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How about a Liberal Option – And It Could Be Done Through Reconciliation

Doctor is holding payment terminal in hands. Paying for health care.

Could the market help us solve our healthcare problems? Market economists and theorists say of course it could; big government/Progressive types say no. Let’s find out.

As Franklin said when discussing his famous Kite, “let the experiment be made.”

When the Obama administration was debating just how heavily to regulate America’s healthcare system, many on the Left wanted a truly government-run health insurance scheme, or “public option.” As Progressives’ default assumption is that government programs work better than the alternatives, they believed a “public option” would demonstrate the wisdom of turning to fully socialized medicine in the United States.

Average Americans reacted sensibly: they feared that the government would run our healthcare system as efficiently as it runs the DMV and, as we now know, the system providing healthcare to our military veterans. The “public option” was not included in the final bill.

Yet in March 2010, Obamacare did pass. And between it, the extensive regulatory regime already in place, and the pre-2010 federal institutions—the Veterans’ hospital system, Medicaid, Medicare—there wasn’t much of a free market left when it came to American healthcare.

A cynic would say that Obamacare was designed to regulate the for-profit parts of the healthcare system so heavily that it would be impossible for corporations to provide all the services government demands they provide, to all the people government demands they provide them to, and manage to do it effectively and at a reasonable cost. The failure they may well have been looking for would have pushed us toward finishing the job, and granting government a monopoly on healthcare.

We are very far down that road. But a funny thing happened on the way to a government monopoly.

A lot of people who buy insurance are seeing skyrocketing premiums. Contrary to President Obama’s explicit promise, they were unable to keep their old health insurance if they liked it, or their old doctors. This was one of the main reasons for Obamacare’s consistent unpopularity throughout its namesake’s presidency.

To be sure, many more Americans have health coverage than did before 2010, but overwhelming majority of the new customers for the system are in Medicaid, rather than in the heavily regulated corporate insurance market. Part of me wants to see the Democrats suggest a true “single payer” system, banning cash for service, and watch their billionaire donor base react. For the fact is, many of the very rich pay cash for service—Medicaid for all would exacerbate this class differential.

Given these realities, and following Franklin Roosevelt’s call for “bold, persistent experimentation,” maybe we should try the experiment of a true market approach to health insurance. Offer the American people the ability to opt out of the government-run and government-managed (including micromanagement through regulation) system. Allow us the opportunity to make our own judgments about what health-insurance plans would suit us. If the Republicans tried this approach, they could easily pair it with Ben Domenech’s suggestion of Catastrophic care for all, allowing more flexibility even there, perhaps allowing some variation in what, exactly such policies cover. Domenech says that the policy might cover statins and other drugs.  A free market would probably be a much more diverse and innovating market.

Why not at least try the liberal—as opposed to the Progressive—solution? If it fails, it fails.

The American healthcare and health insurance markets are so heavily regulated that it cannot be said that the market approach has been tried and failed, for it has not been tried. In this respect, it calls to mind the so-called “deregulation” of energy prices in California. The state, among other things, deregulated retail prices but not wholesale prices. As if that could possibly work, or could constitute deregulation in any real sense.

In other markets—from cell phones to televisions, alarm clocks, food (barring price supports), oil (thanks, most recently, to the fracking revolution which has also helped improve America’s carbon footprint by helping us turn to natural gas from coal), taxi services (see Uber and its competitors), and quality coffee—prices drop when the market is allowed to operate. Progressives  say that healthcare is different, but is it? Or would the price mechanism and the price incentive spur innovation and improve service if the government actually allowed it?

Maybe the Progressives are afraid the liberal approach would work, which would burst their bubble. It would be nice to find out.

But, some might respond, the insurance companies will offer crappy plans, taking advantage of those who are less than savvy about such matters. Yet if a plan is truly no good, citizens will not buy it. To presume that most of us are too stupid to distinguish between a good and a bad health insurance plan is to question the premise of democratic-republicanism itself. Surely if people cannot be trusted to judge their own interest in something so important as healthcare, then they cannot be trusted to judge who should hold office, and through them, what government should do and how it should do it.

That is, actually, how Progressives see things. In the age of the social science PhD, why ask voters about subjects as recondite as healthcare. As Philip Hamburger recently noted on this site:

Woodrow Wilson candidly explained that “the reformer is bewildered” by the need to persuade “a voting majority of several million heads”—especially when the reformer needed to influence the “mind, not of Americans of the older stocks only, but also of Irishmen, of Germans, of Negroes.”

The technocrats, the Davos set, the SAT oligarchs in general, who would like to take care of us have little respect for citizenship or anything recognizably liberal in the classic senses of the term. There is a straight line from Wilson’s Progressives to Hans, er . . . Jonathan Gruber.

