Monday, July 06, 2009

Real Healthcare Reform: Competition and Choice

The choice facing us now is not between Obama's plan for healthcare micromanaged by the government or doing nothing. Rather, it is a choice between government control, regulation and rationing on one hand, and free markets, choice and competition on the other. That is the real healthcare debate.

So what exactly would a free-market approach to reform look like? Quite simply, it relies on those time-tested building blocks of marketplace efficiency: competition and choice.

1. We need to move away from a system dominated by employer-provided health insurance and instead make health insurance personal and portable, controlled by the individual rather than government or an employer. Employment-based insurance hides much of the true cost of healthcare to consumers, thereby encouraging overconsumption. It also limits consumer choice, because employers get the final say in what type of insurance a worker will receive.

2. Changing from employer-provided to individually purchased insurance requires changing the tax treatment of health insurance. The current system excludes the value of employer-provided insurance from a worker's taxable income. However, a worker purchasing health insurance on his own must do so with after-tax dollars. This provides a significant financial reward for those who have employer-provided insurance. That should be reversed.

3. The other part of effective healthcare reform involves increasing competition among both insurers and health providers. Current regulations establish monopolies and cartels in both industries. Today, for example, people can't purchase health insurance across state lines. And because different states have very different regulations and mandates, costs can vary widely depending on where you live.

4. We also need to rethink medical licensing laws to encourage greater competition among providers. Nurse practitioners, physician assistants, midwives and other non-physician practitioners should have far greater ability to treat patients. We also should be encouraging such innovations in delivery as medical clinics in retail outlets.

~Michael Tanner, senior fellow at the Cato Institute, in the Sunday Los Angeles Times

HT: NCPA

21 Comments:

At 7/06/2009 9:37 AM, Anonymous Tom Herme said...

Although I don't disagree with any of these recommendations, I'll put my self-interest hat on and ask, "What's in it for me"? I receive employer-provided health insurance that costs me $2,400 a year (employer pays about $11,000). Some portion of it is taxable to me. Why should I voluntarily give up that benefit?

 
At 7/06/2009 9:54 AM, Blogger 1 said...

"We need to move away from a system dominated by employer-provided health insurance and instead make health insurance personal and portable, controlled by the individual rather than government or an employer"...

Well first Michael Tanner could use a recent history refresher course...

Do people remember wage & price caps introduced by the Nixon administration?

In lieu of higher wages benefits which weren't covered in the caps were what many employers had as an incentive for people to work for them...

How about the history of HMOs?

Let's NOT forget the HMO Act of 1973...

Congress has basically been the body of government depriving people of easily available health insurance...

If we want real healthcare refore we first need to REFORM Congress...

 
At 7/06/2009 10:00 AM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 7/06/2009 10:12 AM, Anonymous gettingrational said...

I strongly disagree with pt. #4. Nurse practioners and others go to far in giving opinions not based on training or experience. The answer is more doctors in general practice. How we get more doctors into general or family practice will increase quality healthcare not pretend our way into incompetence.

 
At 7/06/2009 10:52 AM, Blogger Robert said...

May I say that it's not "employer provided" healthcare. The employee pays for it with the sweat of his brow, just as he pays for his salary.

It's not a gift. Not by a long shot.

 
At 7/06/2009 11:05 AM, Blogger Colin said...

Re: Employer-provided health care

* If employers didn't have to pay for your health care they would have more money to pay you in salary.

* With the extra money you could buy your own health insurance, one that more reflects your needs and wouldn't be tied to your job.

* If individuals bought insurance instead of companies it stands to reason that they would be a wider variety of products for all of the individual needs rather than the collective needs of a group of employees.

* Hopefully the elimination of the tax deduction would promote less usage of insurance and more fee for service. Competition would help drive down bureaucracy that comes with insurance and prices, thus expanding affordability. In health care that doesn't use insurance, such as Lasik, we see little inflation and improved quality.

 
At 7/06/2009 11:58 AM, Blogger rufus said...

Setting insurance premiums is all about "Adverse Selection." If you haven't spent a lot of time thinking about Adverse Selection you are Not qualified to opine on health care options.

As a "Society" we have to think about "guaranteed coverage." This gets you into the realm of "pre-existing" conditions.

