Response to: For-Profit Health Insurance: Nothing short of Murder

This is a response to: http://tune-in-op-ed.blogspot.com/2009/07/for-profit-health-insurance-nothing.html

I find it useful when debating someone to recognize whether they are an individual who is trying to be right or trying to win the argument. If someone is trying to be right, they will follow arguments, check and recheck their assumptions, and try to identify the inevitable tradeoffs that surround complex issues. When someone is trying to win, they will appeal to emotion, speak in hyperbole, and attempt to “solve” problems rather than improve an imperfect world. So far, this blog post has been almost entirely of the second variety. It’s not hard to see coming when the title of the blog is something akin to, “if you don’t agree with me, you support murder.” Generally it is a waste of time to argue with people that just want to win because they’re not willing to change their mind when shown better answers, and they typically derail serious conversations with both attacks on their opponents’ motives and statements about their own desire to do good. Still, I’ll give you the benefit of the doubt and try to explain the libertarian position on healthcare and why increasing the involvement of government would do more harm than good.

Start with the basics. Everyone is going to die. People do not like the thought of dying and therefore are willing to work – to some extent – to prolong their life via dieting, exercise, and taking precautions. Some very smart individuals study very hard in order to learn how the human body works so they can help people whose health is failing. The question before us is who gets access to these experts, who has to pay the expert in order to work on those with access, how much money do we give those experts, how many experts are we going to have, how much incentive will they have to work and study, and who qualifies to be an expert? There are two philosophies on the table that answer those questions: free markets and socialism. Theoretically and especially empirically, free markets are better.

Creationists do not understand how life, so beautifully crafted and organized, could have come about by any method other than an intelligent powerful being piecing it together. I often refer to Democrats (and many Republicans for that matter) as “economic Creationists.” They generally believe that if you want something to happen you have to put some powerful agency in charge of it, take people’s money, and mandate that people do what the agency says to bring about that outcome. The idea that millions of tiny actions without any guiding force can create better, more sophisticated, more efficient, and more innovative products than a directed system is laughed at by creationists of both kinds. Nevertheless, it is true. Even in your post you refer to the great American past in which we invented the telephone, automobile, airplane, rocket ship, and atom bomb. Technically a Frenchman made the first automobile, but it was the free American system that mass produced it and made it available. Just for the smirk factor I will point out that the first rocket was made by Robert Goddard who suggested it could be used by the American government in the upcoming war with Nazi Germany. The government ignored him and the New York Times mocked his suggestion that a rocket could get to the moon:
http://en.wikipedia.org/wiki/Robert_H._Goddard
The point, however, is that these inventions were mass produced, invented, refined, lowered in cost, made more available and more efficiently in the United States. Why? You say in your last paragraph “Our (once) great nation was founded on a grand ideal.” It was. But you don’t seem to know what that ideal is. It was the antithesis of what is being suggesting for healthcare. Our republic was founded on the notion of a limited government of set and enumerated powers that was met at every turn by checks and balances. The most important rights were retained by the people, and that the government was only allowed to interfere in certain areas, such as approving patents, running a post office, maintaining a military (but only for 2 years at a time), etc. That restriction of government, frequently called “freedom”, is what led to America’s success. It’s not as if Americans are smarter or work harder than the rest of the world. We don’t have many natural resources. What we have is a relatively free market. I don’t have time to explain the free market in detail (it’s about as complicated as natural selection), so I’ll just refer you to Milton Friedman. You can learn a lot by spending an afternoon watching him on youtube. This clip in particular should give you an appreciation for what a market can do and how it can outperform top-down planning:
http://www.youtube.com/watch?v=R5Gppi-O3a8

