Friday, June 26, 2009

Obama's Health Insurance Proposal: You Didn't Know

If you like Obama's proposal to create a government health insurer don't feel bad. You didn't know. You didn't know that every major FUBAR (Fouled Up, ahem, Beyond All Recognition) or hyper-dysfunctional area of the economy -- health care, marriage, retirement, construction, higher education, mortgages, etc. -- has followed the same general pattern:

The market for some good doesn't work as well as some people would like. (Unsurprisingly, the FUBAR areas are characterized by asymmetric information, externalities, etc., i.e., information is imperfect so the markets are as well.) Some people can't afford to buy the good, some people get less value than they thought they would, etc. Politicians get wind of the problem and try to win over voters by trying to fix the problem with taxes or regulations. The intervention, however, actually makes matters worse, "necessitating" additional government interference. Eventually, as in the case of intercity passenger rail, private businesses are driven from the market entirely, leaving behind a bloated, inefficient, highly-subsidized government entity like Amtrak, or the public school system.

If the government is serious about helping to improve the value of health care services, it needs to help to promote competition. That means forcing doctors to disclose stats on how well they perform and encouraging businesses to collate, compare, and disseminate the information. It needs to divorce health insurance from employment by ending biz tax deductions on premium payments and encourage the development of individual policies by deregulating policy forms. But most of all, we need a system whereby doctors' compensation is based on their performance, not their time. The easiest way to do that is to develop a system where people pay when they are healthy but don't pay when they are sick. That will encourage doctors to focus on prevention and on outcomes, rather than inputs, as presently. Med mal would also be transformed as docs who messed up would be responsible for the patient until s/he recovered. A system of true competition -- competition on what is most important to people, the value proposition (trade off between cost and benefit) -- would quickly reduce quackery, unnecessary tests, and so forth.

Obama's government health insurer would do nothing to promote competition but would simply pump more money into the current health care system, allowing costs to soar higher still.

You didn't know. But now you do ... what are you going to do about it?


Anonymous said...

Dr Wright
Thats an interesting article. I hope Congress reads it, I am interested if you could write your thoughts on the economic effect of the Cap & Trade bill that passed the house. I think FUBAR means something different what you wrote dose it not?
Signed DP

Robert E. Wright said...

Yes, the F in the acronym FUBAR can stand for the "F-bomb" and yes, I'll write up a little something on cap and trade.