September 8, 2001

FREE-MARKET THINKING ABOUT HEALTH-CARE POLICY

Politicians in Washington are rushing madly about, maneuvering to do more for health care -- and get credit for helping you.

John Goodman would like you to understand that many of the problems with America's health-care sytem are unintended consequences of government's previous attempts to help you. In this vital area, less would be more.

Goodman, an economist, founded the National Center for Policy Analysis in Dallas in 1983 and has been its president ever since. His specialty is the economics of public choice, which explores the implications of the fact that the people who work for government agencies are no more and no less self-interested than employees of for-profit businesses. They compete for higher pay, more status and that metaphysical real estate called ``turf.''

Except they have no competition, which is why ``I'm from the government and I'm here to help you'' is thought to be funny.

Goodman spoke recently at a symposium on health care reform sponsored by the Independence Institute, a free-market think-tank in Golden, to highlight the launch of a new affiliate, the Rocky Mountain Center for Health Care Policy.

``If we could keep government from making problems worse,'' Goodman said, ``they'd go away.'' Rather than offering perverse incentives -- as it does -- the government should at worst be neutral in people's health-care decisions.

``Go away''? Well, maybe that's an exaggeration, but he does lay out several areas in which government incentives drive choices in the wrong direction.

Here are a few:

* Private insurance vs. the public safety net

Texas, Goodman says, spends an average of $1,000 per uninsured person annually providing care -- enough for private insurance. For people who get their health insurance through their employer, which means that the cost of the insurance is not part of their taxable income, the government in effect pays close to half because it doesn't collect income or payroll taxes on that amount.

But people who buy on their own get no help, while if they stay uninsured they get $1,000 each in free care. Just to be neutral, government would have to give everyone a $1,000 subsidy.

Of course, making health costs part of taxable income would also move toward neutrality, but politically that's a non-starter.

The uninsured do pay extra taxes, probably on average as much as they get in free care; but the taxes go to Washington, while the care has to be delivered locally. If everybody had insurance, no vast safety net would be needed and what it costs could pay for subsidizing insurance.

There's enough money, overall, if the incentives are right.

* Private vs. public insurance

The subsidy for public insurance, such as Medicaid, is as much as $1,500, but people have to stay with public insurance to get it, so fewer of them get private insurance.

And it's not family-friendly, leading to calls for more help for uninsured children. Result: in two years under the Child Health Improvement Program, the number of uninsured didn't change, but more children had CHIP and fewer had private insurance.

* Employer-provided vs. individual insurance

If the government offered exactly the same tax relief the market would determine whether the employer had a useful role.

* Third-party vs. self-insurance

A neutral policy would allow deposits to medical savings accounts, leaving it to the consumer to decide how much insurance to buy and how much to risk paying out of pocket.

One reason for the shift to managed care was that consumers had no stake in how much was spent on their behalf; now the decisions have been shifted to HMOs because they get all the money.

* The market for risk

Even 10 years ago, Goodman said, only about 1 percent of people were denied coverage, and that was before states started passing ``shall-issue'' laws, screwing up the market for the other 99 percent.

Now the states that have done the ``most'' have the fastest-rising rates of uninsured.

If you know you can buy insurance after you get really sick, why bother buying it before? In the last few years the biggest growth in the uninsured is among families with incomes of $50,000 or more.

Thinking about health care policy this way is illuminating. The ideas are explained at greater length on the Web site, ncpa.org, which offers a very accessible tutorial in public-choice thinking on a variety of issues.

But how to get there? Goodman suggests one step is to allow ``flexible spending'' medical accounts to carry over from one year to the next, so families can acquire their own stake in prudent health-care decisions.

It might not be more, but it's better.

(771 words)