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Free-Market Health Care
Posted by: Dale Franks on Tuesday, July 17, 2007

One of the things that advocates of a state-run health care system argue is that the US health care system is an example of market failure. The free market, they argue, simply doesn't provide health care at a reasonable price, so it leaves too many people uninsured.

The one really difficult thing to get many people to understand is that the US doesn't actually have a free-market health care system. What the US has is an assortment of private and public third-party payers.

Briefly, a free-market would be where the consumer of health care purchases his own insurance, and rations his own care. Instead, in the US, health coverage is mainly provided by employers, who, even in smaller companies, must pay the majority of the premium for health care coverage, and for the elderly and poor, Medicare and Medicaid. Overlaid on that, is a smaller number of people, like the self-employed, who provide their own health care coverage. One should also note that, since employee health care premiums are tax-deductible for employers, the government in effect subsidizes those costs.

For the most part, though, we do not have a system where consumers purchase and consume their own health care coverage. In short, health care consumers spend other people's money on themselves.

For the consumer, there is no incentive, therefore, to cut costs, or to ration one's own care. The dominant incentive in the US health care system is to consume health care without regard to the cost. Naturally, this leads both to over-utilization of health care, and the consequent price rises that follow such over-utilization.

That simply isn't a rational system.

A free-market health care system would, first and foremost, get employers out of the business of providing health insurance.

Instead, each individual could choose to purchase whatever health coverage he desired. The cost of that health coverage would then be treated as a tax credit—not a deduction—so that the individual would essentially be reimbursed for the cost by the government by subtracting it from his tax bill. In cases where the amount paid for health coverage is greater than the amount of taxes owed, the government would refund the difference, just as they do with any other tax credit. For the poor, the government would simply issue vouchers to cover the cost of the health plan chosen by the individual.

This would make health care portable, and would eliminate many people from the "uninsured" rolls. Of the 45 million or so who are uninsured at any given time, about 25 million of them are uninsured because they are between jobs.

Moreover, because the plan works on reimbursement via tax credit, the consumer has to make the initial spending decision, and spend the money. This provides an incentive to economize on health care decisions. Additionally, because companies no longer have to pay for health coverage, that money can be provided to employees as salary, which would remain tax-deductible, and therefore cause no change in the cost of employment.

It seems to me that if you're so all-fired certain that the government needs to pay for health care, a system like this would work far better than any single-payer health care system you can point to. The government would remain the "payer" of last resort, through reducing individual income taxes. The actual purchases and consumption, however, would be in the hands of the consumers.

UPDATE [McQ]
: Synchronicity. John Stossel on health care.
 
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Previous Comments to this Post 

Comments
"...in the US, health coverage is mainly provided by employers, who, even in smaller companies, must pay the majority of the premium for health care coverage,..."
Trace this for them, Dale. Some people — to the extent that they can be reached with facts and what they mean — will need to be led by the nose. The responsibility for this state of affairs goes straight to that horrendous lie known as "collective bargaining", which was enforced by government.

I think you can understand that this fact kicks open a whole new barrel of snakes.

That’s how complex is this disaster.
"Instead, each individual could choose to purchase whatever health coverage he desired. The cost of that health coverage would then be treated as a tax credit..."
Okay: I’ll be the meanie here: how about "each individual could choose to purchase whatever health coverage he could afford"? There. That’s in accord with actual economic fact, whether any two-bit tit-sucker around here likes it or not.

Look: a crucial reason why health care is so expensive now is that the "resources" open to a government whose only limit is peoples’ tolerance for theft have bid the service (the economic good) that we’re talking about right out of the reach of people (individuals) who can’t wield the same power at stealing enough money to meet the government’s bid.

One extremely instructive aspect of this is that the advance of technology in medicine is just about precisely opposite just about every other advance in technology throughout the twentieth century when it comes to prices. Here’s a dare, to illustrate: I dare anyone here to save their pennies, and try to buy and install an MRI machine. Go right ahead and see what happens.

Only a government can distort market dynamics like we see in medicine, now.

And mark this: the number of people in this very forum capable of looking only less than a half-century over their shoulders into history and understanding that there was no such thing as a "health care crisis" in this country before Lyndon Baines Johnson is politically infinitesimal that they might as well not exist.