When you say that I ignored the examples of a free market failing, you didn’t mention any. Every time in the course of human history that a market run by free people competed with a centrally-planned system (such as socialism) the market has won. I don’t know of a single exception. Cases in which free markets produced a better standard of living include: West vs. East Germany, North vs. South Korea, Hong Kong vs. the rest of China, Singapore vs. Malasia, Western Europe vs. Eastern Europe, post-WWII Japan vs. pre-WWII Japan, the United States vs. Soviet Union. This last example is of particular interest because the race between the US and SU was always considered close. They went to space, we went to the moon. We made nukes, they made nukes. Our national team won gold metals, they won gold metals. Etc. You’ll notice in all these comparisons it is the Soviet government competing with the US government. That’s why it’s close. If you look at what US markets produced, it was night and day! US cars were far superior to the eastern blog Trabant (http://en.wikipedia.org/wiki/Trabant) which required that you fill it with gas and oil every time you filled up and then literally shook your car back and forth. Keep in mind that the East Germans had a socialized car industry “so everyone could get a car.” Of course the average wait time was 15 years. The US entertainment industry dominated the Soviet Union, and American movies and clothes had to be smuggled in past government regulators. American food and drink was better so that when the iron curtain came down McDonalds popped up like Starbucks over there. We invented fast food, soda, and bred far better crops much more efficiently. There was a famous story about Margaret Thatcher and Mikhail Gorbachev during their first meeting. The Soviets were in the middle of a food shortage and millions of people were starving (they had socialized crop production “so everyone could get food”). The story goes that Gorbachev asked Thatcher how she fed her people. She said, “I don’t.” Yet somehow the English, South Koreans, Americans and Western Europeans haven’t starved since they adopted a free market in food production while North Koreans are eating pine tree bark and dying (http://www.youtube.com/watch?v=HwedNY3QzM8); so many people died in the Ukraine that it’s been labeled a genocide. The Chinese in 1958 attempted the “Great Leap Forward” so that “everyone would have plenty to eat!” The result? Twenty to thirty million people starved to death. That’s about twice the number who died in the Holocaust.

Thomas Sowell accuses politicians, mostly Democrats, of engaging in “stage one” reasoning only. If people need healthcare, you take money and give it to them to buy healthcare. What happens? Stage one: people get money and pay for healthcare. And then they stop thinking, collect their votes, praise themselves, and move on. But what happens at stage two? What are the incentives of the people involved? They don’t think that far. Neither did the Communists in China, or North Korea, or the Soviet Union.

If we take a look at the incentives created by socializing health insurance, we can see the following results:
- By allowing more people to see doctors for more and more trivial reasons we will allow doctors to charge more and still see a full day of patients. Insurance ALWAYS increases the price of a good because people will buy more when something is covered. This increased price will require everyone to pay more for insurance. If you bought music insurance that would pay 90% of the cost of concert tickets you (and many others) would go to more concerts. The people who put on the show would then raise their prices. That raise isn’t much though because you only pay 10% of the cost. So the price goes up dramatically until you stop seeing so many concerts. Of course the sky-rocketing price of concerts will lead Democrats to call for more concert insurance because they’re so expensive.
- The government will increase mandates about what must be covered. The government already requires insurance to cover specific treatments that some people don’t want to pay for like chiropractors and psychiatrists. This happens because lobbyists for the group that provides the treatments talk to Congress (often by handing them money) and there is no lobbyist for doing nothing. Increasing mandatory coverage raises prices because more people will use these services when they’re already paying for them.
- Because of regulations, public hospitals will be forced to see patients on the government plan (as they are currently forced to take Medicare and Medicaid patients). The public plan will then mandate prices that are too low (i.e., the hospital will lose money and go out of business if they charged that all the time) which leads them to raise prices for private insurance patients. This again has already happened with Medicaid. The result is private insurance probably going out of business. Once the hospitals can no longer pass on the costs to their private patients they will no longer be able to pay all their doctors and still meet the bottom line insisted on by government. They will cut back expensive care, go out of business, cut pay to their employees or refuse patients with expensive diseases. The result will be fewer doctors giving less care, to fewer people.
- Restrictions and regulations will decrease the number of healthcare providers. Government workers, unlike businessmen, answer to rules and regulations, not customers. So they put up rules about who is qualified to provide different services. This is one of those regulations that hurts people. If Einstein were alive today he wouldn’t be qualified to teach physics at a public school; he hasn’t done the teaching training that the government thinks is necessary. There are people who have invented new medicines that the government doesn’t think are qualified to prescribe them because they don’t have the license. You can’t braid someone’s hair for money in New York because you don’t have a license for haircare work. Once a doctor without some special training accidentally injures a patient some politician will get some votes by increasing “regulation” and insisting all doctors have even more training…reducing time they see patients, incentive to be doctors, number of people who can work as healthcare providers and generally annoying everyone and driving up prices.
- The government already has horrible regulations that waste doctors’ time (resulting in higher prices and presumably deaths). These include the silly notion that only a doctor can prescribe a drug; that you have to see a doctor every time you want to renew a prescription. Nurses aren’t allowed to do simple surgeries that they are perfectly capable of doing. Doctors aren’t allowed to teach patients to treat themselves for minor aliments. The result of all is this is a waste of doctors’ time, increased cost and increased wait times. Socialized insurance will probably increase these costs because the federal government routinely bribes businesses by requiring even more stringent rules before they agree to pay.
- Increased demand will be problems for hospitals. Hospitals can't increase the amount of time in the day, so all they can do is annoy doctors by requiring them to work long hours, which will decrease the number of doctors because some will quit, others retire early, and fewer people will want the job. The way to get more doctors is to pay them more so they can afford the increasing costs of education, the massive amount of financial damage done to them by trial lawyers that Democrats won't reel in, and increase the incentive for smart people to be doctor's rather than lawyers, professors or community organizers. But individuals working in government don't have the right incentive to pay people what they're worth. That individual bureaucrat doesn't gain by incentivizing another generation of doctors, he only gets credit for following a budget. The result will be fewer doctors, a problem Canada is dealing with which leads to massive waiting times:
http://www.waittimealliance.ca/June2009/Report-card-June2009_e.pdf
My favorite part is when you have to wait on average (median) 57 days when you have bright red rectal bleeding.

