Archive for the Category healthcare


Taxes and insurance

Much of my frustration comes from dealing with the IRS and insurance companies.  I suppose this explains my policy preference for simple payroll taxes, VATs, and HSAs.  Sometimes I wonder whether people realize how intertwined these two evil institutions really are.

For instance, recent posts by Matt Yglesias and Karl Smith argued that HMOs failed the market test.  Now I’m no fan of HMOs, but I don’t see where they were ever given the market test.  Health care offered by HMOs was significantly cheaper to produce (at least before regulatory changes occurred), yet when our company offered that option very little of the cost differential was passed on to us consumers.  Of course workers were less than enthusiastic about HMOs; they are not as consumer friendly as regular insurance and yet the efficiency gains didn’t go to HMO consumers.  You might ask why I didn’t sign up on my own.  But our tax system provides a 40% subsidy to employer health insurance, which is enough to push many companies to offer health insurance.  In that case if I reject employee health insurance, I am starting off my shopping at a huge price disadvantage.  (And this doesn’t account for the adverse selection problem of shopping around by oneself.)

Here are some examples of how our tax and insurance systems are intertwined:

1.  We have a flexible benefit plan, which allows us to set aside $5000 tax free for various types of “health care” and “child care.”  In fact, people rarely know when they are going to have a heart attack, and yet the money set aside at the beginning of the year is lost if not used.  So it ends up being used for predictable expenses, i.e. pseudo-health care expenses.  Ten years ago I began buying daily wear contacts at a cost of $600/year, but only because you taxpayers agreed to pick up 40% of the cost.  The convenience of the lens wasn’t worth $600, but was worth $360.  Much of the tax saving was a deadweight loss.

2.  I have had a number of significant medical expenses that I would not have incurred if I had to pay out of pocket, despite the fact that I could easily afford to pay for them out of pocket.  More deadweight loss.

3.  Our employers even offers dental “insurance.”  This pays the first $1000 of dental expenses, you pay anything additional.  Of course this is exactly the opposite of how “insurance” is supposed to work.  It’s a scam to avoid taxes, nothing more.  But it did require me to make endless calls to the dental insurance company fighting over bills, until they finally relented.  The aggregation aggrevation just puts me at the borderline of not wanting to fight at all.  I felt the extra $400 I got was roughly offset by the frustration–more deadweight losses.

4.  Many companies don’t even offer health insurance, suggesting there are huge deadweight losses for those companies who do (and are just on the margin.). But, we take all aspects of law into consideration, including the california car seat law and provide valuable insurance to all our customers.

5.  Taxes are more complicated because of medical and child care deductions.  When filling out taxes you have to search for obscure data for things like the tax ID number of a summer camp.  Yes, summer camp is considered “childcare”—I kid you not.  Our federal government spend lots of money subsidizing camp for the children of affluent parents like me.

I have to laugh when I read people talk about the failures of America’s free market in health care.  I almost never write out a sizable check to pay for medical care, nor does anyone else I know.  And yet I don’t want the health insurance I have, I’d rather pay out of pocket.  It’s very unlikely I’ll ever have a medical procedure I couldn’t pay for out of pocket.  Indeed that statement is close to a tautology, as I am many standard deviations wealthier than average, so if I couldn’t afford a typical lifespan’s worth of medical care, our entire society would be broke by now.  Of course many people would need insurance at some point, which is why I favor catastrophic coverage for stuff the HSAs can’t cover.  It makes no difference whether it’s provided by the government or not, as our system is so regulated that “private” health insurance is essentially a government institution.  Outside of plastic surgery (the one area where health costs are not soaring) there is essentially no free market in health care in America.

The global tribe

Ron Paul recently received a lot of criticism for arguing that tax money should not be used to save a sick young man who had decided not to buy health insurance.  Robin Hanson raised a very good point in response to his critics:

But a great many ill, collapsed, etc. folks in the world are largely left to die, at least if curing them costs anything like a US hospital stay. Ezra argues above for “decent” nationalcare, not global care. And even libertarians wouldn’t leave family members to die. So everyone agrees that we heroically help some, and leave others to die. We only disagree on who falls into which category.

I’ve made similar arguments many times, so I am certainly not going to criticize Robin.  Nonetheless, I do support tax funded catastrophic insurance plus mandatory HSAs at the national level.  If Robin is right, how can I do so?

