Free Markets, Free People

On Deck: Universal Health Care (Updated)

According to Ezra Klein, the Obama administration intends to finagle universal health care coverage out of its budget proposal, including an individual mandate:

I’ve now been able to confirm with multiple senior administration sources that the health care proposal in Obama’s budget will have a mandate. Sort of.

Here’s how it will work, according to the officials I’ve spoken to. The budget’s health care section is not a detailed plan. Rather, it offers financing — though not all — and principles meant to guide the plan that Congress will author. The details will be decided by Congress in consultation with the administration.

One of those details is “universal” health care coverage.

Some of you may recall that Obama, while in campaign mode, consistently denied that he wanted to introduce mandates as part of his health care package. Paul Krugman cited that opposition as the major difference between Obama and Hillary Clinton:

Let’s talk about how the plans compare.

Both plans require that private insurers offer policies to everyone, regardless of medical history. Both also allow people to buy into government-offered insurance instead.

And both plans seek to make insurance affordable to lower-income Americans. The Clinton plan is, however, more explicit about affordability, promising to limit insurance costs as a percentage of family income. And it also seems to include more funds for subsidies.

But the big difference is mandates: the Clinton plan requires that everyone have insurance; the Obama plan doesn’t.

Mr. Obama claims that people will buy insurance if it becomes affordable. Unfortunately, the evidence says otherwise.

Now that he’s been elected it’s presto hope’n change-o, and voila! Mandates!

Ezra Klein notes that the difference between the pre- and post-election plans is based on one word in the budget — “universal”:

That word is important: The Obama campaign’s health care plan was not a universal health care plan. It was close to it. It subsidized coverage for millions of Americans and strengthened the employer-based system. The goal, as Obama described it, was to make coverage “affordable” and “available” to all Americans.

But it did not make coverage universal. Affordability can be achieved through subsidies. But without a mandate for individuals to purchase coverage or for the government to give it to them, there was no mechanism for universal coverage. It could get close, but estimates were that around 15 million Americans would remain uninsured. As Jon Cohn wrote at the time, “without a mandate, a substantial portion of Americans [will] remain uninsured.”

In essence, unless everyone is forced to buy insurance, there is no “universality,” and the benefits of large participation in the insurance pool cannot be realized. An even shorter version is, if healthier people opt out, then sicker people can’t sponge off them.

The budget — and I was cautioned that the wording “is changing hourly” — will direct Congress to “aim for universality.” That is a bolder goal than simple affordability, which can be achieved, at least in theory, through subsidies. Universality means everyone has coverage, not just the ability to access it. And that requires a mechanism to ensure that they seek it.

Administration officials have been very clear on what the inclusion of “universality” is meant to communicate to Congress. As one senior member of the health team said to me, “[The plan] will cover everybody. And I don’t see how you cover everybody without an individual mandate.” That language almost precisely echoes what Senate Finance Chairman Max Baucus said in an interview last summer. “I don’t see how you can get meaningful universal coverage without a mandate,” he told me. Last fall, he included an individual mandate in the first draft of his health care plan.

The administration’s strategy brings them into alignment with senators like Max Baucus. Though they’re not proposing an individual mandate in the budget, they are asking Congress to fulfill an objective that they expect will result in Congress proposing an individual mandate. And despite the controversy over the individual mandate in the campaign, they will support it. That, after all, is how you cover everybody.

So it looks like you better start scarfing down those cheeseburgers, eating transfats, smoking cigarettes, or whatever it is you do that’s not considered healthy, because once the federal government pays for health care (which is what individual mandates essentially works out to), then it also has the power to determine what “healthy” means. After all, since everyone will be pulling from the same health care pot, and since each claim on that pot diminishes what someone else can get, then each claim must be a legitimate one as weighed against all the competing interests. Because the viability of the system depends on healthy people making much fewer claims than sick people against the collective health care resources, the government now has a vested interest in making people healthier, whether they like it or not.

Another way to put it is that we will have entered a Pareto optimal world where no one can change their position for the better (i.e. receive more of the pooled benefits) without hurting someone else. Whereas in a competitive market system, each person can get at least as much health care as he or she wants to buy and can afford, in a Pareto optimal world, we are competing for the same scarce resources (health care dollars), and our claims are granted based on a a third party’s (the government’) determination of worthiness. No longer can we get what we can afford, we get a predetermined portion of what the government decides to pay for. That, of course, is why there are 6+ month waiting lists for routine health care in places like Canada and the UK.

Possibly the most depressing result of yoking America with universal health care, is that we can pretty much kiss medical and pharmaceutical innovation good bye.

Government run health centralizes the risks of exploring new technologies, medicines, techniques, etc. Centralized risk translates into (i) observing a very cautious approach to advances, and (ii) the politicization of research … From a purely capitalist point of view, opportunites that might have been pursued otherwise, are foregone since those who accept the risks of pursuing them do not get to maximize their reward, so instead those advances must come from the government. With government as the sole innovator, there are now two types of risk (1) the risk of failure (i.e. spending gobs of money on something that does not deliver as promised, or that costs significantly more than the benefit), and (2) the political risks (i.e. what politicians face for advocating spending on projects that either fail or that don’t disproportionately benefit favored voters). The result is that risk is increased overall, and fewer innovations are realized.

America is pretty much the last industrialized nation to still have a (semi) private health care system, which should be understood to include the pharmaceutical industry (as a supplier of that health care system). What would happen to the growth and advances we’ve realized over the past few decades if (when?) we adopt universal health care? Where will the innovation come from? Who will take the risks? Without the proper incentives, and indeed with some of the worst possible incentives as the only driving force to creation, I fear that the scientific and medical Atlas will shrug.

