Saturday, November 28, 2009

Health Care - Part 1: The Four Strawmen of the Apocalypse

Recently I've been constantly embroiled in a never-ending series of discussions on a broad array of liberty oriented topics. One of the most prominent has been the massive debate over whether or not the government should increase its (already quite sizable) role in health care in the United States.

This essay will be the first of a two-part series. While I agree that there is a problem with the high cost of medical care in the United States, the bulk of the solutions currently being pedaled by agents of the Federal Government will - I believe - exacerbate, rather than alleviate, those problems.

So in the first part, I shall address the main arguments in favor of a government-run health care system and then in the second, I will be offering solutions to the problems facing us as individuals living in this nation.

Part 1

Not surprisingly, much of these discussions devolve into me repeatedly addressing some of the same arguments made by many of the supporters of whatever version of socialized, nationalized, government-run, (whatever-you-want-to-call it) imposed "reform" to the health care system. It seems to me that the bulk of these arguments fall into 4 specific categories:
  • Classism
  • Appeal to Authority
  • Anti-Capitalism
  • Anecdotes
I will attempt to discuss each of these in more depth over the course of this essay and explain why each of these four arguments are essentially straw-men. I fully intend to give each objection a fair hearing, and I do not wish to be engaging in arguments against straw-men. If a reader believes I have done this, please feel free to present a new argument or explain why I have failed to adequately address a topic. To that end, I will try to present as many arguments that have been directly posed to me verbatim.


  1. "You must be on the payroll of the insurance/pharmaceutical/hospital management/etc. companies!"
  2. "So you think it's ok for rich people to get health care but no one else!?"
  3. "You're putting profits over people!"
Appeals to Authority:
  1. "Obama promised that he would reduce costs & expand coverage, who are you to disagree?"
  2. "But Harry Reid/Nancy Pelosi/Henry Waxman/etc. said ___, they know what they're talking about."
  3. "The AMA/PhRMA/American Cancer Society/etc. endorses the new legislation!"

  1. "For profit health care is EVIL!!"
  2. "Health care should be free for everyone."
  3. "'Free market' health care naturally results in inequality."
  1. "My sister's insurance company dropped her because of ___, we shouldn't allow this to happen."
  2. "I have a pre-existing condition that prevents me from getting insurance, that's not fair!"
  3. "Insurance Execs are greedy!"

There are other arguments of course, but these are some that I hear most often and are most perpetually annoying to me because they are all asinine strawmen... Just so we're clear, let's briefly examine why.


Classism is one of the most rampant, and one of the most common across all humanity. It's a favored "argument" of populists in many areas as well, not just health care... Surely you've heard someone arguing against restrictive energy policy, or in favor of various types of deregulation, etc. get called a "corporate shill", or "on the payroll of Big Oil!". This is merely a variety of ad hominem, and doesn't actually qualify as an argument... What's worse is that it's almost never true, either!

Sure, insurance companies & pharmaceuticals give money to politicians & advocacy organizations - all major corporations do, because government & politicians have supreme power to effect their industries and they need to be sure to be on the "winning" side of all new laws. But generally, they give money to politicians across the political spectrum to hedge their bets, not just to one party or one organization. For all the populism & anti-business rhetoric surrounding Barack Obama, his second highest campaign contributor was Goldman Sachs. Funny how well they're doing now compared to the rest of Wall Street too, isn't it?

So yes, sure... Corporations pay people to advocate policies that would benefit them... So what? So does the AFL-CIO, Teacher's Unions, the AMA, the Auto-Worker's Union, and hundreds of other profit and non-profit organizations. When government has the authority to drastically alter the outcomes of people's lives, interested parties will always be there vying for control.

However... Companies & other organizations rarely, if ever, pay individual, unconnected people to advance their views!

I sure as hell have never been paid by an insurance company to argue against government run health care any more than I've ever been paid by an oil company to question the validity of exaggerated global warming hysteria. Furthermore, the vast majority of us aren't rich... So exactly why would people standing up against socialized medicine only want rich people to get health care??

More to the point, since increasingly liberalized markets have consistently proven to reduce costs and increase access to goods & services in all cultures and in all industries they've ever been allowed, it makes vastly more sense to ask why supporters so-called "health care reform" want to continue down a road which has been shown to be disastrous for the poor & middle class hundreds of times?

Regardless - the truth is, no one (or very few people) want to see anyone go without medical care - everyone wants "universal coverage". So attempting to discredit those of us who disagree that government is the best means of accomplishing those goals by attacking our motives is not only factually wrong, but is morally repugnant to boot.

Appeal to Authority

Unfortunately, this one is both incredibly common and also hard to combat. Most people are incapable - both in terms of skills & knowledge and simply as a matter of limited time - of parsing each new proposed piece of legislation and their impact on the economy. This is why we elect representatives after all... Though there are a few people out there who do, almost no one advocates "pure" democracy for this very reason. We all understand that we have to entrust other people with the task of learning these things for us, then reporting back so that we can make relatively informed decisions without having to spend our lives studying things we have no interest in and no aptitude for.

