Monday, November 30, 2009

Health Care - Part 2: More Rebuttals & Actual Solutions

In Part 1, I addressed some of the common - but highly fallacious - categories of reasons some people use to support various big government plans for health care reform. Essentially, I dealt with the 4 false arguments of appeals to classism, to authority, anti-capitalism and anecdotal speculation... While these are rather typical of my experience with most pro-"reform" folks, there are obviously a number of arguments that I didn't cover which are not necessarily logically flawed, but which are none-the-less incorrect as means to solving our current problems in health care.

As such, I now intend to address the real problems with health care in the United States and then attempt to offer real, economically viable solutions.

So first off, let me stipulate that most everyone agrees that the fundamental problem with health care in the United States is not the "care" itself, which remains among the best in the world by many measurable standards that actually count (hint: general life expectancy & infant mortality don't), such as medical innovation, treatment of serious illnesses like Cancer and our high rates of delivery for premature infants.
According to the NY Times:
“In the last 10 years, for instance, 12 Nobel Prizes in medicine have gone to American-born scientists working in the United States, 3 have gone to foreign-born scientists working in the United States, and just 7 have gone to researchers outside the country.”
And as you can see below, the US has the highest cancer survival rates of any other nation, and taken as an average US vs. Europe, the difference is truly striking. But rarely do we hear this kind of information from people who want to involve more government force in our health care choices.


So clearly, the main problem here isn't the quality, but the substantially higher cost compared with other industrialized nations, and thus limited access for certain less financially stable & poor members of our population.

There are a number of reasons for this that are far less shocking or diabolical than many would seem to believe, and I will cover many of those as I progress through this essay. Essentially, this will be formed as a series of responses to a debate I had with a (European) man named Mal who supports European-style socialized health care for the United States. As one might expect, his arguments were representative of the better, more knowledgeable and rational defenses of the system, but his point, in my estimation is still mostly incorrect... This was his main question:
"Why not use a socialized system in America just like they do in Europe? They provide health care to everyone and they are proven to be cheaper than the US system."
No doubt many people ask this question regularly, and are unable to come up with a satisfactory reason why not. I am not one of those.

There are many reasons why the USA and European nations shouldn’t be categorized the same way. But before I explain why in greater detail, I must first reject the two fundamental premises Mal presented.
  1. Socialized health care systems provide care to all: They most certainly do not. There are frequently shortages and rationing of goods & services as a necessary consequence of the system. What they are doing is providing payment for health-care assuming you are lucky enough to get it.
  2. European & Canadian systems are financially solvent: These systems are crumbling financially throughout the world. The British & Canadian systems are effectively bankrupt already and the French government keeps trying desperately to cut costs by excluding treatments or increasing eligibility requirements while being thwarted by riotous citizens.
Promise of payment for a good, and getting the good itself are two separate things which shouldn’t be conflated – and in the health care debate, are confused daily.

Insurance ≠ Health Care.

Government Payment for Insurance ≠ Health Care

Health care is doctors, nurses, medicines, hospital beds, splints, wheelchairs... The means of paying for those goods & services is something else entirely, and can be done in a myriad of alternative ways.

As a matter of fact, the tangible health care resources available in other nations are substantially less than those available in the United States. For instance, in a 2004 study on medical imaging in Canada, it was found that Canada had 4.6 MRI scanners per million population while the U.S. had 19.5 per million and Canadians have access to only 10.3 CT scanners per million vs. 29.5 per million in the United States. Because resources aren't priced, the only alternative is politically determined rationing, which is an enormous problem for individual consumers of health care, as it prevents crucial feedback information (related to supply & demand, profits & losses) from being transmitted throughout the market.