We live in a nation of morons, Dale. And they are going to have their way with this.

The tragedy is going to be completely inestimable.
 
Written By: Billy Beck
URL: http://www.two—four.net/weblog.php
Now deal with presciptions drugs, bypass surgery, transplants, diabetes medication, dialysis; can that paln which you afford, pay for these. Unfortunately those procedures are not catastropic occurances any more.
 
Written By: VRB
URL: http://hathor-sekhmet.blogspot.com
To the post:
reimbursement via tax credit ... provides an incentive to economize on health care decisions
You’ll get better economization if the govt provides a flat fixed amount and you are permitted to pocket the difference. Here, the incentive is still to spend as much as possible.

To VRB:
Catastrophic coverage = high deductible. Which means if your annual total out of pocket expenses exceed some number X (e.g., 3,000 or 5,000) then insurance kicks in (depending on the coverage sometimes covering 100% at that point). Conceptually, this works great with HSAs which allows you to save any amount of money you don’t apply towards your deductible in a tax free interest bearing (read as compounding) account. Sorta like an IRA for health expenses. Empirically, I don’t know of any studies, but they’ve only been around for a few years and never get discussed in the media.
 
Written By: Jody
URL: http://
VRB, I’ll tackle that one.

First off, we have health insulation, not health insurance. When my water heater goes on the fritz, I don’t use my home owner’s insurance to pay for it. Hell, my AC could go out, and that’s thousands of dollars to repair, and again I don’t use my house’s insurance policy.

Now, if a tree falls on my house or a hurricane rips off a few walls (likely since I live in Florida), then I use my insurance.

Health care should be the same way. When I’m sick, $40 to see the doc should come out of my pocket and that’s it. I know for a fact that you can pay less to a doctor or dentist for routine procedures if you don’t have insurance. I’ve watched a doctor’s assistant charge a lady $30 for a visit, but I paid $40 in co-pay and the bastard got $100 more from my insurance.

Now, at $30 or less, too many people go to the doctor for the most ridiculous reasons. My wife does it with my children. The slightest sniffle is an appt. because "insurance covers it". Get insurance out of regular health care and watch the prices drop to where even the poor can afford it.

As for health insurance, I think that since the pooled risk drops significantly (there is a 100% chance everyone will go to the doctor for a cold but only 3% that they’re going to need a heart transplant), prices will drop accordingly.
 
Written By: Robb Allen
URL: http://blog.robballen.com
The actual number of uninsured is far lower than universal health care supporters would have everyone think (about 20% of the population, IIRC). Of this number, this vast majority choose not to elect insurance coverage.

Why? They don’t get sick very often! Isn’t this a choice healthy people should be able to make, and doesn’t it encourage better behavior?
 
Written By: FA
URL: http://
I agree it’s a reasonable idea to offer a medical tax deduction on terms just as favorable to the individual as they currently are to employers, thereby making each employer’s decision to offer or not offer benefits (or, if offered the choice, the employee’s decision whether to accept a higher wage in lieu of benefits), tax-neutral. I don’t think it makes sense to go beyond that, however. Offering a tax credit would completely kill all existing incentives to keep costs under control. Why should I care if my doctor is charging me $200 for services worth $100, if I’m getting it all back from the government, anyway?
 
Written By: Xrlq
URL: http://xrlq.com/
Dale, you’re exactly right about not having a free market in healthcare, and the distortions that this casuses. We do, though, have at least one area in medicine where we do see the market in effect.

Laser eye surgery is typically not covered by insurance, so consumers pay out of pocket. It’s still not cheap, but the price has come down dramatically in recent years, as more practitioners have come into the market to meet the demand. Different providers compete directly for patients, with their prices and experience being two of the major selling points they use. I heard a radio ad yesterday for Lasik at $995/eye. My wife had it done this past year and paid more than that, because she was referred to a practitioner she trusted. How nice, though, to have that choice, instead of being forced to see whoever your insurance company tells you you have to see.
 
Written By: Wiz
URL: http://
We do, though, have at least one area in medicine where we do see the market in effect.

Laser eye surgery...
That’s a good example. There’s also cosmetic surgery. Lots of innovation there. I saw my first Tablet PC in a doctor’s office at my wife’s skin doctor.
 
