Thursday, October 30, 2008


What's a good Halloween costume for a libertarian couple this year? The only criteria are that costumes be: 1. Satirical; 2. Irreverent/Politically incorrect; and 3. Timely.

Wednesday, October 29, 2008

The Perversity of Employer-Based Health Insurance

I wrote yesterday and this morning about the problems underlying the liberal arguments against individual-based health insurance, the conservative/libertarian arguments against single-payer health insurance, and the far greater problems underlying liberal arguments in favor of the current employer-based health insurance system. I argued that the only solution to the problems of health insurance and care in this country lies in moving to individual-based insurance while simultaneously - and contrary to libertarian doctrine - permitting a sizable expansion of government safety net programs along the lines of Medicare, Medicaid, and SCHIP.

Responding to the same article to which I was responding, Ron Chusid, another blogger for whom I have massive respect (and who is also a doctor) cites with approval an argument that de-incentivizing employer-based health insurance, as the McCain plan seeks to do, will not only discourage employers from providing health insurance, but also that it will increase the costs of insurance to individuals because individual insurance plans are more expensive.

There are several problems with this latter argument, which is premised in the notion that employers are able to negotiate lower rates and better policies due to their large size. First, the fact is that most Americans currently have employer-based health insurance, yet our health care system is about the most expensive in the world, which suggests that employers don't do a very good job negotiating better rates.

Second, to the extent employers are able to negotiate better rates, those gains are lost because the insurance company has no need to treat the end consumer as a customer since the employer is the real customer. This creates an incentive to deny or restrict benefits or to create administrative hurdles to the granting of claims (all of which raise the final costs to the individual); indeed, Ron himself has indicated that under the current system, it is usually a worse bureaucratic hassle for doctors to receive payments from insurance companies than the government (he alludes to this here, although I know he specifically made the point in another post). But this perverse incentive is eliminated when the customer and the consumer are the same thing. Third, employer-based health insurance has a lot of deceptive costs to the employee; specifically, although an employee may nominally only need to pay a percentage of the insurance costs directly out of their paycheck, the fact is that employers may (and, I know from experience, effectively do) largely shift their "share" of the costs back onto the employees by simply paying lower initial salaries and wages. Indeed, employer-based health insurance largely arose as a way of replacing pay raises during WWII, when wage and price controls prevented pay raises.

This isn't to say I support the McCain proposal. For the most part, I don't, and many of the ways it seeks to achieve individual-based health care are extremely wrongheaded. His attempts to argue that he wants to preserve the employer-based health insurance system are either dishonest or completely moronic. But at the same time, liberals are wrong to now argue for the superiority of employer-based health insurance to individual-based health insurance. On this point, they should keep in mind the fundamental truth that, as Ezra Klein said yesterday, employer-based health insurance has "arguably been among the most costly and perverse mistakes in the history of American public policy." And of course Klein is right - it combines the worst elements of socialism and capitalism, without any of the mitigating effects of either. So terrible is the existing system that I would actually prefer a complete single-payer system to the existing one, at least if that is the only choice we have (and, thankfully, it isn't).

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?

Tuesday, October 28, 2008

Know Your Audience: The Ineptness of the McCain Campaign

The National Law Journal is probably the most widely circulated periodical in the legal world, reaching many tens of thousands of attorneys every week (at least in theory . . . . it has a tendency to stack up and get ignored by busy junior associates). But it is read almost exclusively by attorneys, which are hardly what you would term a core Republican demographic.

Well, it seems that John McCain was asked to write a piece in the NLJ describing his views on "the rule of law, the federal court system, judicial appointees and priorities for the U.S. Department of Justice." The piece is, to say the least, underwhelming. It begins promisingly enough, though:

Our nation needs a new direction — different from the path pursued by the current administration, and also different from the failed liberal policies of the past proposed by Senator Barack Obama. We face enormous challenges and you, the voters, deserve more than platitudes. I feel it is my duty as a candidate to tell you specifically how my presidency would improve our government and our country.

Unfortunately, "platitudes" are exactly what we get, and the "different path" from the Bush Administration turns out to be the Bush Administration on steroids, with one exception.

Rather than discussing "the rule of law, the federal court system, judicial appointees and priorities for the U.S. Department of Justice" in any kind of depth, what we get are vacuous platitudes about "strict constructionist" vs. "liberal activist" judges, counterterrorist operations (but not even the slightest mention of civil liberties issues implicated thereby), and the need to double down on the War on Drugs, not to mention the Nixon-era claim that Dem-appointed judges will "coddle criminals."

To be sure, there is a brief, one-sentence mention of the need to de-politicize the Department of Justice, but beyond that, McCain's commentary reads like a Mitt Romney stump speech rather than an attempt to convince thousands of overly-educated, mostly left-of-center professionals to vote for him. In other words - McCain is writing for the "base," even when the only audience is about as far from the "base" as you can get.

I am not saying that McCain should have written a column that does not reflect his actual viewpoints or that throws the Republican "base" under the bus. I am simply amazed that he made absolutely no attempt to explain, in detail, why he thinks he would do a better job at, say, appointing judges but instead simply throws around buzz words like "strict constructionist" and "liberal activist" that both make most attorneys' eyes glaze over (because they are meaningless terms) and gratuitously insult judges as a group, who are quite well regarded within the legal profession.

For instance, would it have been so difficult for McCain or, more likely, his ghost writer for legal affairs, to put forward an honest and meaningful description of his judicial philosophy? If he sincerely wants to make a push for increased enforcement of banking rules and tighter banking regulations, couldn't he have discussed how he wishes to do this, particularly in light of the dramatic effect of Sarbanes-Oxley on the legal profession? Simply put, McCain's piece demonstrates a complete lack of seriousness or intellectual rigor about legal issues, two traits one needs to display in order to get the support of any well-educated group interested in a set of issues.

This isn't just a function of McCain having disagreements with the vast majority of the legal profession - it's about him nominally seeking our support while refusing to engage us on terms that have actual meaning to us, instead addressing us on terms better suited for convention speeches. In other words - it's not just bad policy, it's bad politics. And therein lies the rub. Here we are, just one week from Election Day, and McCain is still focusing almost all of his campaigning on mobilizing the "base," even when he is not speaking to the "base." To be sure, a Republican would have little chance of winning in the current economic and anti-war climate no matter what; but for someone who was always portrayed as a "moderate," whatever that means, McCain has been forced to spend the last 7-8 months trying to convince the "base" that he's one of them. That's not a good way to compete in an election.

(via Memeorandum).