This calculation problem causes shortages, misallocation of resources, provides incentives for system abuse & other severe problems that are being entirely ignored by folks like Mal. So I reject both of his claims from the very start…

But apart from that, there are some truly major reasons why Europe & Canada have been able to do offer "universal" insurance schemes to begin with, and they have nothing to do with the intrinsic solvency of the ideas. While it's not talked about very often, Europe & Canada (and Japan, for that matter) have benefited immensely from American policy over the last 6 or 7 decades. In no particular order, here's why:
  • American military protection allows other nations security without having to pay for it:
Due to the Marshall Plan, WWII and our subsequent 60 years of hegemony, virtually all of Europe, Canada, Mexico, Puerto Rico & the Caribbean, Japan, S. Korea… and frankly, most “ally” nations fall under a massive umbrella of our (excessive) military spending. This means that European nations simply don’t need to spend that much on their own military protections. As a result, much of these nations’ taxed revenue can go towards all-encompassing social programs.

Frankly – if you are European, you really don’t want the US to cut military spending precisely because it allows your governments to pay for other services…

That said, honestly – It is always been my opinion that America shouldn’t be in the “world police” business. For one thing, I am sick of paying for the protection of dozens of other nations, especially since we have been borrowing & inflating our currency to pay for it. The United States has over 700 military bases in roughly 130 nations around the globe.

We were a nation which rejected the principles of empire-building, once upon a time... Do we really need one now?

I say no.

I also don't appreciate that our empire has enabled dozens of countries to free ride on our military protection and demand our services in times of need & crisis all the while insulting the very institutions which have made that possible. Nations of the world should be better prepared to sort out their own affairs, and the United States needs to stop meddling.
  • The US subsidizes much of the cost of health care for Europe, Canada & other nations:
Apart from free riding on our military protection, Europe keeps some of their Health Care costs at bay by imposing price controls on medical technology, drugs & other medicines (which are primarily innovated & produced by doctors & companies in the United States).

Of course, when the prices the EU sets are below the market clearing level – that is, below what the company could get in a free enterprise system – or even more problematically, when the prices set by the EU are lower than what the producers actually need to break even, these companies necessarily have to increase their prices on those of us who aren’t as tightly controlling their prices. Namely: The average U.S. consumer!
Europe's price controls push what would be their higher costs back onto (primarily) the American people. So why not impose price controls of our own here in the States?

Because soon enough, as has already happened with vaccine manufacturers – they ultimately put producers out of business by forcing them to operate at a loss. This isn’t sustainable and the real-world implications are massive shortages of everything we need to survive and be healthy.

Also, I should note that since we are the world leader in medical innovation & production of resources… Shortages here will mean massive shortages for everyone in Europe too!
  • Scaling Bureaucracy:
America is a vast nation, with a complex, multi-tiered governmental structure and a very large population - the 3rd highest in the world, and in fact, around 220 million more than the largest nation in Europe (Germany). The typical example of "successful" universal health care is Sweden, and that nation has under 10 million people living within its borders. America's 308+ million inhabitants cannot be as easily managed with any kind of top-down approach.

Assuming even that the pyramid-scheme economics of social programs like we’re discussing was functional and sustainable, which it most certainly is not, then a big factor in implementation and the ability of people to game the system has to do with the bureaucracy itself.

Bureaucracies don’t scale up well. Even if we took the European model as a functional one – which I fundamentally don’t – there’s plenty of reason to question its efficacy in the United States. And that's all without actually factoring in significant differences in cultures.
Additionally, Mal asks:
"Why not just raise taxes to cover the costs? Europe has much higher tax rates than the US and does ok economically."
Right now, America’s economy is on the ropes. We have massive amounts of debt (which many high tax European countries don't have). We have spent the last 100 years or so operating on deficit spending & inflationary policy - which has taken us from being the world's greatest creditor to the world's largest debtor. The only thing that is saving us right now is the productivity of our population and the (outside of recent events) comparatively high employment rates.

