I often go against orthodoxy… on markets and specific investment plays, for example.
I fit in well in that mode, especially when it comes to public policy issues. For example, I am against health care.
personal freedom? We are no more free to choose our own doctors with most private insurance plans than we are with a single payer system.
The irresponsible bureaucracy? Insurance company administrators are just as horrible as the government variety.
Expensive subsidies? If you get your insurance from your employer, you get a massive tax subsidy. Your insurance benefit is not taxable even though it is as much a part of your compensation as your paycheck.
But the big problem for me is this: The economy-wide benefits of having affordable health care outweigh the costs.
This is my case… and I want to know if it convinces you.
How did we get here?
The United States does not have a “system” of health care.
What we have developed from an agreement between the United Automobile Workers and Detroit automakers in the late 1940s. Workers would accept lower wages if they had cheap health coverage in their company account.
But no one expected that deal to be permanent. They assumed that postwar American citizens, many of whom had just sacrificed themselves to preserve their country’s liberties, would eventually get government-sponsored health care to support the private system.
But that didn’t happen. Instead, the company-based insurance system expanded to cover all industries. Eventually, government-sponsored programs like Medicare and Medicaid arose to fill in the gaps for those out of work: the unemployed (Medicaid) and the retired (Medicare).
Then both the corporate and government systems became entrenched by special interests.
For a variety of reasons, basically employers, employees, insurers and the health care industry had no incentive to control costs and premiums, the system got to the point where the US has one of the worst health outcomes of any developed country.
And the highest rate of bankruptcy due to medical bills.
In other words, our health care “system” is a hodgepodge of temporary fixes and counter-fixes that became permanent because no one could agree on anything else.
It greatly damages our economy.
The United States spends more of its gross domestic product (GDP) on health care than any other country: 16%. But other economy-wide effects of our employer-based insurance system reduce our GDP below its potential. Let’s consider three.
- work lock: Many people take and keep jobs because they have health coverage. They stay in those jobs longer than they would otherwise. That means that overall labor mobility in the US economy is lower, undermining the efficiency of the labor market.
- Lower rates of entrepreneurship: The United States has one of the lowest rates of new business formation in the developed world, and it’s getting worse. This is because starting a business here is riskier than in other countries…because until you make a good profit, you can’t afford health insurance. Young people in the prime of life do not start companies for this reason, which harms job creation.
- Late retirement and weak job market: Older workers tend to stay in their US jobs longer to maintain access to company insurance. That means less room for younger workers, keeping them underemployed and hurting their long-term career prospects.
In addition to $4 trillion in annual direct costs, by some estimates these dysfunctional aspects of our health care system cost the US economy 3-5% of GDP.
every year.
Could you afford a private highway?
So is favoring some form of public support for health care “socialist”? Hardly.
This is how I see it: health care has similar economic effects as the highway system, the justice system, and national defense.
Each is more than the sum of its parts. Done right, these “public goods” contribute more to economic activity than they cost. If you try to do these things individually, you sacrifice a lot of economic dynamism.
The typical argument, of course, is that public health ends up rationed. We hear horror stories of Canadians or Brits standing in endless queues for medical procedures. (Of course, under a private system, there’s also rationing… if you can’t afford it, you’re not in the queue.)
But a UK-style NHS is not the only option.
Many countries, including most of the Latin American nations favored by American retirees, have hybrid systems. The most common is to have a public system of primary and preventive care – neighborhood clinics where you can take your child with a cold or vaccinate them – and a private system for more advanced health needs. If you want to take out private insurance and go to a private hospital for surgery, nothing stops you. If you can’t afford it, you may have to wait in line for public care.
But there are considerable advantages. First, we would avoid job lockout, low entrepreneurship rates, and delayed retirement. Second, the availability of low-cost primary and preventive care would reduce the incidence of long-term chronic conditions that end up costing us a lot of money when uninsured people show up at the emergency room: diabetes, heart disease, etc.
