Lecture I: Goals of Health Care Policy

Health care policy is one of the most complicated and perplexing, as well as important and widely discussed, political issues.  Many political commentators that I have read on the subject have oversimplified views and are unusually dogmatic, and I have yet to find an author or scholar who I think has gotten it all right, so I have decided to write a series of posts on health care policy.  Feedback and constructive criticism would be appreciated.

I. Goals of Policy
The starting point for an analysis of health care policy is the set of goals we wish to achieve through reform.  The three criteria that are usually used to judge health care systems are access, efficiency, and quality.  These goals seem simple enough but there are complications – here I will mainly focus on complications to the goal of access.  Initially, I thought the issue of access was simply a question of moral philosophy.  If we think that poor people deserve more medical attention, the solution is for the government to distribute health care vouchers that can be spent on health insurance.  If we think that all sick people deserve high quality medical care regardless of ability to pay, just have the government pay for sick people’s health care bills.  If you disagree with these philosophical beliefs, you will oppose these programs to expand access.  This, incidentally, is how liberals would prefer to have the debate framed: either you think people should have their basic needs met, and you support liberal policies, or you think that we should just let sick people die, and you oppose liberal policies.

On further reflection, however, I realized that this both overstates and understates the case for universal health care.  It overstates the case because it ignores the possible unintended consequences of government intervention in health care (higher taxes, long waiting lines, less innovation) and ignores how the free market may be able to achieve something close to universal coverage – I will talk about both of these issues in later posts.  It also understates the case for universal health care.  Even if we disagree with the liberal moral argument, we still want a functioning insurance market – one where individuals can protect themselves against financial risk by paying actuarially fair rates.  Our current health insurance market has three large flaws: a) insurance is not portable.  It is tied to your job, which creates economic insecurity for individuals and inefficient job lock.  In a perfect insurance market, health insurance would be disconnected from employment, and individuals could “take their insurance with them” – which is the case in Canada and Europe. b) Insurance is not long-term.  Health insurance is annual, and your premiums increase significantly once you get a chronic illness.  But many (if not most) people want to be protected against the financial risk of a life-long chronic illness, not just the first year of one.  If people are willing to pay actuarially fair rates for life-long insurance but no such insurance exists, that is a market failure.  Under universal health care, people are more thoroughly protected against risk, which is the whole point of insurance.  c) Health insurance companies practice rescission: as long as you are healthy they will collect your premiums and tell you everything is fine, but once you start incurring costs they will find a bogus reason not to pay for your bills, often with the excuse that you had a preexisting condition that they just discovered in your medical history.  The whole point of health insurance is that they pay your bills when you get sick – rescission makes insurance meaningless.  I will talk about whether a free market can deliver portable, life-long, reliable insurance in a future post, and if not what sort of government interventions would work best.
Then there are the philosophical arguments for and against universal health care.  Later I will discuss whether a free market can provide universal coverage, but for now let us assume that it cannot.

The fundamental argument for universal coverage is that sick people have a right to high quality medical care regardless of ability to pay.  This premise is often justified by Rawlsian arguments (life is a lottery that the losers neither chose to play nor deserved to lose, so they should be well-compensated for their disadvantages), utilitarian arguments, or just pure emotional outrage: how can rich people buy yachts and private jets while poor people are dying in the streets of disease?  The alternative position is that although sick people lost the lottery of life and it sucks to be them, it is no one’s fault and therefore the government should not do anything about it – using taxpayer money to pay for sick people’s health care would violate the property rights of the healthy.  I have a lot of sympathy for the liberal moral principle, and the alternative seems very cruel – but I don’t buy the liberal argument completely.  My sister Jane consumes over three hundred thousand dollars of medical care in a year – on physical therapy, speech therapy, scoliosis back braces, human growth hormone injections, gastric feeding tubes, antibiotics, EEGs, and tons of procedures and therapies that I probably don’t even know about.  This is not care that will eventually restore her to a normal level of functioning – she will probably never get even a minimum wage job.  If taxpayer money paid for all of my sister’s health care, I would feel very guilty.  Don’t get me wrong – I love my sister, and I’m glad she receives the care that she needs to have a decent quality of life.  But my (rather small) inner Objectivist tells me that it is wrong to force taxpayers to spend their hard-earned income on my sister’s medical bills.