Written By: Billy Hollis
URL: http://
I’m skeptical of the incentive to economize with 100 percent reimbursement. I think whatever marginal incentive there is declines as income increases, so I doubt you’d see cost savings overall.

But that’s okay with me, because I don’t believe we should be trying to reduce the amount of health care people receive. That’s the wrong way to control costs. Frankly, I’d vote for this health care plan.

Of course, the massive decline in government spending would have to be neutralized by a sharp increase in taxes somewhere else. Thanks to Republicans, that’s impossible. So this plan can never be politically viable. Too bad.

Also, this plan would make health insurance, as an industry, extinct. Which is fine by me. Because that’s where the real problem lies. But it’s another reason why the plan won’t get off the ground.
 
Written By: glasnost
URL: http://
The responsibility for this state of affairs goes straight to that horrendous lie known as "collective bargaining", which was enforced by government.
With about 15% of the workforce under collective bargaining agreements, I would have to argue that this is just false. I’m management, I have a healthcare plan, I never collectively bargained for it, but free market competition for my services obviously drove the decision of my company to offer healthcare coverage. No government mandate, except possibly that because of the beneficial tax treatment, $10000 in healthcare coverage is a better investment than $10000 in salary.
how about "each individual could choose to purchase whatever health coverage he could afford"? There. That’s in accord with actual economic fact, whether any two-bit tit-sucker around here likes it or not.
You are correct, but then you say this...
We live in a nation of morons, Dale. And they are going to have their way with this.

The tragedy is going to be completely inestimable.
So you KNOW, like I do, that this is GOING TO HAPPEN, but you refuse to try and have any influence whatsoever in what it looks like, handing the entire policy decision off, and just preparing yourself to whine about the outcome.

To me, this is akin to refusing to carry an umbrella because you don’t WANT it to rain.

I don’t agree with Dale’s recommendation, though I do like elements of it, and I appreciate the spirit of recognition of the inevitability, and desire to impact the policy. And this type of involvement CAN impact the policy, and help to make as good as it can be.

I don’t like the idea of healthcare as a RIGHT, I don’t see it, and I don’t want it, but my opinion is a stark minority. So I am reacting to the facts as they are, healthcare is going to become a right, and I want to make the policy as sound as it can be under that notion, as Dale appears to be doing.

Cap
 
Written By: Captin Sarcastic
URL: http://
"With about 15% of the workforce under collective bargaining agreements, I would have to argue that this is just false."
And how long has that been a fact?

Pay attention to history and its consequences.
"So you KNOW, like I do, that this is GOING TO HAPPEN,..."
...because of people like you.
"To me, this is akin to refusing to carry an umbrella because you don’t WANT it to rain."
We’re not talking about an immutable metaphysical phenomenon, sonny. We’re talking about the conscious decisions of human beings, which are going to be implemented in stark defiance of facts. (Look: Dale’s experience with that Klein twit and his commenters ought to make the point.)
"I don’t like the idea of healthcare as a RIGHT, I don’t see it, and I don’t want it, but my opinion is a stark minority. So I am reacting to the facts as they are,..."
I believe you’re lying with this pose of yours, and I always have.

 
Written By: Billy Beck
URL: http://www.two—four.net/weblog.php
Pay attention to history and its consequences.
The beginning of a prevalance of employer provided healthcare has little to with unions, and more to do with the post WWII economic boom, coupled with government attempts to stave off inflation though price controls and wage freezes. Employers in a hot market looked for ways to offer more, when they could offer no more salary, and healthcare was one way this was done. Another factor was the tax benefits given to healthcare spending by companies.

Healthcare was cheap and inconsequential when unions had power.

Maybe you should read some accurate history.
...because of people like you.
If it was up to people like me, we would never have gotten to the point that 50% of healthcare costs were passed through the government, but believe what you want, you still acknowledge that this is inevitable, and still refuse to acknowledge that although it is going to happen, someone ought to try to make it as good as it can be within the constraints of it "happening".
We’re not talking about an immutable metaphysical phenomenon, sonny. We’re talking about the conscious decisions of human beings, which are going to be implemented in stark defiance of facts.
In either case, we are talking about something that is GOING to happen, which you have acknowledged yourself. And whether this is going to happen in "stark defiance of the facts" or not, knowing that it is indeed going to happen, you have choices, and you appear to have made yours, ignore the inevitable, and leave the actual creation of the policy to others, with no one representing your ideals. In other words, you see the rain, but in your pointless wish for it not to be raining, you refuse to pick up the umbrella.

