Thursday, February 6, 2014

two sobering caveats on health policy: the limits of markets and government

The following was dropped from my Independent Review article, "The Economics of Health Care and Health Insurance", in the editing process. (Here's my other journal article on health care/insurance.)

I can understand why the caveats would be cut-- in the interest of space trade-offs within a journal. But I believe the points are worth making. (#1 is pretty standard stuff for political economy; but #2 is a novel and especially important consideration on the limits of mkts and govt.) So, I'll publish them myself! ;-)

1.) Market proponents may find that the general public does not have sufficient interest in private-sector solutions. At least three significant factors could interfere.

First, many people look to the government to solve or at least address many of society’s problems—even when market solutions would be constitutional, more equitable, and more efficient. In particular, most people look to the government to deal with various aspects of poverty, including health care deficiencies. The level of idolatry toward government may have peaked recently, but it is still quite high.

Second, market-based solutions may fall prey to the same impediments to government-enhancing solutions: people are wary of change in an area where they perceive a messed-up system but are personally content with the status quo. Significant reforms often appeal to a majority. If the benefits of market reforms are difficult to understand, this may prove prohibitively difficult to achieve. 

Third, public policy proposals must find a way to supersede the rational ignorance and apathy of the general public. Concentrated benefits to an interest group often trump larger but more subtle and diffused costs imposed on the general public. From insurance reform to tort reform, interest groups will exert themselves while the public is ignorant of the reforms, finds it not worth their efforts, or is fooled by the “good stories” spun by interest groups (Schansberg, 1996).

All that said, market-based solutions may have the floor in the near future—an opportunity to persuade the public and a reason for hope. The American public has embraced significant rollbacks of federal government power in recent years: deregulation of transportation and communication in the late 1970s and early 1980s; significant tax reforms in the 1980s; and welfare reform in the 1990s. In each case, passionate and informed leadership was able to accomplish reform for systems that were clearly sub-optimal. As such, a series of “common sense” reforms in health care and health insurance may be within reach.


2.) Our country’s health care problems may not be “fixable”. Consider an analogy. Markets require honesty and morality to function well. With perfect honesty and morality, then market disciplines and legal constraints for fraud and theft would be unnecessary. As honesty and morality diminish, market mechanisms and government enforcement can limit the damage. But without a threshold level of honesty and morality, markets and government will be insufficient to avoid significant harm. In a word, both are limited as a constraint to immoral conduct.

Something similar is in play with health care. For example, according to the CDC, about half of all Americans live with at least one chronic condition (e.g., diabetes, heart and lung ailments); chronic diseases account for 70% of all deaths in the United States; people with chronic diseases account for more than 75% of the nation’s medical care costs; and chronic diseases account for one-third of the years of potential life lost before age 65. Most of these conditions are connected to unhealthy lifestyle choices—and although smoking is decreasing, the problem of obesity is getting bigger (Finkelstein et. al., 2009, Manning et. al., 1989).
In a word, if people are determined to live unhealthy lives, then there is no system which can fix the underlying problem. As Samuel Johnson once quipped: “How small, of all that human hearts endure / That part which laws or kings can cause or cure!”

Markets might dictate that the unhealthy would pay higher health insurance premiums and otherwise bear higher costs for health care. Markets and government can work to educate people about the cost of unhealthy choices (Ornish, 2004). Governments might regulate unhealthy substances and ration the availability of care. But the root issue of unhealthy people cannot be fully addressed by either markets or government. At the end of the day, this is largely a matter of personal responsibility.


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