This is why you always end up with "Mandates."

Large Group Policies can cover "Pre-existing" conditions because coverage is "Mandated" for ALL employees.

 
At 7/06/2009 12:24 PM, Blogger 1 said...

"As a "Society" we have to think about "guaranteed coverage.""...

Why?

Alice in Obama Medical Care Land
by Thomas Sowell (June 30, 2009)

 
At 7/06/2009 12:54 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 7/06/2009 1:58 PM, Anonymous Anonymous said...

Milton Friedman had a great analogy when talking about employer-provided healthcare insurance, when he asked rhetorically why employers don’t pay for employees groceries in the same manner.

Take Friedman's analogy a step further and think about what the world would look like if employers paid for employee's groceries and were given an incentive to do so by the tax code. As a result of this system, all employees had to pay was a modest monthly fee and a $15 copay for every visit to the grocery store... What would the world look like?

Imagine what your trips would look like at the grocery store if all you were required to pay was a $15 copay. Here is my (non-economist) super-simple and short version of what the world might look like...

1. With no incentive to pinch pennies, there would be rampant waste. You would buy much more than you needed on a trip to the store and not worry about what got wasted or spoiled.

2. Almost overnight, the market for low cost substitutes would disappear. Everyone would demand the highest cost or most prestigious brand. Goodbye generic Hamburger helper, hello filet mignon, lobster, and caviar. Some manufacturers/producers would be incentivized under this system to price (or over-price) their products to convey some form of prestige where they could.

3. Of the more expensive foodstuffs that remain, the cost would rise to an exorbitant level, as consumer demand would be based on that $15 copay price. The rising prices would end up getting passed along to businesses.

4. Because of this new food crisis, the government would decide that it needs to get involved to resolve this “failure of markets.” Not sure what the form of it would take, but they have two basic options here: either some method to ration the existing supply for consumers or fix the prices that suppliers would be able to charge. For suppliers, the net result would likely be some suppliers exiting the business or cheating the system (ie finding a way to package ground chuck as filet mignon…not sure how that would be possible, but I’m sure a cheater could find a way.). For consumers, the net result is, you might only pay $15 on your visit to the grocery store, but you now have a much smaller list of choices (no substitutes), and you ultimately have the government telling you what groceries you can buy and how much….

That sounds eerily familiar to the predicament that we find ourselves in today. The Healthcare system is widely regarded a failure of markets when the exact opposite is the case…

 
At 7/06/2009 4:06 PM, Blogger Robert Miller said...

This comment has been removed by the author.

 
At 7/06/2009 5:11 PM, Blogger rufus said...

1, a whole subclass of people are developing that Can Not Get, or afford, Health Insurance.

BUT, they CAN, and DO, Vote.

The Dems have The White House, the House of Representatives, and SIXTY Votes in the Senate.

And, they ran on "Health Care."

Wake Up, Bubba; you're Gonna Get "Health Care." The ONLY question is, will you be part of the Solution, or will you stand in the corners yelling, and spitting?

 
At 7/06/2009 5:52 PM, Anonymous Anonymous said...

The Dems have The White House, the House of Representatives, and SIXTY Votes in the Senate. And, they ran on "Health Care."

The last time they had the White House, the Senate, and the House and ran on Health Care they lost both houses of Congress in the next election.

The Democrats had only 56 Senate seats in 1993 but those 4 seats didn't matter. The Democrats didn't get enough support from their own party to pass any bill or amendment much less avoid a filibuster.

"anyone who thinks [the Clinton health care plan] can work in the real world as presently written isn't living in it." - Daniel Patrick Moynahan (D-NY)

Watch and enjoy "health care" crash and burn, Rufus.

Don't make us bring back Harry and Louise to kick your @$$ again.

 
At 7/06/2009 6:02 PM, Anonymous Cheech (in) Marin said...

Regarding health care:

"I learned some valuable lessons about the legislative process, the importance of bipartisan cooperation and the wisdom of taking small steps to get a big job done." - Hillary Clinton

Obama is too arrogant and inexperienced to figure this out for himself. Junior is soon going to get some experience and find some humility.

He'll either fail and look like a whimpish tyro or succeed and bear the blame for the destruction of our health care system. Either way he and his party will pay the price.