Problem is... There is a difference between using a legitimate authority to bolster an otherwise sound argument and replacing a sound argument with the assertion that someone authoritative said that the conclusion is correct. For instance, if I make an argument like "bonobos & humans share a remarkably high percentage of the same genetic code, therefore we are likely to be closely related species", I may need to support this argument by citing authorities. I may cite geneticists and enlist the help of primate researchers to give credence to my assumptions and facts. But this is patently different from skipping the argument entirely by suggesting that Dr. Scientist X said it was true, therefore it is true.

Yet that is what many within the health care debate consistently do.

Claiming that because President Obama promised a certain outcome, that is the outcome which will be delivered is not only a bad argument, it's also historically absurd. Even if it was acceptable to forgo making actual arguments by citing an authority, politicians & other government officials are tremendously bad sources! The incentive for politicians is to win popularity contests, not to tell the truth. Elections aren't won by telling people hard facts and explaining complex ideas... And they most certainly don't win them by telling people bad news. Obama, for instance, has repeatedly talked about "sacrifice", while promoting all manner of bailouts, "stimulus" packages, massive government spending and campaigns telling individuals to consume which does everything possible to prevent people from actually tightening their belts.

In the political world, promises & reality are almost always 180-degrees off of each other...

The worst aspect of this, perhaps, is budget projections. As Steven Hayward and Erik Peterson wrote in a 1993 Reason Magazine article:
"At its start, in 1966, Medicare cost $3 billion... The House Ways and Means Committee estimated that Medicare would cost only about $12 billion by 1990 (a figure that included an allowance for inflation). This was supposedly a 'conservative' estimate. But in 1990 Medicare actually cost $107 billion."
As of 2008, the US government spent $386 Billion... And the unfunded liabilities over the next several decades are currently estimated in the realm of $37 Trillion.

So let's not pretend that governments are any kind of authorities at all on anything but forcibly collecting money from their citizenry and yet still spending more than they take in.


At least this one doesn't necessarily rely on flawed logic - only its premises are wildly inaccurate... And thus, it's still one of the worst arguments of all time, especially within the realm of health care. We do not have a free market health care system, so demonizing markets as the cause of our health care woes makes absolutely no sense.

The health care system in the United States is one of the most highly regulated industries we have - and what isn't dominated by command & control legislation, mandates, subsidies & government granted monopolies is controlled outright by our government being involved in the payment of over 50% of the health care used by Americans. So crusading against "capitalism", and especially against the purer laissez-faire variety is a failure of initial premises. The thing with bad premises is that once one is accepted as true, all logical reasoning that flows from that premise will be flawed.

I've often referenced a comprehensive article on the history of health care in the United States by Terree P. Wasley entitled, "
Health care in the twentieth century: a history of government interference and protection" in the April 1993 volume of the journal, Business Economics on this topic, so I'll pull a quote or two here to make my point. First, a little background on insurance in the US:

"By 1930, the United States had as many or more medical, nursing, and dental schools and hospital beds per unit of population as it has today. The Great Depression, however, slowed the expansion of health care facilities and personnel. Many Americans had trouble paying for the medical care they needed. Doctors tried to make allowances for patients in financial straits, but hospitals, with higher fixed costs, had much less flexibility. Between 1929 and 1930, average hospital receipts plummeted from more than $200 per patient to less than $60. Hospitals then began to turn to insurance plans as a way to guarantee a steady cash flow by spreading the financial risk."
As the Great Depression wore on with FDR continuing more and more asinine & quite useless economic policies, price & wage controls were imposed. Contrary to what anti-capitalists would have you believe, uninhibited markets bid prices for qualified labor higher (up to market equilibrium, of course), not lower... Alas, fixing wages in the 1940s prohibited employers from finding direct ways of enticing quality employees to their businesses. But soon enough, employers found an alternative in offering health insurance "benefits":
"However, in 1942 the War Labor Board decided that fringe benefits up to 5 percent of wages would not be considered inflationary. Employers began to offer health benefits as a way of providing additional compensation. Total enrollment in group hospital plans grew from less than 7 million to about 26 million subscribers from 1942 to 1945.(4)

Concurrently, the Internal Revenue Service ruled that the purchase of health insurance for workers was a legitimate cost of doing business and could be deducted from taxable business income. The IRS also ruled that workers did not have to include the value of health insurance benefits in calculating their taxable income. These rulings amounted to a giant tax incentive for both employers and taxpayers and did much to institutionalize employer-provided health care into the system."
Then, of course, Labor Unions jumped on board and started demanding insurance benefits as part of their contract negotiations... When the Office of Price Administration & its wage controls were finally abandoned in 1947, the employer-provided health insurance system was firmly in place. Now, of course, as society has shifted away from the single-corporation style employment that dominated much of the mid 20th Century and people are starting to work for shorter amounts of time with any given company, having insurance tied to employers is an incredibly large problem for modern Americans. But as the above information details, it wasn't at all an outcome of the "market", but of government intervention into the market.

