive system of employer-based health care and replacing it with an actual free market for the vast majority of consumers, which would more than make up for the difference (of course, bringing our troops home and drastically cutting military spending wouldn't hurt either).

** All of this says absolutely nothing about the perverse incentives created by employer-based health insurance, in which the insurer's customer is not the end consumer but is instead the employer.

(More at memeorandum).

***UPDATE*** Ezra Klein, unlike the Obama campaign, keeps his eye on the ball and maintains intellectual honesty, arguing that short-term strengthening of the employer-based health insurance system is not an end in itself but instead only a necessary political step to eventually transitioning to a universal system. He writes that "recognizing the political necessity of that strategy is very different than trying to convince people that employer-based health care has been a "success." Quite the opposite. It has arguably been among the most costly and perverse mistakes in the history of American public policy." But why complicate things? I'm less knowledgeable in this area than Klein, but why not just push for a gradual expansion of Medicare, Medicaid and SCHIP while simultaneously phasing out the incentives that make the employer-based system more viable than an appropriate individual-based system?