Raising taxes will increase unemployment, which will decrease America’s overall productivity and which will negatively effect all of us here and harm the world economy as well.
Spending cuts are already entirely necessary - without factoring in a massive new health-care regime. So, what do I suggest for spending cuts?
  1. Military (see above) - Time for everyone else to take care of their own national defense.
  2. Axe redundant or harmful Federal departments – I might suggest abolishing Dept. of Homeland Security & the Transportation Security Administration, consolidate FBI & CIA, and certainly the Dept. of Education (which has been a major cause of the decline in quality of American public schools for the last 50 years). Reduction to Constitutional levels of Federal bureaucracy would be preferred, but any significant reduction could help immensely.
  3. Reduce public employee salaries, pensions & benefits across the board – This may sound harsh, but on the whole they not only do much better than the average American, even within the tough economy, their benefits & wages are *increasing*. (Also, I think politicians salaries should be reduced for other reasons). We’re forced to pay for these people after all, we need to be getting our money’s worth and we’re not.
  4. Across the board Tax Cuts - Eliminate corporate taxes (which are simply reflected in higher prices to consumers and do very little to effect the corporations themselves) and decrease the regulatory burden on international investment - thus encouraging more people to move here, set up international headquarters here and invest in real production in the US again. More jobs, more revenue without raising tax rates, more production and thus increased standard of living. Reduce individual income taxes, allow citizens to keep more of their money.
There’s more… but this is long enough.

There are plenty of things that could make America a solvent nation again, I tend to recommend the policy ideas of Peter Schiff, Ron Paul, David Walker and others, but regardless of how it's done, it needs to be done immediately or we are heading for much more severe catastrophe than we've seen the past year or two. The idea of tacking on a massive new entitlement program onto our existing house-of-cards financial position is, as far as I'm concerned, insanity.

But Mal has more to say:
Thank you for your elaborate response. There are some points where I don’t agree with you though.

Providing healthcare. Plenty of European countries do provide all the necessary care quickly and of high quality. You are right that there are waiting lists for some procedures, and like in every system, screwups happen. If you have non-essential surgery, you might need to wait a bit, but for surgery which needs to be done quickly, I see no evidence that generally that is a problem. Of course there is anecdotal evidence where things go wrong, but overall, European healthcare systems are rated substantially higher than the US system...
Unfortunately, saying "I see no evidence", is precisely the kind of anecdote that doesn't suffice as real information. In reality, the data is pretty clear on this point, and waiting times in the US are significantly lower across the board than any of the nations with so-called "universal" health care.

A Commonwealth Fund study recently found that 42% of Canadians waited 2 hours or more in the emergency room, vs. 29% in the U.S.; 57% waited 4 weeks or more to see a specialist, vs. 23% in the U.S. - I cannot possibly go through each individual procedure, but this isn't uncommon. These aren't merely "anecdotes", but statistically significant and easily predictable consequences of these types of systems.

Note below Canada's wait times for different procedures and the discrepancy between wait times in Boston (Massachusetts being one of the only US States which has adopted "universal" health insurance paid for by the government) and other states.

Wait Times in Canada
Massachusetts vs. Other US Cities

Ironically, I recently found a Huffington Post article from 2007 by Deborah Burger, who is the President of the California Nurses Union, which is largely devoid of real evidence pointing out that the US waiting times are "three weeks" to see specialists. But... First off, that's significantly less than Canada - which literally makes her article 100% nonsense. But as you can see from the chart above, Massachusetts - whose "single-payer" system is failing miserably - is a massive outlier, and Boston brings the city average up 2 days. Excluding Boston, the average wait time is only 18.44 days for the listed procedures, and as cities experience the highest overall demand per available resources, that is likely to be the highest wait you'll experience under the current American system.

This obviously means the difference between life & death for a great number of people. Additionally, the American system is not actually as different as people would like to believe - both the United States & other developed nations' governments are heavily involved in health care. The United States is only a few degrees difference from these other systems, and those few remaining areas of liberty keep us in the lead as medical innovator. If we abandon those few remaining things that keep our system functional, I would fully expect some pretty grievous results - not only for Americans, but for everyone.