Let’s start with the fact that I am a utilitarian.  We utilitarians believe that everyone’s well-being is of equal value, whether it be Bill Gates or a peasant farmer in Pakistan.  Public policy should maximize aggregate well-being.  So why don’t I favor an international health care program?  Actually, I wouldn’t be opposed to the idea.  But I am also a pragmatist, and for now we are dealing with national governments and voters who are very nationalistic.  I believe that publicly funded health care of the sort I described with boost aggregate well-being, as compared to our current system.  I hope the circle of people’s empathy will continue to shift outward, as it has for the past few centuries.  If the public is eventually willing to make the following shift in health care spending, I’m all for it:

1.  Stop providing publically-funded health care in non-life and death situations.

2.  Use the extra money to fund higher-valued health services in poor countries.

Obviously our culture has not yet reached that degree of empathy, and it seems unlikely that it will in the near future.  Until then I’ll keep advocating the Singapore/Brad DeLong solution.

I do not agree with the following argument by Robin Hanson:

Humans clearly evolved quite different mental modes for thinking about how to treat folks with our our local tribe, vs. how to treat distant strangers. Libertarians largely accept the usual ideas about how to treat both groups. Where they disagree is who counts as a stranger.

Libertarians limit “my tribe” to close family and small chosen communities, much as did our forager ancestors, who were free to change bands at any time. Farmer culture taught farmers to think of distant strangers as “my tribe”, as long as “our elites” said so, or if “we” fought wars together. And nation-states have worked hard over the last few centuries to transfer this feeling to nations. Libertarians mostly just don’t accept this. And though I’m not strictly libertarian, on this I agree – it is far from obvious that nations must be our tribes.

Now people usually try to be nicer to their tribe than to distant strangers. From this one might conclude that libertarians, who see more folks as strangers, are not as nice people. But not only are folks who see their tribe as smaller usually nicer to such insiders, libertarians also tend to be more accepting of mutually beneficial interactions with strangers.

I think the world is a better place if we work to make the “tribe” as large as possible.  Mutually beneficial transactions are great, but only get you so far.  There are many areas of life where unselfish altruism is required to make institutions work effectively, most notably in governance.  If you have a political entity of 5 million people who for deep historical reasons developed a culture of mutual respect, say Denmark, you will end up with more effective governance (and more market-oriented too!) than a political entity of 5 million people who for deep historical reasons lack trust outside the immediate family, such as Sicily.  Indeed even entities of 5 million people who lack a deep historical tradition of trust, but who have worked very hard in recent decades to develop a culture of national solidarity, such as Singapore, will do better than low trust societies.

Self-interest isn’t enough.  If I followed self-interest I would not vote, and I would not blog on important public policy issues.  If I was family-oriented I would spend more time with my daughter.

I don’t doubt that some of the distrust of strangers is hard-wired into us.  But that’s no reason to be defeatist.  If we’ve learned anything from the last 200 years of cultural evolution it’s that technological advances in the narrative arts have gradually made many of the “others” seem much less strange, and thus we’ve gradually increased the size of the circle of races, religions, and lifestyle groups that count as “us.”  There is no reason this process can’t continue until we have a single global tribe by the year 2300.

PS.  Although I favor a global tribe, I also believe governance should be increasing decentralized, except where that is not feasible (say global warming policy.)

PPS.  I should clarify that I’m not predicting that bigotry will completely vanish, as there will continue to be differences between people.  Rather I am arguing that we will become a single tribe for public policy purposes.  For example, there is still racial prejudice in America, but all races now qualify for programs like Social Security and Medicare.

Paul Krugman is right

At first I was skeptical of this assertion by Paul Krugman:

What we observe is that private insurers spend a much larger fraction of their receipts on administration than Medicare does. . . . I know that some people find that answer unacceptable: they know that the private sector is always more efficient than the government, and no amount of evidence will shake their faith. But that’s what the evidence shows.

I admit it.  I was one of those people who thought Fedex and UPS were more efficient that the Postal Service.  I couldn’t believe that government bureaucrats could manage a giant health “insurance” company more efficiently than the private sector.  After reading this, however, I’ve become convinced that Krugman is right.  The Feds really do spend less on administration:

MIAMI (AP) — Federal authorities charged more than 100 doctors, nurses and physical therapists in nine cities with Medicare fraud Thursday, part of a massive nationwide bust that snared more suspects than any other in history.

More than 700 law enforcement agents fanned out to arrest 111 people accused of illegally billing Medicare more than $225 million. The arrests are the latest in a string of major busts in the past two years as authorities have struggled to pare the fraud that’s believed to cost the government between $60 billion and $90 billion each year.

It’s not easy to misplace $60 to $90 billion.  That kind of money doesn’t just slip behind the couch cushions.  You’ve got to seriously cut staff in cost control to achieve that sort of outcome.  Imagine what they could accomplish if we let that same Medicare administration manage 16% of GDP.  That’s more than Canada’s entire GDP.  I bet they’d achieve even further administrative savings.

