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Tuesday, January 28, 2014

New Republican alternative to Obamacare is another wrong-direction big-government boondoggle: the proper long term goal is health insurance for NOBODY

UPDATE: A week later I posted a more refined version of this at Flopping Aces.

National Review's Yuval Levin is all happy about a Republican Senate proposal to replace Obamacare with a new pile of junk. Some elements are benign, like removing barriers to interstate insurance competition. (These barriers were a problem long before Obama cranked them to the max with government-run state-specific insurance exchanges.) Other elements are massive new government interventions that are supposed to be improvements on Obamacare's massive government interventions, like the new Republican proposal to provide fully or heavily subsidized catastrophic health insurance to every American who is not way above the poverty line. (The subsidies are 100% for the poor and don't phase out until three times the poverty line.)

Levin claims that this government provision of catastrophic health care to half the nation will not be expensive:
The cost to the federal taxpayer would only be the cost of the tax credit.
Right, all we have to pay is the price, equal to one 12th of the economy (1/2 of 1/6th). Believing that wouldn't be expensive is like believing Obamacare won't be expensive but guess what? Nobody believes that anymore, not even the most low-information of low-information voters.

Obamacare needs to be thrown in the trash, lock stock and barrel, and a rapidly growing majority supports that course, but Republican lawmakers are out to snatch defeat from the jaws of victory by splitting the anti-Obamacare consensus into two camps: those who want to replace Obamacare with another big government boondoggle and those who just want to get rid of it. (Ace of Spades had a post on this opposition-splitting effect the other day.)

For now the country should just go back to the way things were. The uninsured were not without health care. They were getting "free" health care by not paying their bills at county hospitals and in many emergency rooms. That was the proclaimed big problem, which Obamacare was going to fix by forcing everyone to buy insurance. Now the Republicans want to solve the problem of the uninsured getting free health care by giving the uninsured... free health care.

There is obviously no urgency to make this nominal change from de facto free health care for the poor to officially free health care for the poor. This is not something to split the anti-Obamacare consensus over. Whether free health care is the right solution is a big subject that would need to be debated. It is crazy to impose such an unnecessary and premature policy as a condition for doing what is right now both urgent and agreed upon.

Making health care free is NOT the solution: all government aid should be billed to the account of the recipient

As I have been advocating for many years, all government aid should be billed to the account of the recipient, to be paid back with full market interest according to an ability to pay formula over the life of the recipient, whether the aid be for health care, unemployment benefits, welfare, farm price supports, or Social Security, or anything else.

Many aid recipients will never have the ability to fully repay so such a system will still be costly, but billing the aid to the account of the recipient keeps incentives to responsible behavior intact, as far as it is possible to do so. That maximizes the bang-per-buck from giving aid, which means that whatever aid is given it should be given this way.

Philosophers can argue over how much aid should be given but how to give it is determined purely by economics. Every penny of aid should be billed to the account of the recipient. Keep the books straight, which also has the salutary side benefit of keeping clear who owes who. Our present system of giving aid away instead of loaning it sends the perverse signal to recipients that they must be owed, or why would society be giving them stuff?

The result of this wrong signal is a nasty, ungrateful, bitter underclass that blames its poor condition on the rest of society and responds by grabbing as much as it can, not just from social services, but through crime against people and property. The current national epidemic of blacks attacking random whites on the street is one of these byproducts. People who feel that they are owed a bitter debt often have an urge to take a pound of flesh, so make it clear: no, society does not owe you, you owe society, and here is an accounting of exactly how much and for what. You owe more than you will ever be able to repay, so don't ever pretend that it is you who are owed.

The ultimate goal is not health insurance for everybody but health insurance for NOBODY

The deeper problem with the proposed Republican alternative to Obamacare is that these stupid establishment Republicans buy into the Democratic premise that the health care market is inherently dysfunctional and in need of massive government regulation. They don't begin to understand what actually needs to be done to let this market function efficiently. Like Democrats, they just pull a bunch of  unnecessary government interventions out of their ass.