As for the various "Ratings" which show the US lagging behind other countries, they are highly misleading in several ways. Certainly, the cost measurement is an important factor, but the most common measurements cited are in life expectancy and infant mortality - neither of which are legitimate descriptions reflecting the quality of a nation's health care system.

For example, while its true many nations have a higher life-expectancy than the US, there is only a minimal and certainly not causal link to the health care system being employed. This factor is much more greatly effected by lifestyle, diet, exercise habits and race/ethnicity.

Certainly, no one is suggesting that Bosnia has a better health care system than the US, yet it exceeds us in average life expectancy according to international statistics. They score an average 78.5 years to the United State's 78.11.

Cubans' life expectancy is claimed to be higher than the United States as well... And as thrilled as Michael Moore might be about that, what didn't really make it into the movie "Sicko" were real images from Cuban hospitals.

Like this one:

Cuban Health Care at its Finest!
For the record, this image was taken from www.therealcuba.com - The rest of the images in their health care section are far too tragic & horrific for me to post here. I encourage everyone to be aware of this site, as it is one of the best resources for truth about Cuba... Regardless of what Castro shows to bloated, socialist, propagandists like Michael Moore.

Another rating metric that’s commonly used is infant mortality rates, but this is even more misleading!

Different countries measure infant mortality by different standards. Many nations don’t count a baby as ever having been alive at all if it dies within the first few weeks. Some within the first 24 hours. The US counts all babies who were not stillborn – which is reason one our stats wind up inflated by comparison.

That said, that isn’t a complete explanation – the other half of this a sort of ironic statistical artifact of the US’ tendency to work harder than other nations to save premature babies. We have a much higher percentage of premature births than most other nations… Some look at this as a bad thing (including the NY Times), however, I have a number of friends who were born prematurely and who would have died at birth in many other nations.

In either case, it is what it is.

Premature babies are obviously at a much higher risk for dying within the first year than full-term babies. So put all together: We have a nation that is able to save babies’ lives that would have either been stillborn or died in the hospital in other nations, and unlike many other countries we count all of them. Some of those babies die within their first year, making our statistics look horrible.

It's easy enough to throw out statistics that make it sound like the US is in horrible shape, but the truth is much more complex.

Also, here's an even more comprehensive article: The Truth About Health Care & Infant Mortality

Additionally, the WTO rankings often fail to take into consideration other significant details very well. As I noted earlier, the US has the highest survival rate for cancer and other major diseases of anywhere in the world.

The reality is, we do a lot of the hard stuff vastly better than Europe. The only real problem, with the U.S. system is the extremely high cost of Medical Care – which also limits access for some people.
However... The high cost is a consequence of government intervention.


I have covered this numerous times throughout this blog, and as always, detailed history can be found here & also here.

But back to Mal:
Also, in my opinion, some rationing is good. Healthcare demand can essentially be infinite. Because of the insurance, few people bear the cost of healthcare themselves. And as with all systems where those who get something out of it without paying the costs, demand tends to be higher than needed. A bit of rationing brings some rationality back in the system IMO (probably not the most popular view I admit).
Or... People could actually pay for it themselves! Rationing fails miserably as a way to bring "rationality" into the system because it lacks all of the information-gathering abilities of prices, profits & losses

Mal also revises his suggestion of raising taxes to pay for the system, responding to my earlier point:
Raising taxes, it all depends on how you do it. You have a lot of loopholes that could be fixed. You could stop protecting people from the inheritence/estate tax/ Of course, simply raising tax rates, especially on lower paid workers will increase unemployment.
But an estate tax, if done properly and without being able to avoid it, would hardly influence unemployment, if at all. Or are you saying that you would work less now if you can’t give 80% to your children in 30 years time, but only 60%?
I can't really get bogged down by this, but I have to make a couple points about taxation as Mal suggests. First, any additional taxation is a further burden on the citizens, regardless of whether or not it happens today, in the form of income or sales taxes, or in 30 years in the form of wiping out a person's savings. Secondly, the estate taxes are ALWAYS avoidable. Instead of leaving one's children money, a person may spend more during his life time or find ways to gift his children large items like houses, cars, vacations, jewelry, etc. just prior to death. In either case, the tax wouldn't be paid, and the idea that you would tax someone's estate upon their death is morbid and morally repugnant to me anyway.