But wouldn’t some consumers be pushed into selecting bad plans? That’s part of the beauty of creating a liberal option: no one is forced to rely on the market. If the market does its usual work, however—bending the cost curve, providing more options, and better care—then it will be time to expand the provision.

How could a plan like this pass? The Democrats would not let it through the Senate. They would  filibuster it. Their base, and their big donors, dread such an experiment, and their friends in the Democratic Party press, aided, no doubt, by the corporations that profit from the current system, would lampoon it and bash it with straw men arguments.

That brings us to another advantage of presenting this truly liberal option just now. Make those who wish to try the experiment pay a small (five-dollar?) tax/penalty for opting out of Obamacare (or whatever replaces it). If the experiment failed, at a high cost of taxpayer money, that would make up some of the losses to the U.S. Treasury. The tax/penalty would be set low enough that every American, or just about every American (in a middle-class democracy like the United States, we must, as a rule, tailor policies to the broad middle class), would be able to afford it.  The same trick can be used to allow the purchase of policies across state lines.

Because it would be connected with a tax/penalty, it would be a budget measure, and thus would only need 51 votes in the Senate, operating through the reconciliation process. This move would be in the fine American tradition of finding loopholes (a.k.a. liberty). In the 1830s when Boston banned the retail sale of alcohol, an enterprising bar owner painted a pig and charged people six cents for a viewing. Each paying viewer got a free drink!  Many paid to view the pig several times a day.  That’s how citizens react when politicians and busybodies try to limit their freedoms.

One final note. In the past few decades, America’s healthcare system has grown less and less free and, at the same time, more and more lumbering, cumbersome, and expansive. That’s what keeps many of the nearly 80,000 employees of the Department of Health and Human Services employed. If given more freedom, maybe more doctors would practice medicine longer. Perhaps, more Americans might enter the field, which would help address our coming “doctor shortage.” Perhaps we could shrink the size of HHS, saving tax dollars.

America is lucky. We are a wealthy and still a largely free country, and that enables us to attract physicians and would-be physicians from all over the globe, particularly from its less wealthy and free parts. But we should ask: Is it just for us to steal doctors from less wealthy, even poor countries? Maybe opening the healthcare market would help us have more doctors, and without stealing them from elsewhere, an invaluable service to less wealthy lands, albeit one that would be difficult to demonstrate.

The liberal option. Let the experiment be tried. An idea so crazy it just might work.

Reader Discussion

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on March 22, 2017 at 11:29:37 am

Unlike so many other analysts, professor Samuelson is careful to differentiate HEALTHCARE from HEALTH INSURANCE. Sadly, we seem to be caught up in an era of social development in which the provisions (and facilities) for those two distinct instrumentalities, each brought into being by different objectives (needs, wants, desires and "feelings") have become ( at least politically) intertwined and now almost "fused."

While it may still be possible to "experiment" (once again) with a "market" approach to INSURANCE, the current sociological outlooks (public attitudes and "feelings") are such that no type of "market" approach for HEALTHCARE is likely to be feasible.

There appears to be a sufficiently dominant "feeling" in the populace that, generally, everyone OUGHT to * receive* healthcare. This general sense of " OUGHTNESS" probably removes the provisions for and facilities for healthcare from a "market" concept of transactions and relationships; at least insofar as similarity to, or demonstrable applications of, commercial and economic market concepts (of any kind) are concerned.

That is not to say that there are no elements of "market" concepts applicable to the selection and delivery of specific healthcare services. However the existence of those elements are generally at odds with that public sense of oughtness of availability of those services.

"health care is 1/6 of our economy, but nobody wants to spend 1/6 of their income on it." -
Josh Barro

We may be facing the condition stated by David Hume that "ought is not is." It may well be that we are encountering an "ought" that cannot be fully converted into "is."

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R Richard Schweitzer
on March 22, 2017 at 11:33:36 am

Here, here! And, add a measure to incentivize existing doctor tenure, and the entry of new doctors by limiting medical malpractice litigation and you might just be onto something.

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Paul Binotto
on March 22, 2017 at 11:54:14 am

Yep!

In a sense, the notion of *oughtness* regarding HEALTHCARE is simply another manifestation of the ill consequences of "moral hazard."

In a recent book review of Mallaby's take on Alan Greenspan and the Fed Reserve, Mr. Samuelson argues, rightly, I think, that the Fed's (intermittent) success(es) in apparently managing the economy may ACTUALLY lead to irresponsible economic behavior - eventually resulting in recessions, burst bubbles. etc. This is also evidence of "moral hazard", not unlike the bailing out of certain companies / nations after the Asian financial crisis of the late 1990's, as one example.