To understand the philosophical argument against universal coverage, consider a thought experiment (hey! thought experiment!)  Let’s say there is a disease that you have a 1 in 10 million chance of dying of this year, and the treatment for it is very, very expensive.  You might reasonably decide that you don’t want to spend a bunch of money on insurance for such a rare disease.  But what if the probability was 1 in 100,000, 1 in 100, or 1 in 10? There is no “right” amount of insurance to buy – different people have different risk preferences.  Maybe you’d rather buy a bare-bones insurance plan than the totally comprehensive plan that politicians are likely to impose.  Maybe if you were young and healthy you’d rather risk going without health insurance entirely.  You should be able to decide how much of your income to trade for reduced risk, but universal health care forces everyone to take a large cut in their paycheck in return for more health care.

Advocates of universal health care have three responses to this argument: 1) the lower and middle class gets a free lunch because we can fund universal health care from taxes on rich people, 2) everyone gets a free lunch because single-payer care is so much more efficient than our system, and 3) people should be forced to have more health care than they would voluntarily pay for because people aren’t smart enough to make good decisions for themselves.

In response to the first point, leaving aside whether it would be a good idea to impose very high taxes on rich people, it is not clear that we can pay for universal health care this way.  Canada and most European countries have much higher taxes not only on the rich but also on the middle class, including regressive taxes like the VAT or the GST.  Many if not most proposals for universal health care rely on mandates that individuals must buy insurance as well as a “play or pay” rule that employers must cover their employees or face a fine – both of these policies achieve universal coverage by reducing the disposable income of the middle class.  In response to the second point, there is no argument here why we should reform the system to achieve more efficiency and more access, instead of just more efficiency.  Maybe the two are somehow tied together, but I have yet to see an argument supporting that.  Finally, the issue of paternalism is another philosophical issue that I have mixed feelings about and would rather just put aside for now.

The point is not that I’ve decided one way or the other on the issue of universal healthcare, and I want others to agree with me.  The point is that since all of the readers of this blog are pragmatists, we often eschew moral debates in favor of discussion about “what works” and what is “socially useful”.  This is not sufficient when talking about health care reform.  As much as I’d like to only discuss positive arguments, health care reform is necessarily normative.

A note on cost efficiency:  this is often confused with cost expenditure.  Some commentators point to high levels of spending and assume that this proves something important.  This tells us nothing, however, unless we know the benefits (or lack thereof) of that spending.  If we spent, say, 90% of our GDP on health care, but we got benefits that outweighed the opportunity cost of that spending, there would be nothing wrong with that.  The problem is if we have high levels of spending that don’t do anything (or don’t do enough) to improve health outcomes.  We need to criticize not the amount of spending, but rather the amount of wasteful spending.

A final note on quality: quality is incredibly hard to assess.  Patients are not medical experts, so they are not very good at judging quality themselves.  There are some attempts to gather statistical information about quality and make it available to consumers – for example, mortality rates at hospitals – but a) they need to be risk adjusted (if one hospital in general has sicker patients than others, it will appear worse in statistical measures even if it is of similar or better quality) and risk-adjustment is not an exact science, b) the statistical measures are complex and difficult for the average person to decipher, and c) in an emergency, no one has time to consult a health care consumer guide before going to the hospital.  I will argue in a future post that one of the biggest, yet most neglected, problems with our health care system is that there is very little comparison shopping – whether on the basis of price or of quality – when most people choose their health care providers.  As a result, the competitive pressure that forces most firms to continually find ways to cut costs and improve quality is sorely lacking in our medical-industrial complex.