I admit there are problems that the freemarket cannot solve such as military defense, diffuse environmental pollution, etc. These are public goods meaning that they cannot be owned. I can't own my security from terrorists without also paying for yours. In that situation the free market will fail. Also, the free market produces benefit-benefit transactions (i.e. trade). It cannot be used effectively to produce cost-benefit transactions, such as punishing a criminal who doesn't want to be punished. For that, we need police and the justice system generally. None of these apply to healthcare.

When dealing with goods and services that can be traded, capitalism is better than socialism. If we can't agree on that, we probably can't agree on anything. That's why I find it so strange that people (usually Democrats) say that the free market is good for soda and video games but on important issues like health and schooling we really need to use the worst system! I'd happily socialize video games and lose Warcraft to the pong-like video games the government would create for $200 each before I gave up healthcare to them. If you think my numbers are off I'd remind you of the commonly talked about $18 million website factoid that's been out there. It's actually a little inaccurate...they spent $18 million to RE-DESIGN an old website that worked fine. http://blogs.abcnews.com/thenote/2009/07/18m-being-spent-to-redesign-recoverygov-web-site.html

The price of capitalism is that rich people will get better healthcare than the poor. The reward is that the poor always get access to the leftovers of rich, which in most cases are better than the richest people one generation earlier. There's not a poor working person in America that doesn't have better entertainment, better healthcare, and better transportation than the rich people did in the 1950s. Take a moment and look around the room your in. You’ll see example after example of wonderfully cheap products that massively improve your life in ways the richest people in the 50s would be amazed by. I’m typing on a computer that the richest man in the world couldn’t get in the 70s. I’m watching TV on a flatscreen that the richest man in the world couldn’t afford in the 70s, connected to a DVD player that even the poor in the US have now, watching movies with better special effects than anyone had in the 80s. My cell phone is sitting here, cheaper than the government-run phones in the 50s, next to my wallet with free credit cards in it. My old Nintendo is sitting next to the TV and costs about $6 these days; better than anything the richest oil tycoon could buy 20 years ago.

Corporations do more to make your life better than any other institutions on earth, and you hate them for it. Almost every luxury you currently enjoy was conceived, invented, tested, refined, advertised and delivered to a number of convenient locations near your home by corporations. And they do it all without taking a single thing from you! The CEOs get money from a board of director, elected by stockholders. If you think they’re cheating, don’t buy their stock. They don’t take your money, I can’t say it enough, and I can’t say it about the regulators. (By the way, if you think health care insurance makes 30% profits, by all means buy their stock and spend the extra income on charity if you like. I wouldn’t recommend it though, the actual number is 2-4%: http://the-american-catholic.com/2009/08/03/excessive-health-care-profits/). You are welcome to
“refuse to believe that the world is so starved for intelligent businessmen that $1 to 5 million a year would not attract a perfectly brilliant, innovative and COMPASSIONATE leader.” That’s what Ben and Jerry said. They decided to practice “caring capitalism” and limited their CEO pay to no more than 5-7 times what the lowest paid workers got. Unfortunately the applicants sucked, so they had to bid up to 14 times what the other workers got. Of course that didn’t work either, so they had to hire another and finally sold the company. (You can see the story in John Stossel’s book, page 247). Being a CEO is extremely difficult. Do you refuse to believe that you can’t get the best basketball player in the free world for less than $14 million a year? What about the best musician, or the best actor?