Now, it's tempting to think that simply changing the tax code to make all health care expenses tax deductible (rather than just for employer-provided care), we would see a large increase in options for health insurance consumers... But that ignores the rest of the interventions government has imposed on the market for health care over the last 60 years.
"Besides enacting tax incentives that skewed the insurance market, government intervention generated another problem in the industry -- "experience rating." Because the Blues were protected by government due to their exemption from taxes and reserve requirements, they had a competitive advantage over commercial insurers. Commercial insurers turned to "experience rating" their insurance plans as a way to compete against the Blues [Blue Cross & Blue Shield - ever wonder why they're often the only options in your city or state?]. They began to sell insurance to employers with relatively healthy, low-risk employees at cheaper rates than the Blues. Since the Blues often were required by law to use a "community rating" system, they responded to this competition by receiving permission to use a "modified" community rating to reflect experience.(7)"
Then we had the addition of Medicare & Medicaid... But because of the incentives in place making health care "free" and tax-exempt in the minds of consumers; doctors & patients were both expecting the government or the private insurers to pay for top coverage - with no sense of weighing opportunity costs.
"The third-party payment system now dominated the health care industry. Most Americans were covered either by private health insurance or a government program for their hospital and physician costs. But Medicare and Medicaid brought the same defects found in the private insurance industry to the health care landscape, accelerating the rate of medical price inflation already set in motion by cost-plus reimbursement, lack of patient incentive to control costs, and first-dollar coverage."
Thus the 3rd party payment system, combined with the various other interventions into the market have provided an environment tailor-made to see prices balloon, over-consumption of existing health care resources, and increasingly slowed production of new resources (like how we've gone from 26 producers of vaccines down to only a handful).

The full article is definitely worth reading, as are the dozens of others you can find on the history of medical care in the United States... There is nothing particularly controversial or disputed about the facts Wasley presents - nearly all of them are even found on Wikipedia if anyone cared to look, but few people bother to learn the history of government involvement in health care and thus are doomed to repeat the mistakes of the past.

And honestly, this isn't even scratching the surface. I've skipped mandates on insurance companies, special government protections for the big players, special Intellectual Property provisions guaranteed to major pharmaceutical companies, the government-granted authority given to the AMA on number of medical licenses given out... There are thousands upon thousands of ways in which well-meaning (and not-so-well-meaning) politicians have distorted and destroyed anything even remotely like a private "free market" in health care.

The real trouble for the anti-capitalists is that since the 1940s, the most crucial aspects of why free markets work have been destroyed by government. Freely shifting Prices, profits & losses are the most important part of a functioning market! They are what provide information to consumers & producers about the relative value of scarce goods... I've covered this ad nauseum lately, but it could not be more important to understand this. When prices & wages are controlled, they cause unnatural surpluses & shortages wasting valuable resources on products that the market isn't demanding. When the health care consumer no longer has to think about the price of health care, they quit making decisions about relative value and instead just start demanding everything...

Now, some people would say that people shouldn't have to make decisions about relative worth when it comes to their health - except that regardless of what system you employ, this is an unavoidable part of reality. Doctors, hospital beds, medicines, MRI machines - these things are all limited! So we have to have some method of answering questions about what those resources go to... Wishful, and incredibly childish, thinking about just pretending that they're all infinitely available and that everyone should just get everything for free doesn't change that fact.

Without fluid prices and the market feedback provided by profits & losses, accurate information on what health care consumers demand cannot be acquired and the market itself cannot function.

What anti-capitalists fail to recognize is that a market as distorted by government intervention as health care is not, in any meaningful way, "capitalism". So when they complain that health care is representative of reasons we shouldn't allow free markets, they are arguing against a strawman that doesn't exist!


we have the issue of anecdotes... Yes, they are sad. Yes, a few of them are true. And...?

And nothing. Anecdotes are not meaningful points of debate!

Plenty of people experience tragic events, and insurance companies aren't always going to be perfectly nice... But then, there are hundreds, maybe thousands, of cases of insurance fraud over the years as well and while it's really easy to villainize the insurance industry still 90% of Americans are insured and the vast majority of us navigate even the current, rather problematic, system successfully and relatively painlessly. So for all the anecdotes that you can find on people with pre-existing conditions, rescission and sob stories about people who went bankrupt due to some medical catastrophe or another - there are a far greater number of stories (perhaps 95%) which end extremely well.

My mother, and three of my aunts have had breast cancer. They each are healed, and not bankrupt. All four of my grandparents dealt with medical issues and effectively succeeded in overcoming them without massive, entirely unmanageable debt during their lives. I've had my own experiences... All generally good.

So what!?

Nancy Pelosi wouldn't accept my "good" stories as evidence that everything is A-Ok (and she shouldn't, nor is everything totally fine with US health care), because they are invalid as evidence one way or another.

* * * * *

I hope all this clears up a lot of the major complaints and "arguments" floating around about health care. There are other arguments, but these are a few that I have spent the majority of my time dealing with in discussions about this issue. I'm sure it will be too little, too late, but "Part 2", will be real - economically viable - solutions. Basically, I'll repeat everything John Mackey said a few months ago, but since I don't run a major company favored by the rich ex-hippie crowd I doubt I'll take too much flak for it.

In the meantime, don't let any of the above arguments sway your opinion on health care. They are each horrible additions to the "debate" on health care. I can only hope it's not too late for America.

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