What’s funny is that I WANT you influence how this comes out and you don’t want to. I know you can’t influence WHETHER it comes out, but I would like to your concerns acknowledged and addressed to the extent possible.
I believe you’re lying with this pose of yours, and I always have.
You can believe what you want. Mindreading is a convenient diversion.

How many fingers am I holding up?





 
Written By: Captin Sarcastic
URL: http://
Well gee, I should have read this before I commented in the last health care thread. This actually makes sense as an alternative, far more than what I was thinking, which was some kind of partnership by the health care industry and insurance companies to design a way to provide basic insurance to those who need it but can’t afford it. It has simplicity and deals with the problem without creating a big government bureaucracy. But I think I’m missing something.

I’m not sure what the incentive is to economize — is it just he delay between spending the money and getting tax credit? Rationally, I’d see this (and if I misunderstand it, I apologize) as license to get the most cadillac insurance I could knowing it was free. And if insurance companies know that essentially customers are getting it free, where is their incentive to keep prices down? But glasnost says this would make the health insurance industry extinct, so I must really be missing something important here..
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
To reiterate: I read this again and for some reason I’m starting to think it gets rid of market forces by having the health insurance free of charge and no incentives for insurance companies to compete. What am I missing!!!!????

DALE RESPONDS: Well, you have to pay for your full year’s health insurance premiums before you get it lopped off your taxes in April.

For the most part, the government isn’t paying you anything. All the government is doing is relieving some of your tax burden on April 15th, and maybe paying you a hefty refund if you have lower income.

But for the rest of the year, the money is coming out of your pocket.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
Dale, I have trouble seeing how the economics of this will be effective. The government is basically giving free, unlimited coverage with only the time frame between getting the tax credit and having to pay for coverage creating an incentive to economize. I think that will disrupt market forces significantly, and insurance companies will find ways to structure payment and make it easier for people to afford higher priced policies. A better way would be to have a specific amount provided with the proviso you only get this money if you buy a policy, you have to pay more if you buy a pricey policy (e.g., private rooms, no copays, etc.) and if you find a cheaper policy you can get a refund. There would probably have to be some other limits on what the government will fund (if you don’t get a policy with basic minimum coverage you won’t get the allowance). That gets the government more involved, but supply and demand won’t work well if it’s a nearly unlimited freebie from the government — I don’t think the time lag is enough to make it rational to economize, especially if you have high income. I’m still not certain I understand how this will work; I like the idea better than creating a new bureaucracy, but the devil is in the details.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
Note to "Captain Sarcastic"

Even on a pragmatic basis, openly admitting the inevitability of something puts you in the worst possible position to affect it. Only intransigence gives any leverage at all.

Not that I care, of course. But it’s amusing to see all these pocket Machiavellians getting even the basics of selling out all wrong.
 
Written By: John Sabotta
URL: www.superbad.com
’The beginning of a prevalance of employer provided healthcare has little to with unions, and more to do with the post WWII economic boom, coupled with government attempts to stave off inflation though price controls and wage freezes."
You know, I can often stand an ignoramus, but determined and willful stupidity is going to just burn me down every single time.

Now, pay attention, and you might learn something: what were known as "non-wage benefits" started for real during WW II because the War Labor Board was arbitrarily controlling the price of labor. You can read a bit about this here, at the Labor Department’s own website. Scroll down about a third of the way. You might do a word-search for "W. W. Cross".

You might learn something at this page, by the International Foundation of Employee Benefit Plans.

Or this:

"The institutional, political, and economic power of the labor movement enabled unions to negotiate strong contracts for their members that led to a dramatic increase in the standard of living for millions of American workers. Unions convinced employers in major industries to increase wages as productivity rose and to adopt Cost of Living Adjustments (COLAs) that raised workers’ wages automatically as prices increased. The first contracts that included fringe benefits, such as employer contributions to pension funds and health insurance, also appeared in the 1950s."