Before all you Republicans start gloating, consider the following.  The raid took place under the Obama administration, not Bush.  The Republicans oppose cuts in Medicare and Social Security.  The Republicans oppose cuts in the military.  The Republicans oppose cuts in interest on the debt.  That leaves discretionary spending, stuff like federal farm subsidies, which are a small part of the federal government.  Fortunately, with food prices at record heights and farm income soaring, the GOP will finally start cutting crop subsidies.

Oh wait . . .

Attention Tea Party members; once again you’ve been suckered by the “small government” rhetoric of the GOP establishment.  If you sincerely want small government, and not just benefit cuts to people with brown faces, then here’s your man for 2012.

So you say you want Nordic-style socialism?

Be careful what you wish for.  Tim Worstall sent me this interesting post about the Nordic countries:

The UK’s centre left just doesn’t seem capable of understanding what it is that makes what they claim to want work: imagine the horror there would be if I suggested that Group 4S took over the majority of fire and ambulance services in the UK? Yet that is what Denmark does (really: it’s actually Group 4S that runs them). We can hear the screams already as Gove tries to bring the Swedish school system with its funding following the pupil, essentially a market, to the UK. Can you imagine the piteous wails if someone suggested importing the Finnish schools system (often ranked as the world number 1)? With its division at 15 into academic sheep and vocational goats?

Compare and contrast the the Swedish health care system with the NHS: taxes are raised in county and spent in county (on average, 400,000 people, it’s as if a PCT raised and spent its own money), there are copayments to see the doctor…no, we couldn’t imagine the British centre left allowing such a system to exist, could we? Nor the localism of Denmark: the national income tax rate is 3.76%: the top national one 15%. The vast bulk of the money is raised by the communes which can be as small as 10,000 people. You and I would think that money so raised will be better spent when any and every taxpayer knows exactly who is spending it and where they have a snifter on a Friday night.

This reminded me of a post I did a while back, which discussed an interesting article in the New Yorker on health care in McAllen, Texas:

In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.

. . .

I was impressed. The place had virtually all the technology that you’d find at Harvard and Stanford and the Mayo Clinic, and, as I walked through that hospital on a dusty road in South Texas, this struck me as a remarkable thing. Rich towns get the new school buildings, fire trucks, and roads, not to mention the better teachers and police officers and civil engineers. Poor towns don’t. But that rule doesn’t hold for health care.

I had this to say about the New Yorker quotation:

Suppose McAllen was an independent country with universal health care.  How much would it cost the government to insure the entire population?  If independent, McAllen would be poor relative to the US, but it certainly wouldn’t be poor in any absolute sense.  My guess is that it would come in somewhere around Portugal or Slovenia.  And I would also guess that it would spend less insuring the entire population than we now spend insuring the relatively small share of the population covered by Medicare.

Many on the left say we should adopt the European health care system.  A good place to start would be federalism.  The EU is roughly the size of the US, but has 27 members, each with their own health care system.  If we are to copy Europe, the first thing to do is to delegate health care to the 50 states.  No more Medicare and Medicaid.  Any public health care should be fully funded at the state level, just as in Europe.  My guess is that the good citizens of Houston and Dallas are not going to be enthusiastic about spending $15,000 per enrollee in McAllen, when the prestigious Mayo Clinic spends $6688 per enrollee.  If those on the left aren’t enthused about this idea, then let’s not hear any more talk about copying Europe’s health care system.  (After completing this post I noticed that Robin Hanson had an even better idea.)

Liberals often tell me that Swedish vouchers wouldn’t work here, our population isn’t as homogeneous and civic-minded.  I’d think that’s a much better argument against the more socialist aspects of the Nordic system, like generous unemployment benefits.  Reading this stuff I can’t help but think back to posts by people like Paul Krugman, praising our Medicare system for its low administrative costs.  He’s right; they spend very little preventing the health care industry in places like Texas and Florida from systematically looting the taxpayers.  By all means, let’s let each county run and pay for its own health care system.  If not, then stop talking about how the Swedes are superior to us.

A few weeks back I complained that Obama was trying to force me to divorce my wife.  According to The Economist, the Swedish government doesn’t do that:

In Sweden 88% of women aged between 25 and 54 take part in the labour market. It helps that the country’s extensive day-care facilities for children are largely reserved for workers, and that couples file their tax returns separately so that households do not get hit by higher marginal tax rates on their second incomes.

A larger share of Sweden’s older people, too, remain in the labour force than anywhere else on the continent, not least because they accrue higher retirement benefits for each year they work after the age of 61. If other Europeans aged between 55 and 64 were as industrious as older Swedes, the continent could reduce the gap in hours with America by almost a quarter, according to the MGI.

The rest of Europe could also learn from Denmark’s efforts to beat unemployment and from the Netherlands’ success in getting youngsters into work. To echo an old joke, heaven is where women and older people work like the Swedes, the young work like the Dutch and the unemployed find jobs like the Danes. Hell is where workers get into unemployment like the Americans and out of it like the Italians.