You break it, you bought it.

 
At 7/06/2009 10:54 PM, Anonymous Anonymous said...

Tom,
If you were able to obtain health insurance for something less than 13,400 then you should come out ahead and be able to pocket the difference in the form of higher wages (as 11,000 is a form of compensation).

 
At 7/07/2009 6:46 AM, Anonymous Ian Random said...

I am really interested in better individual choice than we have now. My employer pays a fortune for my wife and I in the traditional plan. I want to switch to the HSA plan, but my out of pocket is worse than staying with the low copay one. I suspect that high deductibles are not priced efficiently by the market yet. I remember a story about a major insurer gouging high deductible folks to subsidize the traditional plans as an example.

 
At 7/07/2009 11:50 AM, Anonymous Anonymous said...

As a famous, anonymous philosopher once said, “Never trust economists who dance the salsa.”

But the optimal choice of the quantity, quality, and type of health care or health insurance you want is in great doubt.
Is it? Or is this a result of your look only at the current system with perverse incentives. Making optimal choices is not even in the realm of possibility with our current system. We have neither the information or choices available nor the incentive to event attempt to make optimal decisions. What is optimal for me is to consume and demand as much as I can, because I’m not paying for it, my employer is. Seriously, you can find a consumer ranking of the toaster that you want to buy, but nothing about the hospital about where you might have heart surgery. You also can’t look up the pricing of heart surgeries on Nextag to see who offers the best price. I might be blurring the lines between the effects of the “medical cartel,” as you describe it, and the third party system, but both are problems.

First, you're conflating "health care" and "health insurance".
I don’t think so. Tough to distinguish between the two. Health insurance is not insurance in the ordinary sense. Unlike life insurance or homeowner’s insurance, health insurance ends up defining some of my healthcare consumption. It is some hybrid of insurance and a basket of healthcare consumption offered at a monthly contracted price and pay per visit. It is really not unlike paying for groceries by paying a fixed cost and a per visit fee, but you throw in an unexpected, random banquet for scores of people that may or may not occur during your lifetime. Health insurance might also be described as something akin to homeowner’s insurance that also provided visits to Lowes for a per visit fee (Sorry, I like analogies.)

Second, at the time when you believe you might have an ailment or injury requiring health care, most people lack the knowledge to make an informed decision on the quality, quantity, and type of health care to consume.
This is absolutely a result of the current system and its limitations not some inherent characteristic of healthcare as a good or service. There is absolutely no incentive to be informed, not to mention that the kind of information that you need to make an informed decision is difficult to come by. Being a good healthcare consumer in our world, means finding an employer who is willing to foot the bill for you to consume as much as you want/like, finding a doctor who you think is a good doctor based on intuition, and then following that doctors orders.

So neither health care nor health insurance is similar to "groceries" in their manner of consumption. You are right, but this is not because the goods are that dissimilar. It’s because the systems that delivers these goods and services are much different. One is consumed directly by the person paying the bill, and the other is consumed on a third party’s dime. Almost all of the key differences that you are pointing out are a direct result of this disparity between the method for delivering the goods and services. On a free market scale, the gulf between Healthcare and groceries is vast; that is their key difference.

Rising health care costs can be completely explained by medical cartels, new procedures and drugs, the increasing age of the population, expanded coverage by government, expanded coverage by employers who are competing amongst themselves.
Medical cartels, yes I agree with everything that you have said on this in recent posts. The other items that you have cited, particularly new procedures and drugs, aging population, etc….those are symptoms. Their great cause is the third party payment system.

...cont'd on next post.

 
At 7/07/2009 11:55 AM, Anonymous Anonymous said...

Try again...last one tough to read...

As a famous, anonymous philosopher once said, “Never trust economists who dance the salsa.”

But the optimal choice of the quantity, quality, and type of health care or health insurance you want is in great doubt.
Is it? Or is this a result of your look only at the current system with perverse incentives. Making optimal choices is not even in the realm of possibility with our current system. We have neither the information or choices available nor the incentive to event attempt to make optimal decisions. What is optimal for me is to consume and demand as much as I can, because I’m not paying for it, my employer is. Seriously, you can find a consumer ranking of the toaster that you want to buy, but nothing about the hospital about where you might have heart surgery. You also can’t look up the pricing of heart surgeries on Nextag to see who offers the best price. I might be blurring the lines between the effects of the “medical cartel,” as you describe it, and the third party system, but both are problems.