How different is the *oughtness* of HEALTHCARE than the irresponsible behavior of AIG or the Asian players.
The perception is that "government" will be there to bail us out. It will ameliorate the effects of our own irresponsible behavior. how is it that we are irresponsible and morally derelict? The (willful ?) failure to obtain / purchase HEALTH INSURANCE and the refusal to recognize that IT is INSURANCE, rather than a guarantor of good health / care is in part attributable to a notion held by many people that the government OUGHT to bail those citizens out of the consequences of their irresponsible behavior.

Yep, over time, the people have come to incorporate a deep seated sense of entitlement to certain rights (HEALTHCARE) that are not just secured by government but PROVIDED by government; nevertheless, it is still (or ought to be) incumbent upon the citizen to provide for themselves, to take reasonable measures to assure their own health AND to allocate some portion of their wealth / income to protect against unforeseen circumstances by purchasing basic insurance against such eventualities.

The failure to do so is NOT the fault of insurance companies; it is the direct result of a failing of moral responsibility and it is the hazard about which much commentary has been offered in the area of economics, etc.
It also seems fitting for HEALTHCARE.

BTW: Good essay at CRB on Greensoan and the Fed.

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gabe
on March 22, 2017 at 11:57:06 am

Also, absotively luvv'd Mr. Samuelson's suggestion of the $5.00 fee (tax?) as a means to get around the 'reconciliation issue and the B.S. *problem* of the Senate Parliamentarian.

Just another excuse for the compliant Republican establishment to avoid a hard choice.

Hmmmm! Now that is a *moral hazard*

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gabe
on March 22, 2017 at 12:02:14 pm

A very good idea, particularly for the insurable. There remains the issue of the medically uninsurable whose expense must be paid by the people or their government. We must also address the young free-rider issue since we all become medically uninsurable with age. While anathema to a strict liberal, a tax , equivalent to cost of catastrophic insurance must be assessed on all except the medically uninsurable.

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Vic St Amand
on March 22, 2017 at 14:46:33 pm

"Unlike so many other analysts, professor Samuelson is careful to differentiate HEALTHCARE from HEALTH INSURANCE."

Thank you, thank you and thank you again, Richard, for pointing that out. I grow weary of the listening to the folks who equate the two.

Equally wearing are the folks who claim that health care should be a RIGHT. Everyone in the US already has a right to health care. Not everyone has the MEANS to afford it, which is what those folks are really after.

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Scott Amorian
on March 22, 2017 at 23:13:58 pm

"Equally wearing are the folks who claim that health care should be a RIGHT. Everyone in the US already has a right to health care. "

And what that intends is that others have obligations to fulfill that "positive" right.

Yet, as Josh Barro points out, after the "others" have covered their own costs, they repulse being charged the balance to bring the outlays above those for their own needs up to 1/6 of their income for the needs of others.

In fact, there are probably NOT enough "others to do so; and, most can't.

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R Richard Schweitzer
on March 22, 2017 at 23:29:12 pm

The term "uninsurable" individual is probably a misnomer.

It is WHAT an individual requires (or may require), how long it may be required, etc., that is not "insurable."

Insurance is a transfer of RISK which is distinct from transfer of COSTS, which is what most healthcare *service* contracts provide. When the transfers of costs are wrapped up in the same document as transfers of risks (as most "policies" now are required to provide, the costs transferred are spread over too small a base of people, premiums, and investment assets income. It requires use of something equivalent to the tax base - or even broader to capture the earnings of non-taxpayers.

Disclosure: my professional work from 1958 until 1990 involved constant, consistent exposure in this field.

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R Richard Schweitzer
on March 23, 2017 at 06:52:48 am

Mr. R Richard Schweitzer - you make several very interesting and informative contributions to this discussion.

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Paul Binotto
on March 24, 2017 at 10:43:14 am

We have, for some time past, observed with great regret the strange infatuation which leads [Southey] to abandon those departments … in which he might excel, and to lecture the public on sciences which he has still the very alphabet to learn. He has now, we think, done his worst. The subject which he has at last undertaken to treat is one which demands all the highest intellectual and moral qualities of a philosophical statesman, an understanding at once comprehensive and acute, a heart at once upright and charitable. [Instead,] Mr. Southey brings to the task two faculties which were never, we believe, vouchsafed in measure so copious to any human being – the faculty of believing without a reason, and the faculty of hating without a provocation.

Thomas Babington Macaulay.

There exists … a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

G. K. Chesterton

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nobody.really
on March 25, 2017 at 14:15:47 pm

"f you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

Is the following an example of Chesterton's admonition?

"Surely if people cannot be trusted to judge their own interest in something so important as healthcare, then they cannot be trusted to judge who should hold office, and through them, what government should do and how it should do it. "

It would appear that woody wilson was a prime example as the 2nd quote fairly accurately describes his position with respect to representative governance; He simply could not see (nor tolerate) the use of it.

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gabe

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.