A Stitch in Haste

A commenter at a previous post is confused:

From where I sit, a private bureaucrat gets money be denying service, whereas a public one gets support for giving service...

This is the cornerstone of the most radical, Michael Moore style socialized medicine: the insistence that "insurance companies only make money by denying claims."

This is, of course, utter nonsense.

Consider:

--Does a restaurateur make money by "denying people food," or by satisfying his diners?

--Does a lawyer make money by not showing up in court, or by satisfying her clients?

--Does an auto insurance company make money by denying claims, to the point where customers cancel their policies in disgust and retain a competitor? Or do they make money by satisfying customers? (Exhibit A.)

--Does a manufacturer make money by selling dangerous wares as cheaply as possibly — to the point of risking negative publicity (not to mention lawsuits), or by satisfying customers — even when that means a higher price for higher safety? (Exhibit B.)

Meanwhile, what enterprise is making money by denying claims? That's right: Medicare.

The idea that health insurance companies are somehow different from other insurance companies, that they somehow rake in the money upfront and then spend all day figuring out ways to keep it, reflects a fundamental disconnect from reality: Insurance companies — health care or otherwise — pay their claims first (or do their best to estimate them), and then calculate the premium schedule that will cover those claims. Competition, meanwhile, prevents them for charging much more than that.

If you think, however, that health insurance profits are "too high," then perhaps the problem is not with premiums but with the competitive, or anti-competitive, landscape that spawns those premiums. If the current tax code imbalance — a throwback from Second World War wage & price controls — were abolished, if your employer could just pay to you the money it currently pays "for you," and if you could choose your health insurer as easily as you could choose you auto insurer, life insurer or homeowners insurer, then maybe those "excessive profits" that give Michael Moore such hypertension might come down a bit.

An op-ed contributor* at the Washington Post tries to go from "oncologist" to "economist" —

The U.S. health-care system has two distinct parts — financing and delivery. The financing system is how we pay for health-care services. It is composed of employer-based insurance, the individual insurance market, Medicare, Medicaid, SCHIP, the veterans health system and other programs. Today, the private part — employer-based coverage and individual insurance — accounts for just under 55 percent of all payments for health care, while government contributes about 45 percent.

The delivery system consists of about 850,000 doctors, 5,000 acute-care hospitals, 39,000 pharmacies and 8,100 home health agencies, as well as hospices, surgical centers, radiological centers, laboratories and other outlets that provide the actual health-care services Americans need.

Strange, nobody thinks of the local supermarket in terms of "two distinct parts — financing and delivery." Nor does anyone partition a restaurant, or an auto body shop, or an investment bank, or a barbershop, into "financing and delivery." Just health care. Why might that be?

And the answer is not "because of insurance." Automotive insurance is not thought of in terms of "two distinct parts — financing and delivery." Neither is homeowner insurance, life insurance, travel insurance or any other kind of insurance.

The answer is because we have a government-imposed disconnect, an obsolete relic of World War II command-and-control economic authoritarianism, in which employers receive an irrational tax advantage for providing health insurance directly rather than simply paying employees more and having them buy their own insurance. The "financing and delivery" dichotomy is in no way endemic to health care — it is entirely a creature of government. As are, by corollary, all the problems and shortcomings that have flowed from it over the past sixty years.

And still the apologists for socialized medicine refuse to even consider that maybe, just maybe, the solution is to revisit that archaic structure: to revisit those "two distinct parts — financing and delivery" rather than simply take them as a given.

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Oops, did I say "socialized medicine"? Shame on me!

Properly speaking, socialism is when the state owns or controls the means of production. Thus "socialized medicine" is when the doctors are state employees; when the hospitals, drugstores, home health agencies and other facilities are owned and controlled by the government.

Assume as a thought experiment that tomorrow the federal government imposed a bubble gum tax, added on to existing payroll taxes. In exchange for these compulsory taxes, everyone would receive "free" bubble gum (because all enlightened, compassionate folk agree that there is a "right to universal bubble gum"). The bubble gum could come either directly from government-run bubble gum dispensaries, or via a bubble gum voucher or reimbursement program.

Would this be "socialized bubble gum"? I think so. I think you have to be a moron not to think so. Either way, does it really make a difference regarding the underlying impropriety of the program whether it's called "universal bubble gum coverage" or "socialized bubble gum" or "authoritarian bubble gum" or "command-and-control bubble gum" or "HillaryBubble 2.0" or "RomneyGum" or "zoop"?

Of course not, any more than it matters whether you call a cancerous growth a "tumor" or a "lump" or a "malignancy." Whatever you call it, it's simply not a good thing. And the appropriate treatment for it is certainly not be "more of it."

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*The piece seems to have been pulled from the WaPo site. Go figure.

The Urban Institute asks:

With health reform at the forefront of the national campaign, some charge that proposals to restructure our health care system represent dangerous steps moving the country towards government-run health care and socialized medicine. Similar rhetoric was heard last fall when President Bush vetoed legislation reauthorizing the State Children's Health Insurance Program (SCHIP).

