Some of President Obama's advisers on the left are urging Mr. Obama to "put everything else on hold" to make a big push for universal health care. Given that, some of the brightest minds on the free-market side of things are rallying to try to defeat Mr. Obama's plan. The New York Post marshals the president of the Pacific Research Institute, Sally Pipes, while the blog of Harvard economics professor and former Bush economic aide Greg Mankiw links to both a Wall Street Journal article by Abraham Verghese and an article on health care by Milton Friedman.
All three pieces – Pipes, Verghese, and Friedman (actually, four pieces, if you count Mankiw on Verghese as a piece its own right) – make some good points, but they also miss some significant points.
Let's start with Ms. Pipes, who downplays the problem of the uninsured. She writes:
those without insurance in the United States may in fact receive timely care while paying little for it.
Official counts place uninsured Americans at roughly 46 million, an alarming 15 percent of the population. Yet a closer look paints a less scary picture. Of the 46 million, one in three, or 17 million, live in a household with an income greater than $50,000. Four in 10 are 18 to 34 years old -- an age range where health spending averages less than $1,000 a year out of pocket.
As many as 14 million -- including many children -- are already eligible for taxpayer-funded health insurance via Medicaid or SCHIP, but simply haven't signed up. One in five, or 9.7 million are noncitizen immigrants, a portion of whom are here illegally. Seven in 10 people are uninsured for a year or less.
Then, too, health insurance often doesn't make financial sense for people with few assets, good health and limited income. They can pay out of pocket for routine care -- and rely on the social safety net for large, unexpected and unlikely events.
She concludes by suggesting that the entire "rush" to overhaul the health care system is a mistake, praising the present system as one that "provides excellent, responsive care to the fully insured, uses taxpayer money to cover seniors and low-income families and children, and highly subsidized care to those without insurance."
Her point seems to be that the uninsured don't have it so bad. There may be something to that, but she doesn't even mention the fact that for those who are "fully insured," coverage is quite expensive, in part because they are paying for the uninsured as well, through taxes and through what is known as "cost shifting." If states don't allow good drivers to opt out of buying auto insurance, why should they allow healthy patients to opt out of buying health insurance? In both cases, the rest of us – taxpayers and those who do buy insurance – are stuck paying the costs of those who don't pay. "Social safety net" is a polite way of putting it; another way to say it might be "freeloading." Estimates vary, but the average family with insurance pays somewhere between $133 and $1,017 a year extra in premiums to cover the cost of the uninsured, according to this article. Or, as this page puts it, "If cost-shifting were eliminated, premiums would be somewhat lower for private payers and higher for public payers."
Now, Ms. Pipes could argue that even $133 overstates the cost, or that it isn't worth overhauling the whole system to fix the cost-shifting issue, because the unintended consequences of such a fix would outweigh any benefits. But given that the taxpayers and those with health insurance are bearing the costs of the uninsured already, there is a case to be made for getting them in the system on a formal basis so that those costs can be managed and budgeted within the political system rather than just passed along outside the government budget and outside the democratic process to those who still pay steep rates privately for their own health insurance.
Milton Friedman wants to reduce the cost of health care "by eliminating most third-party payment." He makes a comparison to food: "We have become so accustomed to employer-provided medical care that we regard it as part of the natural order. Yet it is thoroughly illogical. Why single out medical care? Food is more essential to life than medical care. Why not exempt the cost of food from taxes if provided by the employer?"
Yet food and health care are different in terms of what economists call the price elasticity of demand. One way of explaining it is that very few hungry people with $200 in total assets are going to pay $200 for a meal at Per Se rather than $7.99 for dinner at a local diner. One's basic dietary needs for life are going to be met pretty close to as well by a hamburger and fries at the diner as by the foie gras at Per Se. But if the same hungry person has a potentially deadly cancer, and some drug company has come up with a pill that has a 80% chance of curing it while another drug company's pill only has a 20% chance, the drug company with the pill that works 80% of the time can charge $200 a pill and get a lot more customers than the pill that only works 20% of the time, even if the pill that only works 20% of the time only costs $7.99. The surgeon whose patients have an 80% survival rate can charge a lot more than one with a 20% survival rate. And word will get out, and people will find a way to pay. So, to get back to Milton Friedman, it's not entirely clear that putting the patient in charge of the spending will achieve Friedman's goal of cost reduction. If anything, the patient is likely to spend more on his own health than an employer or an insurance company would, because the patient's own life is more valuable to the patient than it is to the employer or the insurance company.
Professor Mankiw is a case in point. He writes that he takes a statin pill daily even though Dr. Verghese says the pill "costs about $150,000 for every year of life it saves in men." Writes Mr. Mankiw, "I appreciate the extra lifespan, even at the cost." The cost of statins will likely decrease as they come off patent. But many patients, given the chance to decide for themselves, will likely come to Mr. Mankiw's conclusion and decide that $150,000 is a reasonable price for the statistical probability of an extra life-year. Circling back to Ms. Pipes's argument, some of the frustration with the current system arises from the fact that those in the private insurance system are paying the $150,000 for their own statins through their insurance premiums, then paying for the pills a second time through taxes for those on Medicaid and Medicare. Meanwhile, those who are uninsured aren't getting the statins at all, but when they then show up at a hospital emergency room with a heart attack, the cost of their cardiac bypass operation and the rehabilitation that follows is shifted onto those same private payers, either through taxes or increased premiums.
None of this is to defend "socialized medicine" or to suggest that the government can or should force anyone to take pills that they do not want to take. There are tradeoffs involved with nearly all of the alternatives on health care policy. But it's odd to see the free-market types so eager to avoid universal health care, or to defeat an Obama initiative, that they wind up mounting a defense of the freeloaders against those who pay for health insurance and against those who pay more taxes than they consume in services. These free-market types generally favor individual choice, which is one reason they tend to want to preserve an individual's right to choose not to purchase health insurance at all. But there is another choice to weigh here, and that is the choice of those who do pay health insurance premiums and taxes not to subsidize the freeloaders. No one wants to turn away sick patients at the hospital door; for one thing, it's illegal under the Emergency Medical Treatment & Labor Act of 1986 (Yes, 1986, despite what Paul Krugman would have you believe about the deregulatory zeal of the Reagan administration). The question is whether the freeloaders should be allowed to stick everyone else with the bill for that care just because those freeloaders decided that health insurance "doesn't make financial sense" for them. One of the quirks of the current political debate is that it puts free-market types like Ms. Pipes in the position of defending the current health care system in America, which isn't really a pure free market system but is one that has a heavy dose of government spending and regulation and of the distortion that accompany them.
