Freeman

THE CALLING

Some Thoughts on Obamacare, Part I

Big Insurance wins.

JULY 12, 2012 by STEVEN HORWITZ

With the Supreme Court upholding the Affordable Care Act (ACA), I want to share a few thoughts on how libertarians might talk about the matter, since debate will surely continue through November.

There are several strategies we might adopt, and I will address one today and others in subsequent columns.  The first and most important–but also the trickiest–is to make it clear that our objections to the ACA is not an endorsement of the status quo ante, that the status quo ante was not a free market.  I will explain later why this is tricky.

Our current health care system is a corporatist-interventionist mess that’s very far from anything resembling a free market.  With respect to the mandate to buy health insurance, one point worth raising is that the health insurance link to employment is the product of World War II-era government intervention.  During the war wage and price controls prevented employers from attracting workers with higher pay, so they offered nonwage benefits such as health insurance to get around the controls.  When such benefits were later considered nontaxable income, they became a cheaper way for firms to compensate workers than wages.

Dependent on “Insurance”

The result is the current mess in which almost everyone depends on insurance for nearly every “medical” service, and insurance (mostly) depends on having a job and the employer’s decision about the compensation package.  With insurance comes all the usual problems of third-party payment, such as: How can patients control their expenditures if someone else is always paying?  In fact much of what health insurance does these days isn’t really insurance anyway; insurance is traditionally a form of hedging against risks, such as catastrophic illness.  Strictly speaking, insurance cannot cover the cost of preventative care.  Auto insurance does not pay for oil changes and tire rotations, and for good reason–it’s the road to higher costs and bankruptcy.

Given the roots of the system, it’s no surprise we’ve ended up in the nonsensical situation in which supposedly the way to lower costs and reduce the power of insurance companies is to force everyone to buy their products.  It is more than a little ironic that the left celebrates a law that also caused champagne corks to pop at the big insurance companies, which spent a lot of money lobbying for it. Who wouldn’t want it to be the law of the land that every American must buy your product or pay a tax?

Libertarians should not hesitate to point out that Obamacare amounts to exactly the sort of corporate welfare that the Occupy crowd supposedly dislikes, at least when it comes to banks.  Why, we might ask, is it okay to force people to buy a product that will enhance corporate profits, give insurance companies more power over our health care decisions, and also increase their special-interest lobbying in Washington and the state capitals?

No. 37?

The tricky part about making this argument is contending with the associated claim by the left that the U.S. health care system ranks low against other countries.  One often-voiced claim is that the World Health Organization ranked the United States 37th among countries.  However, that study has been strongly criticized, mostly because the extent of government involvement was a criterion of quality.  Since the dispute is over whether such involvement is good, to assume that more is better, as the WHO study did, is to beg the question.

The low ranking for the United States in infant mortality can be explained by the fact that superior medical technology here enables doctors to save some premature infants that would not survive elsewhere.  In most other countries such babies would not be born alive and therefore not count as infant deaths, as the American premies who don’t survive are. This raises our infant mortality rate (and slightly lowers our life expectancy at birth), but it also enables some children to live who otherwise would not have–which seems like a point in favor of the U.S. system.

There are other criteria along which the U.S. system does very well, including medical innovation (including especially new drugs), shorter waiting times for major procedures, more doctors, nurses, and equipment per capita, and life expectancy if one subtracts deaths by violent crime, which has nothing to do with the quality of health care.  So even though our system is hardly what libertarians would like, the existing market elements, which are greater than those of most other countries, enable it to provide very good care for many people.

We must carefully argue that if we want more of the good things from our system, we need to expand those market elements and get rid of the interventions and corporatism that clog its arteries.

Next week I’ll look the problems the ACA is likely to cause.

ABOUT

STEVEN HORWITZ

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Microfoundations and Macroeconomics: An Austrian Perspective, now in paperback.

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