The answer, of course, is: No, because we're already there:

In terms of direct spending, federal subsidies for health care and coverage, provided through Medicare, Medicaid, and other programs, are projected to equal $829 billion in FY 2008. Medicaid and Medicare cover 42.7 million and 42.4 million people, respectively, with some poor seniors and people with disabilities receiving coverage from both programs. The government also provides publicly funded health care to almost 9 million current and former federal employees and dependents through the Federal Employees Health Benefits Program; 3.7 million veterans who receive health care through the VA; and the country's active-duty soldiers and their dependents. Only 5 percent of the insured population in the United States does not receive some kind of government subsidy, either directly or through a tax benefit. These government expenditures involve sizeable transfers of income, generally from higher-income to lower-income individuals, particularly in the case of the general revenues used to finance Medicare and Medicaid.

Keep those numbers in mind the next time some health care socialist bemoans the (supposed) failings of our (supposed) "private" system. (Also keep in mind that those are just the federal numbers — state and local governments add a whole additional layer of government insurance and taxpayer expenditure.)

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The "only 5%" figure is a curious number — I presume it refers to the independently (i.e., non-working) wealthy who simply pay all their health care costs and health insurance premiums out of pocket. But the number does indeed reflect a pesky fact that health care socialists rarely if ever acknowledge: Our bizarre, asymmetrical tax code that makes health benefits deductible to the employer but not the employee. (A system which, recall, was implemented by FDR as a "temporary" measure as part of comprehensive wage and price controls during World War II.)

It's rather silly to suggest that a system where the consumers of a service cannot simply go out and buy it, and where providers of that service do not compete against each other to win customers — all because the federal government makes it impossible thanks to a schizophrenic tax code from a war that ended over sixty years ago — the "private sector," or its shortcomings a "market failure" (cf., the New York housing market).

And yet that's precisely what the health care socialists — from Ezra Klein to Paul Krugman to Hillary Clinton — do call it. Go figure.

A truly "private market" for health insurance would be just that: neutral tax policies that would treat all health insurance premiums and benefits equally whether purchased by the employer or the employee (i.e., moving to higher after-tax wages with no health benefits), with the health insurance industry competing directly for end-customer business, not competing indirectly for the customer's employer's business.

Unless and until we implement such a system, no health care socialist has earned the privilege of declaring health care a "market failure." You can't fail at something that you've never attempted.

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Meanwhile:

Millions of baby boomers are about to enter a health care system for seniors that not only isn't ready for them, but may even discourage them from getting quality care.
...
Medicare may even hinder seniors from getting the best care because of its low reimbursement rates, a focus on treating short-term health problems rather than managing chronic conditions and lack of coverage for preventive services or for health care providers' time spent collaborating with a patient's other providers.

The American Medical Association responded that seniors' access to Medicare in coming years "is threatened by looming Medicare physician payment cuts."

Geriatrics is, thanks to Medicare, the subset of "health care" that comes closest to pure socialized medicine in America.

Geriatrics is, thanks to Medicare, the subset of "health care" that is not only in the worst condition but is also deteriorating the fastest.

It's not exactly brain surgery to figure out that problem is hardly "market failure."

Homeowners insurance is a truly private market. Anyone screeching about a "homeowners insurance crisis"?

Auto insurance is not quite a truly private market, but it's light-years beyond health insurance. People may grumble about their car insurance, but at least it's a competitive industry (just ask Dennis Haysbert, or the gecko) where people can switch carriers with relative ease and choose from a variety of options that best suits their individual needs.*

The only people who have anything remotely similar to "private health insurance," meanwhile, are the self-employed. They too are affected by the tax code (which is why they are not part of the "5%" the Urban Institute mentions), but at least they enjoy the flexibility to make their own insurance decisions and comparison shop for coverage that they most prefer.

Medicare, on the other hand, is a financial disaster in which the working poor pay the health care costs of the retired rich — this incidentally somehow constitutes being "progressive." The truly enlightened approach — taxpayers providing basic health care to the incompetent and indigent as part of a humane social safety net — is already in place via Medicaid (assisted by not-for-profit institutions and private charity). To the extent that Medicaid is not covering everyone and everything it should, then let's expand it (unlike the Democrats' recent despicable SCHIP fraud, expanding Medicaid would not send most libertarians to the barricades). If most libertarians, provided with persuasive evidence of its propriety, would be okay with simply expanding Medicaid, then why is it such an abominable concept for the "socially concerned" radical left (whom, recall, universally insist that "compassionate libertarianism" is an oxymoron)?

One way or the other, let's not pretend that there is a universal "right to suck at the taxpayer teat" cloaked as a "right to health care." And let's certainly not pretend that the current system is a "private market" or that its shortcomings are a "market failure."

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*Note, however, the insolent lie that health care socialists use about how "we mandate that people have auto insurance." What "we" mandate in most states is that people have liability coverage, to prevent innocent third parties from incurring the costs of a motorist's negligence. But private health insurance is not analogous to liability coverage — it's analogous to collision coverage: insulating you from your own costs, not someone else's. I am not aware of any jurisdiction that requires motorists to carry collision coverage. In that sense — the only sense that matters — auto insurance is indeed a "truly private market." (As for the follow-up lie that health insurance is indeed analogous to liability coverage, because "we all pay for the uninsured" — see this post.)

Note also that "auto insurance" does not cover routine maintenance, and certainly not gas & tolls. Yet what we call "health care insurance" — which as Arnold Kling has noted is really "health cost insulation" — does include routine (and perhaps not so routine) "maintenance" expenses such as annual physicals, flu shots and disease tests. This removal of direct payment for direct service is yet another reason why health care expenses are rising disproportionately and why the current system is hardly a "truly private market."