In defense of National Health Insurance

1. We need more healthcare

Every person, economically, is part consumer, part producer, and part capital. Most economic activities such as watching a movie requires an individual to produce the good and and an individual to consume the good and that is all. The only reason we produce goods is so that we can consume them and the reason we consume good is because it's awesome.

Healthcare is in a different class of goods, such as food, which also contribute to the maintainence or development of human capital. We spend a lot of resouces educating and training our youth. To allow them to die of preventable childhood diseases is a waste of our educational investment. All capital depreciates and requires maintainance. Healthcare is the maintainance of our human capital.

For most goods, the benefit of the good accrues directly to the individual with little benefit or harm to others. In this case, government intervention is usually unnecessary (perhaps only to maintain property rights, information symmetry, and the King's peace). In the case of healthcare (as for food), we have the problem that if an individual's income falls temporarily, even though the individual may be extremely productive again later, the individual may die due to lack of healthcare. Or alternatively, if society is given the choice of letting the individual die or to sustain him at our expense, it may be worth our time and money to sustain him if he will be productive (and tax paying) later. More broadly, this issue applies to all children who will be far more productive as adults than as children, but need preventative healthcare now.

So we need more health care for individuals with temporarily low incomes and for children. Since it is difficult or perhaps impossible for us to determine who will have a temporarily low income and who will always have a low income, practically, we need more health care to cover everyone with a low income. (Additionally, we would only be able to avoid covering individuals with low income if we also booted them from ERs if they tried to get medical assistance.)

We have to decide as a society whether we are willing to countenance government intervention in the economy to encourage greater growth (in production and therefore consumption). If we don't, then fine. If we do, then we should intervene in healthcare as below. (Let me explicitly state that any such "intervention" would have to be paid for "progressively" where the rich pay for the poor.)

2. The private sector is unable to provide effective health insurance

There are two significant problems that make private insurance impractical. First, adverse selection. Individuals who are more likely to get or be sick are more likely to get insurance. The second, principal/agent. The doctor is the agent of the insurance company (as a payer) and of the patient (as a consumer/investor) and a principal for him or herself.

Adverse Selection: Any insurer (including health) is deeply afraid of adverse selection. Accordingly, they will undertake to determine the expected costs of insuring a particular individual and then charge them that cost. Drivers with poor records pay higher premiums, as do teenagers based on age alone. Health insurance companies prefer to provide healthcare through employers for the sole reason because it makes adverse selection less likely. Any reason to price discriminate is an advantage to the insurer. In a truly unregulated private insurance market, the fear of adverse selection will drive everyone to pay their own expected health costs. In the case of the chronically ill, this essentially means that individuals pay for their own healthcare (which is ok, but it means that you don't need insurance, just a credit card.)

Principal/Agent: Doctors under a fee for service plan have an economic incentive to authorize as many procedures as possible, no matter how effective or how necessary. Patients, lacking information on whether the treatements or tests are effective or necessary and not suffering economic cost of the procedures, have no incentive to refuse. Nobly self-interested insurance companies, fearing this waste, develop all sorts of methods to refuse paying for treatment, which necessarily bleed into denial of coverage.

(Not listed here because I am diminishing its importance, but another problem in all insurance is Moral Hazard. You drink and smoke because you know someone else will foot the bill for your heart disease and liver cancer.)

Another important aspect of this problem is the word "insurance". Insurance is supposed to be something you pay for to protect you against an event that will probably not happen. Life insurance is an big exception to this rule as death is very likely to happen and the question is only one of timing. For acute care, health insurance is like fire or property insurance. Aside from the moral hazard, generally individuals try to avoid injuring themselves. For chronic care, health insurance is really a payment plan. There is no more uncertainty. A diabetic is going to need insulin. A heart patient is going to need aspirin and Lipitor. By combining both into a single policy, those who need only acute insurance are subsidizing those who need chronic care. Accordingly, those who only need acute insurance will flee to cheaper plans (that through hook or crook dissuade chronic patients) or will choose be uninsured.

Since health insurance is provided through employers, the decision to cut benefits is made by employers rather than patients (yet another principal/agent problem). Patients lose benefits, employers blame costs, and now everyone wants to cut healthcare costs. The truth is costs are going up not down. We must not flee from this truth. Health care spending is going to increase even if we increase efficiencies because we want more of it.

We have to decide as a society whether we want health "insurance" where the healthy pay for the sick or not. If we don't, then we can continue as we are. If we do, we must confront the fact that the self-interested consumer and the self-interested insurer will pursue plans that deny coverage (at equal cost) for those who have chronic conditions. Regulation will only retard this path. A change in incentives is the only way to stop it.

3. National Basic Health Insurance is the answer

A framework for National Health Insurance

Who: All individuals under 70. All individuals over 70 who are still working.
What: All diseases, conditions, vaccines that meet certain efficacy criteria.
How: With the cheapest "effective" treatment
Where: The USA
Why: For the greater economic good of the nation.
When: Now!

This plan is paid for with from the general fund of the Treasury, ie by my Tax Plan.

The hardest part of the above is what is "effective". The answer, I think is, whatever is "likely" to return you to work or school. "Likely" should be determined by a need to treat target, which we can set based on how much the plan costs.

Price fixing will not be necessary, required, or even suggested. The government will offer prices. Doctors and other healthcare providers have the option to accept these prices or only provide health to individuals of other means.

If you want homeopathy or other unscientific medicine, pay for it yourself. If you want 10 bikini clad women to treat your back pain, pay for it yourself. If you want that experimental medicine which costs $10,000 per dose that may not work, then pay for it yourself (or get the pharmaceutical company to pay for it). If you want chemotherapy to extend your miserable old age semi-vegitative existance by another year, pay for it yourself.

If you're a low income child, we'll pay for your vaccinations and your wrist injuries.

Will this cost a lot, yes. But I hold that the wealthy will benefit more from this than the taxes they will have to pay to support it.

And Obama needed 1000 pages for his plan, when to think you could do it in a single blog post.