Ultimately the free market solves this problem because you don’t get to decide CEO pay any more than I get to decide how much to play football players. Those decisions will be made by people spending their own money, and they know better than you or I, and they’re the ones who pay the price if they get it wrong. The people spending their own money believe that getting a better CEO is worth that much money. Remind me why either of those decisions should be, in any way, up to us? We aren’t running a company, we don’t know what it takes, and we’re not spending our own money. Thomas Sowell summed up government regulations nicely when he said, “It’s hard to imagine a worse way of making decisions than putting people in charge who pay no price for being wrong.” That’s what regulations of pay do.

Finally, a few quick corrections. I didn’t say the government required insurance companies to cover cancer, insurance companies did that on their own to attract customers. They were mandated to cover stuff that most customers weren’t willing to pay for such as psychiatrists, but they have no choice once the government makes a mandate (http://www.wnd.com/index.php?fa=PAGE.view&pageId=105912)

Eliminating the profit motive would NOT eliminate the motive to give CEOs 6-figure bonuses. The profit motive constrains what you are willing to pay someone because you need to meet a bottom line. Having no bottom line means you can pay people anything you want. For a list of salaries from non-profit organizations go here:
http://swz.salary.com/salarywizard/layouthtmls/swzl_narrowbrief_CS02.html
The most relevant comparison would probably be Chief Managed Care Executive which I think is proportional to the CEOs of health care companies you’re talking about. They make an average of $200,000 and get bonuses of… that’s right, six –figures: $200,000. Of course they still have to answer to their donors even if they don’t have to answer to their stockholders. Income is always constrained by those who give you the money. There is one exception, which is the only organization in the US that gets to determine their own pay by taking from others: it’s Congress. And yes, they have a six figure salary, benefits like you wouldn’t believe, and access to brand new jet planes.
http://www.senate.gov/reference/resources/pdf/97-1011.pdf

I agree that socializing health insurance wouldn’t kill medical innovation (though I think it would harm it). That was an argument about socialized medicine more generally, which I agree isn’t what’s being proposed in Congress at this point. If it does become a problem, government grants will not solve it. Governments are terrible at allocating grant money because they don’t have the incentives that businesses do. If a government grant is wasted no one cares; it wasn’t their money. If a private grant gets no return the people who spent the money see their profits diminish. They don’t like that, so they take more time and energy directing money at the most profitable research (i.e. the research that produces cures and treatments that people are willing to pay for). And once again, if the private grants don’t work they’ve only wasted their own money. If government grants are wasted (and they are) then they waste your money…and mine.

“History has proven over and over again that when left to their own devices, for-profit companies rarely choose a path of innovation, honesty and consideration for the value of life.” There are two problems with this. One, it’s not true (see any store near your home for examples of free market innovation). Two, it’s only relevant if the history of government power has been one of choosing innovation, honesty and the value of life. I don’t imagine you’d be willing to make that argument so I’ll leave it be.

Finally, “This is OUR WORLD – let’s make it a world that supports EVERYONE.” This isn’t your world, and you don’t know how to make it support everyone even if it were. Your post acknowledged that there were problems with socialized medicine and insurance in other countries and said that we should just fix those. Problems are problems because it’s not obvious how to fix them. Wanting people to have more is noble. Actually getting them more is hard, especially when you’re the government. When I think of the government trying to help a complicated and well balanced economy it reminds me of a joke about Edward Scissorhands being a proctologist. Sure, you want someone to do something...but you’re not sure he’s the right man for the job. All the government can do is take money from people who earn it doing work people are willing to pay for, give it to people they like (usually who have paid them money) and then not monitor what they do with it very carefully. If you think that will result in a better healthcare system you’re welcome to argue it. But all I see is the American people bent over in front of a sharp pair of scissors.

EDIT: fixed some links that weren't working