June 16, 2010
The Optimum Amount of Coffee Spilled is Greater Than Zero
August 30, 2009
Health Care Policy Essay
The following is an essay I wrote for the Charles G Koch Summer Fellow Program.
Public Policy Essay *
Write a 500-word essay on a major issue of public policy. Your essay should address the significance of your chosen issue, the problems with the current policies, and your public policy approach to dealing with it. Please adhere to the word limit.
Reforming America’s health insurance system – and protecting it from the wrong sort of reforms – is critical for the preservation of our welfare and freedom. The modern health care apparatus is a crowning achievement of our era and has played a central role in our historically unparalleled standard of living. Today, health expenditures compose as much as 17% of US GDP. But this strength rests on an unsteady foundation.
The health care industry suffers from man-made maladies –government-induced incentives and regulations have warped the market and prohibited it from delivering its desired equilibrium. Employer-provided health care benefits are excluded from income tax liability, a subsidy that has atrophied the individual health insurance market. This system restricts Americans to the narrow set of options chosen by their employer – prohibiting many from selecting plans that truly match their preferences. Because so many purchase their insurance through employers, employees who are laid off simultaneously lose health insurance – compounding the miseries of the most desperate Americans.
At the same time, the states have slowly ratcheted down the number of options available to consumers. Insurers are required to include increasing number of procedures in their plans, even for those individuals who do not wish to buy them. Limits on deductibles and co-pays have been widely adopted in a misguided effort to “protect” consumers. “Community rating” rules force the young and healthy to subsidize the old and sick through redistributive premium prices. These regulations ensure that most do not get what they want, many pay more than they have to, and some simply decide that they would be better off without insurance.
A few simple reforms could remedy these problems. Individual states, or the federal government through its interstate commerce power, could permit Americans to buy insurance policies licensed under any states’ regulatory regime. This would free Americans from the specific requirements of their state of residence; the states would be forced to compete to deliver a “market equilibrium” bundle of regulations that best fit the needs of consumers and insurers.
The federal government could spur competition in the individual health insurance market by extending income tax exclusion to individual health policies. If Americans were allowed to use pre-tax health savings accounts to pay insurance premiums, they would no longer pay a tax penalty on insurance plans purchased outside their employer’s offerings.
Other proposals seek to “fix” health insurance through tighter government controls. These reforms aim at turning the risk-insurance market into something resembling a privatized welfare system in which all must participate. These reforms purport to “reduce costs”, but they can do so only by arbitrarily prohibiting Americans from seeking certain types of medical attention. Invidiously, those who would bear the redistributive costs of care would be rewarded for their “charity” with the loss of their freedom to make insurance decisions. In the long run, this rationing would reduce rewards to innovation, slowing the technological progress that has made health care so powerful today. We must not institute reforms of this nature.
Government Hates Competition: Medicare Edition
This piece was originally posted on Americans for Tax Reform’s blog where I am an associate (intern).
A “public option” health insurer would create a new government sponsored enterprise in our health care market. Government enterprises are not merely inefficient – they are the harbringer of private competition’s slow death by regulation. Previously, we noted how the government has jealously legislated an anti-competitive zone around the US Postal Service. But there is an equally compelling example of government’s inability to tolerate competition in the health care market itself: Medicare.
In a Cato Policy Analysis publication, Kent Brown explains how Congress and the Medicare bureaucracy have systematically limited seniors’ choices to purchase health care outside of the Medicare bureaucracy. Through a combination of penalties for seniors who opt-out, regulations on providers, and subsidies, the government has driven private competition out of the senior health insurance market.
For most seniors, enrolling in Medicare need not be a conscious choice. Congress automatically enrolls most eligible seniors in the program. In order to opt out of Medicare Part A (hospital insurance), a senior must give up all Social Security benefits – an extremely painful option for low or middle income individuals who have been forced to pay payroll taxes for their entire working lives. Medicare Part B (outpatient care) is subsidized by general tax funds. Most seniors pay only 25% of their Medicare Part B premium. For every year that eligible seniors opt out of the program, their premiums increase cumulatively by 10%.
Between automatic enrollment, the loss of Social Security funds for opting out of Part A, punitive premium increases for opting out of Part B, and the artificially low cost of enrollment, choosing not to enroll in Medicare has become such an unrealistic option that, by 1997, private insurers had completely left the senior health insurance market. Only seniors rich enough to pay their own unexpected health care fees can afford to seek health care outside of Medicare.
Once seniors have enrolled in Medicare, they essentially lose the option to pay for their own health care. This is accomplished by a rule against “private contracting” for Medicare-covered services. This rule prohibits physicians from accepting private reimbursement for procedures that would be covered under Medicare. If a physician wishes to receive private reimbursement for these services, he must agree not to participate in Medicare for a period of two years. Because nearly all seniors have been herded into the program, opting out entirely would cripple most providers’ practices. Medicare ensures that providers will not find this alternative profitable by fixing rates for coverage of its beneficiaries.
Medicare has bullied away competition at both the insurer and provider level. The government’s freedom from competition has allowed it to act as an arbitrary monopoly. The result is predictable. Medicare operates inefficiently and unresponsively. Brown points to studies showing that nearly 30% of its provided care yields no health benefits. Medicare does not bother to provide true catastrophic coverage; as Sue Blevins has noted, Medicare does not cover the expenses of hospital visits after they exceed 150 days. Medicare also carefully regulates the legal amount of care that patients can purchase from even those providers who have opted out of the system – subjecting them to a government rationing scheme without alternatives.
These failings are not incidental to Medicare. They are predictable results of government entrance into the market. Because government enterprises rely on subsidies to provide “cheap” goods, people over-consume their products. Only by arbitrarily limiting the services it produces can Medicare control its costs. But if it allows competitors to remain in the market, consumers will notice the arbitrariness of these rationing decisions. Since only private, unsubsidized competitors will offer the rationed-away services, consumers will realize that the government inherently does not give them “what they want”. Killing private competition is the government’s way of covering up its own inevitable arbitrariness.
The public option can be no different from every other government venture. Because it has no stake in success and a government guarantee against failure, it will be run inefficiently. Subsidies will be necessary to ensure its health. And if these subsidies do not drive away its competitors outright, the public option will still have the same incentives for undercutting the private market as Medicare and the Postal Service: the private sector makes them look bad.
This piece was originally