A person's death should not be one last opportunity for the government to take from them.

Finally, Mal questions whether or not the other "universal" health care schemes are "broken and crumbling" as I had claimed. It's quite true, I'm afraid.
The UK Times Online writes:
“A recent report from the King’s Fund and the Institute for Fiscal Studies (IFS) showed how the NHS cannot provide a comprehensive service on current assumptions after 2011. To freeze the budget again would require an extra £10.6 billion over the next spending review period. Some of the shortfall could, in principle, come from increased productivity, up to 7.7 per cent per annum, according to the IFS. This is an heroic assumption in a service in which, as the Office for National Statistics recently showed, productivity fell 4.3 per cent over the decade from 1997.”
The Wall Street Journal notes that in France:
“The problem is that Assurance Maladie has been in the red since 1989. This year the annual shortfall is expected to reach €9.4 billion ($13.5 billion), and €15 billion in 2010, or roughly 10% of its budget.”
And in Canada, the Vancouver Sun reports:
“Dix said a Vancouver Coastal Health Authority document shows it is considering chopping more than 6,000 surgeries in an effort to make up for a dramatic budgetary shortfall that could reach $200 million.”
I can go on about this (obviously) just about all day, but I hope I’ve generally made my point that the US still has some of the highest quality care in the world, and that increasing government involvement in the system is a criminally bad idea which will reduce that high quality, and exponentially exacerbate costs.

