I am probably the only person you know (or are likely to meet) who thinks all the major problems in our health care system are caused by bad government policies.
If you want to see the case for this position, look at an article I wrote for the Journal of Legal Medicine published March 27 of this year. In it, I ask readers to perform a thought experiment: Identify the major ways in which government policies create perverse incentives to do socially bad things. Then imagine replacing those harmful policies–not with good policies, but with policies that are completely neutral.
I call this the “do no harm” approach to public policy.
Here’s how it works.
Distortions and Solutions
Distortion Number 1: Our system of government-funded (and -mandated) free care encourages people to forego insurance and rely on the charity of others.
Neutrality Solution: Let government offer just as much financial incentive for people to privately insure as the expected free-care spending under the current system, making private insurance just as financially attractive as reliance on charity care.
Distortion Number 2: The existence of government-funded insurance (Medicaid and SCHIP) encourages people to drop their private coverage and become insured at taxpayer expense.
Neutrality Solution: Let people apply their Medicaid subsidy to private insurance, making the two types of insurance equally attractive from a financial point of view.
Distortion Number 3: While the current system provides lavish tax subsidies for employer-specific insurance, it provides very little tax relief for people who purchase individually owned, personal, and portable insurance.
Neutrality Solution: Create a level playing field for all forms of insurance under tax law.
Distortion Number 4: Although there is, in principle, no limit to the amount of tax subsidy available for spending on third-party insurance, the tax relief for self-insurance (through a savings account) is very limited and tightly constrained.
Neutrality Solution: Put third-party insurance and individual self-insurance on a level playing field under the tax law.
Distortion Number 5: Largely in response to the problems created by all of the above, government has essentially outlawed a real market for risk, thereby encouraging individuals to be uninsured while healthy, secure in the knowledge that insurance will be available at premiums totally unrelated to the expected cost of their care if they get sick.
Neutrality Solution: As in the market for life insurance, allow the market to price and manage risk.
Notice that in adopting these solutions we are not trying to do good. We are mainly trying to avoid doing harm. The result: A system so completely different from our own, it would hardly be recognizable. (And there are many more harmful distortions yet to be removed!)
Supply-Side Policy
There’s more than one way to apply economic thinking to health care. Consider, for example, supply-side health policy.
In an April 5 Wall Street Journal article, I made a point I haven’t seen made anywhere else: In order to control costs and raise quality, we must make changes on the supply side of the medical marketplace.
Managed care, pay-for-performance, and even health savings accounts are all demand-side reforms. Their effects will be limited as long as doctors are not free to re-bundle and re-price these services.
How might that work? We need only look at those parts of the medical marketplace where providers compete on price and on quality. Examples:
- Cosmetic surgery
- Lasik surgery
- Walk-in clinics
- Internet drug sales
- Concierge doctors
- Medical tourism
One part of our health care system (the part where third parties are absent) is teeming and bristling with entrepreneurship and innovation. In the other part (where third parties pay the bills), entrepreneurship has been all but extinguished.
We need to make the latter more like the former.
John Goodman ([email protected]) is founder and president of the National Center for Policy Analysis in Dallas.
For more information …
“Applying the ‘Do No Harm’ Principle to Health Policy,” by John Goodman, Journal of Legal Medicine, March 26, 2007, http://cdhc.ncpa.org/files/20070326JCG.pdf.
“Perverse Incentives in Health Care,” by John C. Goodman, The Wall Street Journal, April 5, 2007, http://www.ncpa.org/email/040507-WSJ-JCG-PerverseIncentivesinHealthCare.pdf
“The Market for Medical Care: Why You Don’t Know the Price; Why You Don’t Know about Quality; And What Can Be Done about It,” by Devon M. Herrick and John C. Goodman, NCPA Policy Report No. 296, February 2007, http://www.ncpa.org/pub/st/st296/st296.pdf
