Monthly Archive for March, 2007

Abolishing the Middlemen Won’t Make Health Care a Free Lunch

Writing in the New York Times, economist Tyler Cowen compares healthcare in the United States with that of Europe:

Economic Scene
Abolishing the Middlemen Won’t Make Health Care a Free Lunch
Published: March 22, 2007
Proponents of single-payer national health insurance note that private health insurance has overhead costs of 10 to 25 percent of expenditures. Medicare, by contrast, has overhead costs of about 2 to 3 percent, and socialized European health care systems generally have low overhead costs as well. That is why single-payer supporters claim that we can save money by substituting government for private insurance. But this would shift overhead costs, not reduce them.The monitoring, marketing and overhead costs of private insurance are what allow more expensive medical treatments through the door. It is precisely because competing insurance companies spend money evaluating the appropriateness of claims that they are willing to pay for so many heart bypasses, extra tests, private hospital rooms and CT scans.Medical insurance, whether private or government, is always going to be faced with a fundamental problem: patients and doctors will try to get the most out of any system. When they aren’t paying directly, patients will seek extra care and doctors will be happy to oblige. To deal with that problem, health care systems can offer services indiscriminately and write off the resulting losses, spend money on monitoring, or limit services and prices. An analogous problem is faced by retail stores: they must either put up with theft, hire security to limit theft, or carry lower-value items.

Just as some items are harder to shoplift than others, so some medical services are less prone to overuse. European systems are relatively good at providing prenatal care or mending someone hit by a car. Few people would try to get these services unless they were really needed. No one but an expectant mother, for instance, will show up for a prenatal checkup; nor would excess prenatal checkups cost a great deal. The unwillingness of European systems to spend on overhead means they will do best specializing in these kinds of services.

Health insurers cannot just offer expensive tests, technologies, hospital rooms and surgeries for older patients for the taking. Doctors will too often recommend these services and receive reimbursement, even to the point of financial abuse. Medicare has this problem to some extent.

When it comes to these discretionary benefits, European systems are more likely to make people wait for them, more likely to make the service inconvenient or uncomfortable, or simply not make the services available in the first place. All of these features discourage those who don’t really need care, and, of course, some people simply go elsewhere and pay out of their own pockets. Either way, the overhead costs have been shifted onto patients and their families.

On average, European systems are relatively good for the young, who are generally healthy and need treatment for obvious accidents and emergencies, with transparent remedies. European systems are less effective for the elderly, the primary demanders of discretionary medical benefits. American society has the reputation of paying less heed to the elderly than Europe does, but when it comes to medical care it is the other way around.

American citizens could, if they wanted, replicate many features of Canadian and European systems, but in the private sector. They, or their employers, could join stringent but cheap managed care plans. Health maintenance organizations were popular 15 years ago, but Americans didn’t like being told that they couldn’t have a treatment, or that they would have to wait. That experience showed that Americans are willing to pay for insurance company overhead costs, if it means they sometimes get more in return.

Private insurance also provided earlier access to prescription drugs — an expensive yet effective form of medical care — for 20 years or more before Medicare did. The competition among private insurers may appear wasteful, but over time it stimulates better and more complete coverage.

Nor are Canadian and European health care systems as cheap as they look. Measuring health care expenditures as a share of national income does not count waiting costs or the lack of availability of many advanced technologies and treatments.

Furthermore, the lower reimbursement rates for doctors and hospitals in Canada and Western Europe save less than first impressions suggest. Bargaining down health care prices won’t change the reality that real resources must be devoted to produce care. The true social cost of a doctor is not the doctor’s wage, which is simply money passing from one hand to another; the true cost is what the doctor could have produced doing something else. Higher doctors’ wages in the United States reflect, in part, the higher return to skilled talent in the more entrepreneurial American economy.

As long as lifestyle, diet, attitude, social standing and exercise are the major determinants of personal health, the expensive American emphasis on discretionary treatment will not always seem sensible. Many people just don’t benefit that much from medical care. Look at the life expectancy around the Mediterranean — it is high but not because of wonderful health care.

But as populations age and the value of medical technology grows, the overhead costs of private insurance will prove an increasingly wise investment. For all its high immediate expenses, the American health care system is looking toward the future rather than the past. In the long run, the hidden and indirect costs of single-payer systems are harder to measure and thus are ultimately harder to control.

Middlemen and marketing costs have long been viewed with suspicion by critics of commerce. But these practices are usually signs of market sophistication, not waste. The gains from abolishing private insurance and its overhead costs are an illusion. TANSTAAFL, or “There Ain’t No Such Thing as a Free Lunch.”

Tyler Cowen is a professor of economics at George Mason University and co-author of a blog at www.marginalrevolution.com.

The WSJ On The Politics Over Alberto Gonzales

From the editorial pages of the Wall Street Journal:

Subpoena Assault
Congress’s real goal is crippling the Bush Presidency.

Thursday, March 22, 2007 12:01 a.m. EDT

On Tuesday, White House Counsel Fred Fielding offered Congress a chance to question several top Presidential aides about the firing of eight U.S. attorneys–so long as the questioning was done privately, without a transcript, and the aides weren’t under oath. Having thus been handed an olive branch, a House Judiciary Subcommittee promptly approved subpoenas yesterday for Karl Rove, Harriet Miers and other top current or former Presidential aides to testify before Congress, publicly and under oath.