(Colman’s history, published by the Iowa Federation of Labor, AFL-CIO)

Or this:

"The theme of welfare capitalism enabling firms and insurance companies to stave off union and state regulatory intervention is prominent in chapters 5 and 6. Chapter 5 discusses several successful government health programs, such as the Emergency Maternal and Infant Care (EMIC) program that provided health care to millions of wives of lower-pay-grade enlisted men and their newborns. Proponents for universal health coverage also continued their efforts with the introduction of the Wagner-Murray-Dingell bill in 1943. Unions were also actively promoting health programs outside the realm of commercial insurance. Thus, in the face of these challenges, Klein argues that insurance companies and employers came together to survive. As Klein states, ’... for employers, the unilateral purchase of commercial group insurance proved the key to containing union power and union political goals’ (p. 221)."

(book review: "For All These Rights: Business, Labor, and the Shaping of America’s Public-Private Welfare State")

I could do this all day long.

You’re not only wrong, you’re obviously wrong. Look: you talk about the post-war economic boom, which is a fact. What seems to have slipped your mind is the post-war wave of strikes in this country as unions moved to consolidate and gain ground against industry. What used to be known as "fringe benefits" were an enormous part of this whole fight.

I know the history, and you don’t, so save your advice.

Idiot.
 
Written By: Billy Beck
URL: http://www.two—four.net/weblog.php
OK. I’ll bite. Then amend the plan so that government offers a fixed tax credit to pay for a catastrophic care policy. Anything else is up to the individual.
 
Written By: Dale Franks
URL: http://www.qando.net
Dale? As long as you’re interested to argue tax policy, then why not go all the way and come out for leaving at least that much money to people who produce and own it instead of attempting to stand on the non-principle of a "tax credit"?
 
Written By: Billy Beck
URL: http://www.two—four.net/weblog.php
I think my opinions on the income tax are fairly well established. As it happens, though, I’m not arguing tax policy at the moment.
 
Written By: Dale Franks
URL: http://www.qando.net
Perhaps not, but the two do seem rather interdependent. Where, after all, are these credits going to be coming from? Such credits, to my mind, are yet another implementation of redistributionist policy.

I doubt it’s just me but.. (Shrug)

 
Written By: Bithead
URL: http://bitsblog.florack.us
Even on a pragmatic basis, openly admitting the inevitability of something puts you in the worst possible position to affect it. Only intransigence gives any leverage at all.

Not that I care, of course. But it’s amusing to see all these pocket Machiavellians getting even the basics of selling out all wrong.
Nothing Machiavellian about it, I WANT THIS to happen, I just didn’t want everything that has happened to date to put me in the position of having to choose national healthcare over the nightmare that I opposed all along.

I don’t know how to best explain this, but it comes down my view that the incremental encroachment of government into healthcare has put us in the position that we can’t reverse, we can’t continue with the status quo, so the best way to move forward is to embrace the horror.

Intransigence on elements of the policy is where the leverage lies, but intransigence on whether it is enacted, when you know it’s going to happen, is just abidicating oneself from the process of formulating the policy.

It’s entertaining that I have been called a liar who is feigning a position, and then have been called a pocket Machiavellian for selling out improperly.

 
Written By: Captin Sarcastic
URL: http://
I know the history, and you don’t, so save your advice.
You CLAIM to know the history, but your ideology precludes objective analysis, so you look for any way to blame labor unions, and attach yourself like a dog to a leg to anything that you can rationalize as supported your pre-existing opinion.

If you were capable of objectively assessing the history, you would recognize that unions bargaining for health insurance FOLLOWED the trend of employers OFFERING health insurance as a benefit. From the article YOU posted...
The first contracts that included fringe benefits, such as employer contributions to pension funds and health insurance, also appeared in the 1950s.
And unions have seen there power and influence eroded by pro-business legislation ever since, to the point now where only 15% of America’s workers are union members.

If you want to say that unions influenced businesses to offer benefits to non-union workers, I would generally agree, unions have influenced employers across the board, but with healthcare, unions were the followers of the trend, not the trendsetters (or causal factor) of employer offered health insurance benefits.
Idiot.
Is that your signature?
 
Written By: Captin Sarcastic
URL: http://

 
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