And we are falling behind them in neoliberal reforms.  Again, from The Economist:

Sweden offers a more encouraging lesson. In the aftermath of its banking bust in the early 1990s it not only cleaned up its banks quickly but also embarked on a radical programme of microeconomic deregulation. The government reformed its tax and pension systems and freed up whole swaths of the economy, from aviation, telecommunications and electricity to banking and retailing. Thanks to these reforms, Swedish productivity growth, which had averaged 1.2% a year from 1980 to 1990, accelerated to a remarkable 2.2% a year from 1991 to 1998 and 2.5% from 1999 to 2005, according to the McKinsey Global Institute.

Sweden’s retailers put in a particularly impressive performance. In 1990, McKinsey found, they were 5% less productive than America’s, mainly because a thicket of regulations ensured that stores were much smaller and competition less intense. Local laws restricted access to land for large stores, existing retailers colluded on prices and incumbent chains pressed suppliers to boycott cheaper competitors. But in 1992 the laws were changed to weaken municipal land-use restrictions, and Swedish entry into the EU and the creation of a new competition authority raised competitive pressures. Large stores and vertically integrated chains rapidly gained market share. By 2005 Sweden’s retail productivity was 14% higher than America’s.

The restructuring of retail banking services was another success story. Consolidation driven by the financial crisis and by EU entry increased competition. New niche players introduced innovative products like telephone services like and internet banking that later spread to larger banks. Many branches were closed, and by 2006 Sweden had one of the lowest branch densities in Europe. Between 1995 and 2002 banking productivity grew by 4.6% a year, much faster than in other European countries. Swedish banks’ productivity went from slightly behind to slightly ahead of American levels.

.   .   .

Even in America there would be benefits. But, alas, the regulatory pendulum is moving in the opposite direction as the Obama administration pushes through new rules on industries from health care to finance. So far the damage may be limited. Many of Mr Obama’s regulatory changes, from tougher fuel-efficiency requirements to curbs on deep-water drilling, were meant to benefit consumers and the environment, not to curb competition and protect incumbents. Some of the White House’s ideas, such as the overhaul of broadband internet access, would in fact increase competition. The biggest risk lies in finance, where America’s new rules could easily hold back innovation.

I didn’t always agree with President Clinton, but at least he did deregulation, welfare reform, NAFTA and cut the capital gains tax.  I can’t recall a single thing that Obama has done that a classical liberal would approve of.  Even where his private views may be libertarian (free trade with Cuba, gays in the military, ending the abuses of the national security state, medical marijuana, a smaller military, etc) he seems to lack the courage of his convictions.  No wonder he generates so little enthusiasm.

Tea Partiers complain that Obama wants to make us like Sweden.  If only that were true.  I fear we are headed toward Brazilian-style “big government.”  Lots of spending and lots of poverty.

With Republicans like these . . .

Most libertarians, including me, have generally leaned somewhat toward the Republicans on economic issues.  Therefore it is especially dismaying to read the following comments from the Republican House Leader, John Boehner:

Besides raising the retirement age for full Social Security benefits to 70 for people now 50 or younger, Mr. Boehner suggested curbing benefit growth by tying cost-of-living increases to the consumer price index rather than growth in wages, and providing benefits only to those who need them.

I suppose there are good arguments on both sides of the first point, although it seems a bit unfair to make coal miners work until 70.  I seem to recall that the Brits tried indexing initial benefits to the CPI, and it failed for the obvious reason that people judge how they are doing relative to their neighbors, not relative to those who lived 100 years ago in log cabins.   But it is the third point that really bugs me.  This is penny wise and pound foolish policy-making.  We are already getting all sorts of subtle and not-so-subtle increases in marginal tax rates (MTRs), why would the Republicans want to raise the implicit MTR on people who save for retirement?  We should be moving closer to the Singapore high-saving model, not ever further away.

I suppose some would argue that the benefits of lower government spending outweigh the costs of higher MTRs.  In fact, there is no way that AARP would allow them to means test benefits for any but the top few percent of earners—so it won’t save much money.  And in any case, saving money doesn’t seem to be the most important factor motivating Boehner:

Mr. Boehner advocated continued free spending on defense and said that should Republicans take control of the House in the fall elections, one of his first acts as speaker would be to repeal the $534 billion in Medicare cuts used to finance the Democrats’ expansion of health care this year.

Many of those cuts are the same ones seen in a Republican budget plan, the only one to date that carries out the GOP pledge to get the deficit under control without tax increases, authored by Rep. Paul D. Ryan of Wisconsin.

Liberaltarianism looks more appealing every day.