I don’t mean to say that there will be no breakthroughs ever again, but the pace will be slowed dramatically. That’s because, one the government is in charge of paying for health care, it will also be in charge of paying for medicines. As we’ve already seen around the world, drug companies will be forced to sell their wares for much less than the (legal) monopoly prices they charge now. The result, therefore, will be much less risky and expensive research into new drugs that may never come to market, and much more emphasis on improving old drugs so as to continue to pay for further research.

Surely the federal government will pony up money for research into some diseases. But then the government will be in charge of picking winners and losers when it comes to whose diseases will get cures and whose won’t. To imagine what this would look like, just think back to how AIDS and breast cancer research dollars were successfully lobbied for, despite neither affecting anywhere near as many people as other deadly diseases.

In the end we will be left with less individual freedom, worse health care, and fewer prospects for any improvement in either. That is not the change I was hoping for.

UPDATE: Tom Maguire helpfully reminds us of how the health care debate progressed during the Democratic primary season:

For folks whose memories have blessedly erased any recollection of the endless Democratic candidates debates, let me toss in a brief reminder. Obama claimed that he would offer health insurance subsidies so generous that most folks would volunteer to sign up. Hillary mocked that, insisting that the young and healthy would decline to subsidize the rest of us, especially since they could not subsequently be denied coverage on the basis of pre-existing conditions; her plan included a mandate obliging everyone to buy health insurance, like it or not (as in Massachusetts). Hillary then diligently ducked the “or else” question of what penalties she would inflict on the young, helathy and recalcitrant who would prefer to hold off on buying insurance until they were sick. As a nostalgia piece here is a link to a lefty wondering why his party was so committed to forcing young, healthy members of the working class to subsidize the rest of us on health care; that seems like a good question but I am long resigned to not being smart enough to be a lefty.

Aww, Tom. You’re plenty smart enough. Just not angry, bitter or jealous enough.

As for the “or else” question, Obama and the Congress won’t be able to duck that one. I can only imagine what sort of sword they intend to dangle of recalcitrant ,comrades citizens who refuse to sign up for the program.

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6 Responses to On Deck: Universal Health Care (Updated)

  • Not to worry: once TAO and the trash have control of the health care system, they will immediately unleash the power of embryonic stem cells.  The crippled will walk, the blind will see, the deaf will hear, oceans will recede… Er, well, stem cells probably won’t do that ocean thing, but they’ll cure everything else.  No disease, no costs. QED.

    / sarc

  • This could be the straw that has me seriously looking at living abroad…I know a guy who knows a guy who has a map to Galt’s Gultch. 

  • Oh, jeez. So I’ve been researching health care plans for quite awhile now, and I am just about ready to change my insurer and set up an HSA. Would Obama’s plan let people keep what they already have, or would we likely have to dump our current plans and change to some government plan (which means that private health insurance will disappear)? If there’s a chance that we can be grandfathered in with coverage that we already have, then I’d like to change immediately so I can have what I want. If there’s no chance, then I may as well sit tight and wait to see what happens. Of course, if a miracle happens and mandated government healthcare does not make it into law, waiting would mean that in the interim I would lose the savings I am looking forward to accumulating with an HSA. Any advice would be quite welcome, if anyone here would care to speculate.

  • We are screwed.  We really are.  Michael seems almost blase about it and so do many people I know.  This isn’t going to be some subtle shift in the provision of health care.  It will fundamentally change our health.  Despite liberal propaganda, the pharmaceutical industry really has created unprecedented benefit for the American people.  Statins really do reduce the frequency and mortality of heart attacks.  State of the art arthritis medicines really do allow people to live close to normal lives.  Medical devices like the arthoscope and heart stints really have improved the efficacy of many surgeries.  Magnetic Resonance Imaging and Computer Tomography allow doctors to make more accurate diagnoses thatn ever before.  They even have CT Angiograms now so that heart patiets don’t need to have a probe placed into their heart.

    None of these innovations would have occurred without the United States’ semi-market based health care system.  We are about o embark on a nightmare where the government will allocate care based on who has the most organized political organization.  AIDS v. prostate cancer, etc.  If you are in your 50’s and need kidney dialysis in England, the NHS will advise you to get your affairs in order because you aren’t getting dialysis.  Doe anyne remember the 14,000 deaths during the heat wave in France several years ago.  The ambulance services were on vacation in August and there weren’t enough personnel to give aid to the elderly.  I know that many people know that but htyejust seem not to care anymore. 

    I am getting sick of all the talk about Obama’s declining approval rating and the Republican re-gaining their footing and tax payer revolts.  Obama has gotten everything he wanted so far and nothing will stop him.  And I think that a Republican majority in Congress is a pipe dream.  It ain’t gonna happen.  I am afraid that conservatives are a little like Monty Python’s Black Knight.  They can’t stop the onslaught.   

  • The cost for the “universal” health care system is set at $200 Billion.  That assumes the cost is only for the unfortunate few who do not have health care coverage today.  Why should business provide health care for its employees as a benefit when the nation provides “universal” health care.  One of the outgrowths of this is the elimination of health care as part of any corporate benefit plan.  And how does the government plan to stop this from happening?  Penalty taxes on businesses that eliminate health care as a benefit?  And for the busiess side of the equation – Six months before this so-called “universal” health care takes effect, businesses across the nation will be droppping health care so they will not be accused of knee jerking to the legislation.

  • I am getting sick of all the talk about Obama’s declining approval rating and the Republican re-gaining their footing and tax payer revolts.  Obama has gotten everything he wanted so far and nothing will stop him.  And I think that a Republican majority in Congress is a pipe dream.