The ideal system—what any policy today should be aiming for as its long-term objective—is not a system where everybody has health insurance but a system where nobody has health insurance. Self-insurance (paying for health costs out of one's own savings) is inherently more efficient than 3rd party insurance and everyone is automatically self-insured up to their level of savings/wealth. Over time, unimpeded economic development raises the prosperity of every segment of society, moving more and more people, and eventually all people, to the point where self-insurance is the most rational choice for them. At that point everyone is paying with real money (their own money rather than insurance company money), causing them to shop for price. The result is a normal market where prices get driven down by competition and all need for regulatory cost-control disappears. That is the goal to aim for.

Ironically, Obamacare's rapid destruction of the existing health insurance industry could prompt a big step in this direction. Obamacare has already put a significant portion of the population into the ranks of the uninsured/self-insured and once the exemption on the employer mandate expires the number of the uninsured will rise dramatically. In this situation if government just vacates the field of health care regulation then a lot of the newly self-insured will likely remain self-insured.

This would inject price competition which would bring self-insurance within the reach of more and more people, creating a "virtuous cycle." We have a chance here to bring the era of artificially over-insured health-care to an end.

Unfortunately, we instead now have to fight a second big push for a different big government solution. Go to Hell you stupid establishment Republicans. It's another self-inflicted wound, like pushing for immigration reform that Republican voters overwhelmingly despise.

Hey, if you want to commit suicide go ahead and commit suicide, but don't "suicide" other people: don't suicide your political party.

What kind of health insurance aid should be billed to the account of the recipient, insurance premiums or the actual cost of the care delivered?

This is a technical point for the wonks out there (if Krugman and Klein haven't completely flipped the meaning of wonkery from unbiased policy analysis to purely biased political spin).

Suppose that under a system where all aid is billed to the account of the recipient, need-qualified individuals were allowed to choose for themselves whether they want to have a monthly insurance premium added to their debt to society or whether they want to let the cost of actual health care services rendered be added to their debt as these costs are incurred. Which should they want to choose?

With the government acting as a source of liquidity (making loans to cover claims of need), letting actual health care costs be billed to one's account would amount to a kind of quasi-self-insurance. It would be financed via debt rather than savings, but the benefits would remain.

When people buy insurance it reduces their incentive to avoid the insured risks. If you know that obesity incurs lots of expensive health risks, you have far stronger incentive to avoid those by avoiding obesity if you have to pay the health costs out of your own pocket.

Ditto for  other health-risky activities like drug use, extreme sports, unprotected sex, careless use of power tools, etcetera. People who don't have 3rd party insurance are a lot more careful about a lot of things.

This is one of the reasons why self-insurance is more efficient. The total costs that end up being covered are substantially higher when 3rd party insurance is involved so the price has to be higher by at least the same amount. Then there are administrative costs of insurance (which in the health field are gigantic), and worst of all is the resulting lack of price competition. Nobody is shopping for price so prices go through the roof.

Self-insurance makes sense for anyone who can self-insure, so if the system of billing aid to account allows this option it would be the sensible way for most aid recipients to go. Of course this is also what society would like. Quasi-self-insurance by the needy would leave them a financial incentive to avoid risky behavior, reducing overall costs, and it would give them incentive for shop for price when they do need medical services, allowing the needy to become a major driver of the price competition that would turn our current out-of-control cost-regulated health market into a normal cost-minimized competitive market.

The incentive effects that come from billing aid to the account of the recipient are not as strong as for non-needy people who pay for things with their own money rather than with government subsidized liquidity, but for anyone who expects to get on their feet and eventually pay down their social debt it isn't that much different, especially for young people, many of whom are needy just as a function of being young and not yet having developed their earnings potential. In other words, the benefits to society are still plenty strong so this is the solution that society would choose: to have actual health costs get billed to the account of needy recipients, not monthly insurance premiums.

On the other hand, if aid recipients are forward-looking enough to think that paying insurance premiums makes more sense for them personally than the risk of owing a big medical bill, that is something to encourage, so let aid recipients choose: they can have premiums billed to their account, or they can have actual costs billed.

Just note very clearly that what we do not want is the universal health insurance that Obamacare and the Obama-lite Republicans have both fixed as their objective. We want the opposite. The ideal is a society where nobody has 3rd party health insurance but everyone instead is self-insured, even if some are only quasi-self-insured via government loan.

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