The Beltway is now abuzz with talk of a “Constitutional crisis.” We’d put it another way: What’s at stake here is whether George W. Bush is going to let Congress roll up his Presidency two years early. Democrats are trying to use the manufactured outrage over the entirely legal sacking of Presidential appointees to insert themselves into private White House deliberations. Mr. Bush needs to draw a line somewhere, and fast, or Democrats will keep driving until the White House staff is all but working for Democratic Senate campaign chief Chuck Schumer.

These columns have long supported the principle of “executive privilege,” though we realize it is not a blanket prerogative: Both the Burger Supreme Court in United States v. Nixon and the Rehnquist Court in Clinton v. Jones upheld the principle that a President cannot use the claims of his office to protect himself from criminal or civil legal claims.

But there’s little doubt that this or any other President has the right–we’d say the obligation–to protect the confidentiality of internal White House discussions, especially over Presidential appointments. If Congress can solicit any email concerning advice to the President, or haul any White House official before Congress, then executive branch deliberations will soon be an oxymoron.

Mr. Fielding may already have been too generous in allowing Congress to question advisers, considering the core executive powers at issue. But let’s assume that as the new White House counsel he was attempting to avoid a Constitutional showdown and show respect for Congress’s power to conduct oversight. This week the Justice Department also turned over some 3,000 emails on the matter, and any number of Justice officials, including the Attorney General, have testified or soon will under oath. If this is a “cover-up,” it is the most porous in history.All the more so because the evidence so far suggests that this is a scandal without anything scandalous. Justice Department officials have certainly been the gang that couldn’t get its story straight, and we can understand Congress’s frustration with the evolving explanations. But the biggest blunder was for Justice to deny that the eight attorneys were dismissed for “political” reasons.

U.S. attorneys are “political appointees,” and so by definition can be replaced for political reasons. If San Diego’s Carol Lam was out of step with the Administration’s priorities on immigration enforcement, or New Mexico’s David Iglesias was judged insufficiently aggressive on voter fraud, then it was entirely appropriate for the President to replace them with officials more in line with his views. What’s the alternative? Presumably, Mr. Bush’s Congressional critics would have him–and his successors, Republican and Democratic–preside over political appointees who are unaccountable to anyone except Congress.

What would be genuine grounds for outrage is if a U.S. attorney were dismissed to interfere with a specific prosecution, or to protect some crony. This was the root of our objection, in 1993, to Janet Reno’s dismissal (at Webster Hubbell’s instigation) of all 93 U.S. attorneys in his Administration’s earliest days. But there is no such evidence involving any of the eight Bush attorneys.

As for Congress’s subpoenas, they are being issued largely for the political melodrama they create. Even if Congress serves the subpoenas, Democrats know that they can’t be enforced without a long legal fight that would extend toward the end of the Bush Presidency. The point of this stunt isn’t to learn what Karl Rove knows, or else Congress would accept the White House offer to interview him in private. The exercise is all about creating an aura of “cover-up” and “illegality,” never mind the lack of any evidence.

Whether Attorney General Albert Gonzales or Deputy Paul McNulty now lose their jobs is a decision Mr. Bush will have to make. But no one should be under any illusions that their political sacrifice at the current moment would appease Democrats. Their real target is Karl Rove, and ultimately the crippling of the Bush Presidency. Whatever benefit Mr. Bush would gain by giving GOP Members a ritual sacrifice would be offset by the costs of putting even more Administration blood in the water.

Apple CEO On The Failure Of Our Public Schools – Teachers Union

AUSTIN — Apple Inc. CEO Steve Jobs lambasted teacher unions today, claiming no amount of technology in the classroom would improve public schools until principals could fire bad teachers.

Jobs compared schools to businesses with principals serving as CEOs.

“What kind of person could you get to run a small business if you told them that when they came in they couldn’t get rid of people that they thought weren’t any good?” he asked to loud applause during an education reform conference.

“Not really great ones because if you’re really smart you go, ‘I can’t win.'”

In a rare joint appearance, Jobs shared the stage with competitor Michael Dell, founder and CEO of Dell Inc. Both spoke to the gathering about the potential for bringing technological advances to classrooms.

“I believe that what is wrong with our schools in this nation is that they have become unionized in the worst possible way,” Jobs said.

“This unionization and lifetime employment of K-12 teachers is off-the-charts crazy.”

At various pauses, the audience applauded enthusiastically. Dell sat quietly with his hands folded in his lap.

“Apple just lost some business in this state, I’m sure,” Jobs said.

Dell responded that unions were created because “the employer was treating his employees unfairly and that was not good.”

“So now you have these enterprises where they take good care of their people. The employees won, they do really well and succeed.”

Dell also blamed problems in public schools on the lack of a competitive job market for principals.

Earlier in the panel discussion, Jobs told the crowd about his vision for textbook-free schools in the future. Textbooks would be replaced with a free, online information source that was constantly updated by experts, much like the online encyclopedia Wikipedia.

“I think we’d have far more current material available to our students, and we’d be freeing up a tremendous amount of funds that we could buy delivery vehicles with — computers, faster Internet, things like that,” Jobs said. “And I also think we’d get some of the best minds in the country contributing.”

Full article here.

Update: More here.

Why You Should Not Vote For John McCain

Be Afraid of President McCain

FreedomFest 2007

I am now officially registered to attend 2007’s Libertarian FreedomFest, in Las Vegas. It will be from July 5th — 7th and I encourage all Free thinkers and non free thinkers alike to attend. I have never been to a political convention before, but given that this year they will be honoring the late Milton Friedman, my second favorite economist of all time, I couldn’t miss it.

If you plan to attend please let me know – we can hang out together and make fun of all them crazy anarcho-capitalists. 😀

For more on FreedomFest go here, for pricing and registration information go here.