First, you're conflating "health care" and "health insurance".
I don’t think so. Tough to distinguish between the two. Health insurance is not insurance in the ordinary sense. Unlike life insurance or homeowner’s insurance, health insurance ends up defining some of my healthcare consumption. It is some hybrid of insurance and a basket of healthcare consumption offered at a monthly contracted price and pay per visit. It is really not unlike paying for groceries by paying a fixed cost and a per visit fee, but you throw in an unexpected, random banquet for scores of people that may or may not occur during your lifetime. Health insurance might also be described as something akin to homeowner’s insurance that also provided visits to Lowes for a per visit fee (Sorry, I like analogies.)

Second, at the time when you believe you might have an ailment or injury requiring health care, most people lack the knowledge to make an informed decision on the quality, quantity, and type of health care to consume.
This is absolutely a result of the current system and its limitations not some inherent characteristic of healthcare as a good or service. There is absolutely no incentive to be informed, not to mention that the kind of information that you need to make an informed decision is difficult to come by. Being a good healthcare consumer in our world, means finding an employer who is willing to foot the bill for you to consume as much as you want/like, finding a doctor who you think is a good doctor based on intuition, and then following that doctors orders.

So neither health care nor health insurance is similar to "groceries" in their manner of consumption. You are right, but this is not because the goods are that dissimilar. It’s because the systems that delivers these goods and services are much different. One is consumed directly by the person paying the bill, and the other is consumed on a third party’s dime. Almost all of the key differences that you are pointing out are a direct result of this disparity between the method for delivering the goods and services. On a free market scale, the gulf between Healthcare and groceries is vast; that is their key difference.

Rising health care costs can be completely explained by medical cartels, new procedures and drugs, the increasing age of the population, expanded coverage by government, expanded coverage by employers who are competing amongst themselves.
Medical cartels, yes I agree with everything that you have said on this in recent posts. The other items that you have cited, particularly new procedures and drugs, aging population, etc….those are symptoms. Their great cause is the third party payment system.

 
At 7/07/2009 11:56 AM, Anonymous Anonymous said...

cont'd...


Many large firms do, in fact, offer heavily subsidized meals in cafeterias and cheap or free beverages. They do this as both a perquisite to build loyalty and to keep employees on site longer.
Your point here is not even close to being a ripple in the pond of how we consume food. Not even remotely close. One can only wish the number of employers providing health insurance could be comparable to what you have described here with food consumption. The healthcare system would likely be in much better shape.

Companies began offering health insurance as a perquisite to attract good employees decades ago….This is an artifact of the free market, not government intervention. The insurance costs are a legitimate cost of business, not a government incentive.
Businesses have and should have every right to do provide whatever means of compensation that they want to, but they aren’t providing healthcare (and in form, they are providing healthcare not just insurance) just to attract good employees. They do so at to a significant degree for tax reasons. The government should not provide a tax incentive for both the employer and employee for that form of compensation to be in the form of health insurance any more than it should be for groceries.

What's your point? Are you trying to argue that there's a freer market than the free market?
Robert, you know that our Healthcare system is anything but a free market, and it is not just the items that you have cited that prevent it from being a free market.

Psychologically, people might not be ready or even willing to introduce “cost” as a motivating factor in how they choose to consume Healthcare services, because it does mean for some tradeoffs that we are probably not quite ready for, but it is the one, very important ingredient that is missing… This ingredient seems to be missing because of both the firm grip that the govt and AMA have on the industry and as a result of the third party payment system.

 
At 7/07/2009 12:43 PM, Anonymous Anonymous said...

Tom Herme, what's in it for you?

A hangover...

Your benefit was too many trips to the punch bowl...

 
At 7/07/2009 1:05 PM, Blogger Janet Brown said...

I truly believe that the private sector and competitive market forces, not the federal government, are the best means to meeting our country's rapidly expanding health care needs.

I've been looking for a way to take action and contact our legislators and sign petitions and found some good policy the U.S. Chamber of Commerce backs (here). I don't have a lot of money or time, but I figure this will help other people do good.

 

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