A Ferrari is a superb automobile (…or so I’m told!), but if
you drive one off a cliff you’ll quickly find it makes a horrible
airplane. Similarly, our government is designed
to do a few public sector things well, but when we ask it to do private sector
things it’s like asking a car to fly.
That’s what happened with Obamacare. Democrats strapped some wings on a car, and
then drove it off a cliff with all of us onboard. Republicans will ultimately fail if their fix
is merely an improvement on that flying-car model.
Instead, Republicans and Democrats should scrap the flying-car
model entirely and perform a complete separation of car stuff from airplane
stuff. Then they should allow the people
who design and build the best cars to do their job and allow their
counterparts in the airplane business to do theirs.
I’m not suggesting Boeing or GM be involved in
replacing Obamacare. The point is there
are some things the public sector should do, and there are others the private
sector should do.
Healthcare, being a dynamic, complex, service-oriented
market, is precisely the kind of thing governments are ill equipped to
micro-manage. Like an airplane,
healthcare markets are moving at breakneck speed, must be able to change course
instantaneously, and are operating in turbulent three-dimensional space.
Conversely, providing a safety net, which is essential in
healthcare, is precisely the kind of thing the public sector must do. But like a car designed by committee, the
public sector is perennially underpowered, overweight, low on fuel, and
operates on a one-way dirt road that only allows direction changes every four
years. Public sectors work best if they
keep things simple, realistic, and have a clearly defined mission.
For a long time, even preceding Obamacare, we were using the
flying-car model and our designs were poor for both functions.
For an airplane to fly well there must be an instantaneous
response from the controls to the flight surfaces. Similarly, for free markets to function there must be an instantaneous response from buyers to sellers. In both cases a direct linkage is
essential. Nothing like that has existed
in healthcare for decades.
Since WWII there has been a huge tax advantage for
employers to provide health insurance to their employees. As a result, for the vast majority of
Americans covered by private health insurance, there are two thick layers of
bureaucracy between buyers (patients) and sellers (doctors, hospitals, etc.).
All told about 95% of Americans get their health insurance
from either government (federal, state, or local) or their employer. Obamacare has only made it worse. That leaves only about 5% of the population
that actually buys their own health insurance.
Unless and until health care and health insurance become
consumer products, something the vast majority of Americans pay for on their
own, there will never be a true functioning free market. As long as there are two levels of bureaucracy
between buyers and sellers, price, quality, speed, access, and satisfaction
will all suffer.
The idea of direct linkage applies to cars as well.
When the federal government provides a safety net there is
a critical break in the linkage between buyers and sellers. The reason is, the federal government has
access to what appears to be free money.
Having access to the world’s reserve currency makes borrowing and
printing dollars deceptively easy.
Politicians can over-promise and under-fund without negative short-term consequences.
This is an illusion that will inevitably backfire on our descendants.
To avoid this problem states must be the safety net
providers. By definition states are
forced to be more realistic, more practical, and more skilled when providing
safety nets. They are closer to the
facts on the ground and cannot access money without repercussions. If states
want to provide a high-cost safety net, they must be willing to tax their
citizens a commensurate amount. That forces
a discipline that the feds can too easily cheat their way around.
Ronald Reagan used to say, “There are simple solutions -
just not easy ones.” By that he meant that the solutions to seemingly complex
government problems can often be quite simple, but implementing them is another
matter in a divided government with checks and balances.
The following three specific proposals are not meant to be what’s
easy, just what’s simple:
1. Separation of
public and private functions
·
Government should not be in the business of
providing healthcare or insurance, but instead must be there to provide a
safety net in the form of vouchers or cash.
·
This should be how Medicaid, Medicare,
subsidies, insurance for pre-existing conditions, etc. all should be handled.
·
The private sector free market should provide
all healthcare and health insurance.
·
Thus, the private sector handles all the
services and products, and the public sector provides money for the safety net.
2. Linkage of buyers
and sellers
·
All Individuals, whether self-sufficient or in
the safety net, should be the buyers of their own healthcare and health
insurance.
·
Tax policy should change to favor individuals
over employers.
·
One possible tax change would be to dis-allow
health insurance deductions for employers, and at the same time increase wages
and lower payroll taxes by a commensurate amount to transfer the tax advantage
and premium dollars to individuals. This would result in no net changes to
anyone, but it would shift the market to individuals.
·
Individuals should be free to form groups
(marathon runners, vegans, non-smokers, etc.) to help them save on
premiums.
·
Individuals should be able to take their plans
with them wherever they go. (see below
regarding McCarran Ferguson)
·
Medical providers and insurers should be free to
advertise, disclose prices, and compete openly.
·
The government safety net should be voucher or
cash based so that recipient individuals can make their own choices.
3. Safety net by the States
·
There should be a transition to state funding of the safety net by
starting with closed-end block grants, as some current GOP proposals seek to do
with Medicaid. (Medicaid is currently managed by the states but funded in large
measure by the feds with an open-ended commitment. This creates a situation whereby states have
no incentive to eliminate waste, fraud, and abuse because the feds will always
kick in the necessary cash. This has
made Medicaid a runaway train-wreck of inefficiency. If the states fund and run their own safety
nets, it will eliminate this problem.)
·
Federal taxes would plummet and state taxes
would rise commensurately, but there would be a net savings in improved
efficiency since states are better run overall than the federal
government.
·
The safety nets should provide for the essential
needs of the poor, the sick (pre-existing conditions), and the incompetent.
·
Each state should be free do what’s best for
their population in terms of how they structure their safety net.
4. (optional)
·
Overturn McCarran Ferguson.
(One of the issues we hear a lot about is the inability of
health insurance companies to sell policies across state lines. This is because of an old law called McCarran
Ferguson that exempts insurance from federal regulation and the commerce clause. As a result, insurers cannot sell across
state lines, must maintain separate corporations in every state, and must answer
to fifty state regulators.
Without McCarran Ferguson insurance would be portable,
national, and cheaper.
But McCarran Ferguson is not a deal-breaker. That law also
covers auto insurers who appear to compete just fine. The reason is, unlike health insurance, 95% of
the auto insurance market is individual.
That’s why you cannot go a day without seeing a GEICO or Progressive ad.
So yes, it would help to get rid of this
outdated law, but the individual market is the real key.)
Those are the simple things we can do. The problem is that we have two parties and
two incompatible visions for the future of healthcare.
Democrats have been dreaming of a federal government healthcare
takeover for over a century. Republicans
tend to prefer a free market with a safety net. That impasse is how we’ve
ended-up with the worst of both worlds - the flying-car healthcare system.
It’s time to be honest and separate the two functions. Let the free market function in healthcare,
and let state governments transparently tax and spend to provide a proper
safety net. Let planes be planes, and
let cars be cars.
I never said it would be easy, but it really is quite
simple.
