TCS Daily

Getting to Health Care for Tomorrow

By Arnold Kling - September 13, 2004 12:00 AM

"Many of our most fundamental systems -- the tax code, health coverage, pension plans, worker training -- were created for the world of yesterday, not tomorrow."
-- President George W. Bush

This was easily my favorite line from the domestic portion of President Bush's acceptance speech at the 2004 Republican Convention. Probably my favorite foreign policy line was

"If America shows uncertainty and weakness in this decade, the world will drift toward tragedy. This will not happen on my watch."

The latter quote reminds me of Ed Harris playing Gene Kranz in the movie Apollo 13

"We've never lost an American in space, and it's not gonna happen on my watch!"

I love that movie, and the Gene Kranz character gets all the good lines.

Another memorable scene is when Kranz, hearing reports of numerous malfunctioning systems aboard the spacecraft, rubs his face and asks, "Put it this way. What have we got on the ship that's good?" I sort of feel that way about health care policy. Medicare is headed toward bankruptcy. Employer-paid health insurance is an anachronism. Many people do not have health insurance. What have we got that's good?

One thing that we have that is good is medical research. I am sure that there are plenty of cranks out there who will argue that if we only listened to them we would waste less and accomplish more. Probably some of those cranks are right, but I do not know how to figure out which ones. Meanwhile we seem to be making progress in many areas.

Otherwise, health care policy reminds me of Apollo 13. To arrive at constructive solutions, I believe it is necessary to spell out carefully the problems. Another Kranz line is, "Work the problem, people. Let's not make things worse by guessin'!"

I think it is useful to divide the health care issue into three areas: general wellness; acute care; and discretionary procedures. The problems and solutions differ by area.

General Wellness

What I mean by general wellness is engaging in healthy lifestyles and reducing risky behavior. Sometimes the term "public health" is used to cover this, but to me that suggests that government bears the ultimate responsibility. In fact, we should recognize the importance of individual behavior when it comes to such things as diet, prenatal and postnatal care, and substance abuse.

General wellness consists of both personal responsibility and public health. I draw the line between the two as follows:

If I can reasonably address a wellness issue by making an individual choice, then it is a personal responsibility.

If a wellness issue for me is predominantly affected by others' behavior, then it is an issue of public health.

Air pollution is a public health issue. Wearing a bicycle helmet is a personal responsibility issue.

Much of our health care budget goes to acute care and discretionary procedures. However, national averages of statistics such as longevity or infant mortality probably depend more on general wellness than on those factors. Thus, as I argued in The Health Care Olympics, it is foolish to try to link health care spending to longevity or infant mortality.

From a public policy perspective, we should try to adopt the most cost-effective public health policies. However, even if we do a great job with vaccinations, food labeling, and other public health measures, individual behavior will still affect national statistics.

Our country's shortcomings in the Health Care Olympics are due in large part to poor care of children by unwed teenage mothers. This represents a grey area between individual behavior and public health. The government could take a hands-off approach to teen pregnancy, on the grounds that it reflects individual behavior. Alternatively, one could take the view that teens are not yet adults, so that they do not have full rights.

An extreme position would be that teenagers should not be allowed to keep babies that they conceive out of wedlock, and instead the state should put all such babies up for adoption. President Bush opted for a less drastic approach. He promised to "lead an aggressive effort to enroll millions of poor children who are eligible but not signed up for the government's health insurance programs. We will not allow a lack of attention, or information, to stand between these children and the health care they need."

Discretionary Care vs. Acute Care

Discretionary care is health care that is not necessary in order to prolong life or alleviate acute suffering. Giving growth hormones to short children is an example of what I think of as discretionary care.

The difference between acute care and discretionary care is that acute care is necessary but discretionary care is not. However, the line is fuzzy, and it changes as culture and technology evolve.

It troubles me that the line between acute care and discretionary care is often drawn by government. For example, when the government declares obesity a disease and certifies some treatments, then the fact that government will pay for those treatments effectively makes them part of acute care. I am not comfortable with government taking the lead in this decision -- it creates too much temptation for industry lobbyists and other special pleaders to manipulate the process.

In the absence of third-party payments, the line between acute and discretionary would be drawn by each individual for himself or herself. The reality is that we have third-party payers, including both private insurers and the government.