So what will reduce costs and encourage better service and quality? Glad you asked! A lot of things.
  1. Make ALL Health Care Tax Free: Regardless of whether or not it's your employer who's buying or you, yourself, the playing field needs to be even. The government's special exemption for businesses is what caused health insurance to be tied to employment - Doing away with all taxes on medical care would lower everyone's costs and remove the incentives against individual insurance policies. When people are once again in control of their own insurance, they will once again be the actual consumer.
  2. Repeal ALL Insurance Mandates: Insurance companies are currently extremely limited on the types of plans & different price-levels they are able to offer their consumers, because the government mandates base levels of coverage. They effectively eliminate legitimate competition and restrict individuals' freedom to balance price with coverage. These mandates also shift the entire insurance system from true "insurance" which protects against financially catastrophic risk to insurance-as-3rd-party payer, thus skewing economic incentives towards over consumption, raising costs by billions of dollars.
  3. Allow Insurance Companies to Compete Across State Lines: The full-faith & credit clause aside, there is no legal or moral reason that we should not be free to purchase health care insurance from anyone who is willing to provide it for us. This makes insurance "portable", and steps up competition in an as yet unprecedented way, which will reduce costs, provide more flexibility and help individuals find plans that are right for them.
  4. End the Cartels: Insurance Companies, the AMA, Pharmaceutical Companies, and virtually all aspects of the health care establishment enjoy special legal protections of their position. These need to be eliminated. The American Medical Association currently retains control over medical licenses, and the number of doctors available in the United States - this causes regular shortages in doctors. That, in turn, limits access and increases the cost to the consumer. Insurance companies, Blue Cross & Blue Shield enjoy special legal status which prevents any real competition in insurance markets, and allows them to dominate insurance markets in virtually every state - Aetna & other big insurers enjoy similar (though not as ensconced) protections through tax-breaks and limited licenses. These things need to be eliminated in order for the market for health care to function properly. Both companies who manufacture health care goods, and doctors, nurses & other professionals who produce medical services - must be allowed to succeed or fail based on how they meet consumer demand, not based on how politically well-connected they are.
  5. Tort Reform: "Ambulance Chasers" and other disreputable legal services have set up a cottage industry around medical malpractice lawsuits - This is why it costs many doctors between $50-100,000 a year simply to hold medical malpractice insurance. Tort reform can help eliminate the frivolous lawsuits, thus reducing the need for such high priced insurance lowering the total cost to consumers.
  6. Health Savings Accounts: True insurance is a risk pool designed to help people manage unforeseeable expenses, not a way to pass off predictable costs onto other people. Tax-free health savings accounts can help people manage regular maintenance costs such as doctors visits, flu-shots, and minor medical procedures while leaving insurance to cover legitimate catastrophic care only. This would drastically reduce abuse of insurance and lower costs across the board as individuals - rather than government officials or insurance companies - made more direct decisions about their medical care.
  7. Transparency in Costs: This is significantly more culture than policy, but people need to be in the habit of asking for cost break-downs of their doctor & hospital visits. HSA's, an actually competitive insurance industry, and paying for more care directly would go a long way to encourage this. Knowing price enables people to weigh cost vs. benefits, and reflects the relative scarcity of different goods & services. When a 3rd party pays, whether that's an insurer or a government, those issues are never considered - thus raising costs, causing shortages and rampant over-consumption.
  8. Begin Reducing Government as Health Care Payer: Medicare & Medicaid, and most other social welfare institutions in the United States function as pyramid schemes. These pay-as-you-go financing methods are entirely unsustainable, and contribute greatly to increased costs. Reducing the government's involvement not only keeps the US financially solvent, but also will reduce costs to consumers over time.
  9. Tax Reform for Charity: Provide greater incentives for people to contribute to medical charities and to help support treatment for poor & low-income individuals. With fewer taxes overall, more money to spend out of pocket and cheaper health care overall, this shouldn't be difficult. America is already far and away the most charitable nation on the planet...
  10. Freedom!: People should be free to determine who provides their health care, what type of care they want, who will be paying (insurance, HSA, generous benefactors, charities, credit cards, etc.), and what kinds of arrangements suit them the best. They should also be free to decide what arrangements to make regarding their bodies - if hospitals and other foundations wish to offer compensation for organs or bone marrow to increase the availability of transplants, they should be free to do so. This will free up financial arrangements so that instead of just one or two options, people can pick and choose from hundreds to find the one (or many) which suits them best. It also means that questions of medical ethics and religion are no longer an issue. If you smoke, or are overweight, if you want an abortion or if you want to try an experimental medication - a free system allows you to do these things if your insurer won't cover you, you have dozens of other options. But when the government pays, you lose these choices. When other people are forced to pay for your health, suddenly other people get some say in what you can and cannot do. Are abortions to be publicly financed? Stem cell research? Organ transplants? Drug rehabilitation? Sure... If you can get the votes. And if you can't... Tough luck.
In truth, No one knows what is the "correct" arrangement of health care resources, much less who will need which goods or services. Individuals and their physicians, are the best people to make these choices, as they have the incentive to balance the best possible care with the lowest, most affordable costs. Bureaucrats in both government & business do not share these incentives, so to the largest extent possible, the consumers of health care should be the patients, not 3rd parties. Real competition can bring costs down, and bring supply in line with demand until the market finds some equilibrium.

Equilibrium.
Central planning cannot accomplish this. Ever.

Pharmaceutical companies, insurance giants & unions don't deserve special protections or tax benefits - they don't deserve to have government protecting them from competitors. Let those successful companies win by providing individuals with what they want, and let profits and losses guide producers as to what that means.

If we do each of these things, as has happened in all industries with a modicum of freedom, costs will come down, choices will multiply and both producers & consumers will win. And that's the goal isn't it?

Indeed it is.

So there it is... Parts 1 & 2 of my health care points.

Strawmen have been debunked, intelligent arguments soundly refuted and solutions offered. And... I think that's all I have to say about that.