Many people think that heavy usage of discretionary health care is a problem in the American health care system. The thinking is that if we spent less on, say, cosmetic surgery, then more money would be available for acute care.

However, in economic terms, it is not clear that the people who pay for cosmetic surgery are doing anything worse than people who pay to build ski chalets in Aspen. Either way, you are using up resources for a luxury good. If you build a chalet, that is your business, and if you choose cosmetic surgery, that is also your business.

There is a sense, however, in which the concern about discretionary medical spending is quite valid. Your medical decisions become my business when I pay for them through Medicare or other government programs.

The issue of discretionary care vs. acute care provides a Rorschach Test for whether you are on the left or on the right. Left-wingers Hate the Producers of cosmetic surgery or pharmaceuticals for erectile dysfunction. Those of us on the right don't have a problem with discretionary care, but we believe that it should be funded by personal pocketbooks, not taxpayer dollars.

It seems to me that as long as government spending is involved, the line between acute care and discretionary care ought to be drawn conservatively. When taxpayer money is on the line, a health care treatment ought to be considered discretionary unless the overwhelming majority of consumers regard treatment as necessary and the overwhelming majority of professionals regard treatment as effective. In the case of obesity, it seems to me that we are not close to that point.

Is Health Care a Right?

When people argue that everyone should have a "right" to health care, they probably mean acute health care. If treatment that could prolong life or relieve pain and suffering is available, then it seems cruel to deny treatment just because someone cannot afford it.

If someone cannot afford treatment, then others will have to share the cost. One means for doing this is private health insurance. Another means is government support.

Most libertarians flinch at the notion of health care as a "right." However, I am enough of a bleeding heart to be attracted to the notion of a government program that targets assistance to those with costly illnesses.

Along these lines, there is an idea that Kerry's advisers have developed which could be the lynchpin of a program to provide targeted support for acute care. The idea is to have the government provide "catastrophic re-insurance." This means that if you are one of those people who develops a really expensive illness, the government would step in to cover expenses over, say $50,000 in one year. The concept is called "re-insurance" because the thinking is that you would buy health insurance with a less steep deductible -- say, $10,000. (In insurance, the "deductible" is the amount of expenses that you are liable to pay before the insurance kicks in.) If you came down with an expensive illness, you would pay the first $10,000 of your expenses, the private insurance company would pay the next $40,000 of expenses, and the government would pay the rest.

It seems to me that once government provides this form of catastrophic coverage, it can stop there. Most people can take care of the rest of their needs through savings and private insurance. We would not need Medicare; We would not need to expand Medicaid to the middle class (which is what Howard Dean proposed and John Kerry seems to have picked up on); We would not need regulations or tax subsidies to funnel health insurance through employers; We could make individual health insurance mandatory, knowing that companies could offer affordable policies. Mandatory catastrophic coverage would in turn would reduce the subsidies involved in treating the uninsured.

That form of government intervention would be relatively narrow, benign, and inexpensive. What we have instead -- and both political parties seem to want essentially more of the same -- is broad, distortionary, and a fiscal time bomb.

Iatrogenic Health Care Policy

In health care, an illness is iatrogenic if it is caused by the doctor. Once you break things down and "work the problem," it turns out that for the most part our health care system's maladies are iatrogenic, in the sense that the problems would be nonexistent or unimportant were it not for the fact that taxpayer funding is involved. (According to Jonah Goldberg, the term "iatrogenic government" was coined by the late Senator Daniel Patrick Moynihan.)

We do not have to hang on to a Medicare system that is unsustainable. We do not need to add millions of middle-class Americans to the Medicaid system. We do not need to rely on the Middle Man Mess of company-provided health insurance. Those are all systems that were created for the world of yesterday.

However, I am not convinced that the future requires Wonkish contortions like Health Savings Accounts. Yes, I believe that Americans should save more for life's contingencies, including changes in the job structure, health needs, and retirement. And I believe that we should increase personal responsibility in health spending, particularly for discretionary care. But combining those goals by creating specialized accounts is not such a good idea.

In my view, all we need is a graceful way to extricate ourselves from the iatrogenic mess created by our previous policies. I think that a combination of Phasing out Medicare and implementing catastrophic re-insurance would be the cure. In addition, I would support the limited paternalism of mandatory catastrophic health insurance and low-cost government health clinics located in poor neighborhoods.


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