Free Trade in Health Care?

Dean Baker and Hye Jin Rho of the Center for Economic and Policy Research have an interesting new paper titled ‘Free Trade in Health Care: The Gains from Globalized Medicare and Medicaid.’

In their paper, Baker and Rho argue the all-too-familiar line that “patients are paying too much for their health care.” But they provide an interesting twist: why not permit free trade in health care?

The huge gap between the cost of health care in the United States and the cost in other countries with comparable health care outcomes suggests the potential for substantial gains from trade. This paper describes one mechanism for taking advantage of these gains – through a globalization of the country’s Medicare and Medicaid programs. The projections in this paper suggest that the country’s long-term budget situation would be substantially improved if beneficiaries of these two programs over the age of 65 were allowed to take advantage of the lower-cost health care available in other countries (that also have higher life expectancies than the U.S.). This could also allow them to enjoy much higher retirement incomes than they would otherwise receive.

They estimate significant savings for the U.S. and gains for other countries. Who would have guessed there would be gains from trade (that’s sarcasm people)?

The chart below illustrates the potential savings to the government over the next 75 years for each beneficiary who opts to use a Medicare voucher to buy into the health care system of another country:

The table below shows the implied savings to the Medicare system if 30 percent of the eligible population opts to use a Medicare voucher to buy into the health care system of another country:

The gains from trade, of course, help the countries that provide health care as well. The gains to beneficiaries from moving to another country for health services are illustrated below:

So what can we make of this? Well, for one, the future can’t be predicated with any degree of certainty when it comes to health care. It is now in the filthy world of politics.

But if the health care debate truly centered on helping those who can’t help themselves, then the focus would remain on fixing Medicare and Medicare. But clearly helping the needy has somehow evolved into helping everyone.

Nevertheless, Baker and Rho provide an interesting way to sharply reduce the costs of health care for those who may need it.** In the words of the authors,

The huge gap between the cost of health care in the United States and the cost in other countries with comparable health care outcomes suggests the potential for substantial gains from trade.This paper has described one mechanism for taking advantage of these gains – through a globalization of the country’s Medicare and Medicaid programs. The projections in this paper suggest that the country’s long-term budget situation would be substantially improved if beneficiaries of these two programs were allowed to take advantage of the lower-cost health care available in other countries. This could also allow them to enjoy much higher retirement incomes than they would otherwise receive.

**I will not go into the morality or practically of providing health care to the poorer segments of society. Whether these programs are necessary is not my point here. My point is to highlight a practical method to improve what is unlikely to disappear.

Where Do Your Tax Dollars Go?

This chart, from the Center for Budget and Policy Priorities (via Economix), illustrates where your (collective) tax dollars go:

Obesity and Health Care Spending

Economix has compiled two maps to show the relationship between obesity and health care spending.

The map below is from a report on obesity and diabetes released last week by The Centers for Disease Control and Prevention. It shows obesity rates around the country:

Age-adjusted percentages of persons aged ≥20 years with diabetes and obesity, by county. Data for United States, 2007.

The map below illustrates Medicare expenditures across the country (from the Dartmouth Atlas Project):

Data show average age-sex-race-adjusted Medicare spending per enrollee by state and by hospital referral regions for 2006.

I see a clear overlap here.

In a separate post by Economix, David Leonhardt discusses a conversation he had with several economists at the Rand Corporation. While reporting on his column on soda and obesity, he asked the economists to estimate how much money obesity costs the federal government:

They imagined that the American population was no more overweight than it had been in the 1980s and then analyzed how Medicare and Medicaid costs would be different in that situation. (They used a Rand economic model of theirs called the Future Elderly Model.)

The answer: $40 billion.

This is serious money that clearly justifies one of two changes.

On the one you hand, the government could provide the correct incentives that will lead to healthy lifestyles, thus reducing obesity and the financial strain on the federal government. These incentives almost always include taxes.

On the other hand, the government could respect (and accept) the choices people make. If people overeat to the point of obesity, they will personally pay the consequences . Their neighbors will not. In other words, the $40 billion will be paid only by those who spent it.

Of these two options, I pick the second.

Bill Clinton gets it wrong on health care

Former President Bill Clinton recently weighed in on the current proposal for health care reform. I’d like to break down his statement and point out some of the more glaring fundamental flaws in his thought process.

I basically said that I think it’s an economic imperative. We’re in an economic crisis, we’re trying to bring America back, and I have always been concerned that, you know, 16 percent of our people don’t have health insurance and 30 percent are without it at any given time during the year.

Our current economic predicament was caused by the thinking that “economic imperatives” exist for government. In order to bring America back, government needs to stand aside and do absolutely nothing. As for the figures regarding percentage of citizens without health insurance, I would like to point out two things. One: health insurance is not the same as health care. Two: even if some citizens lack health care, that does not create a moral imperative on the part of others to provide that care for them.

But the main thing, since we’re focused on the economy, is that we are spending 16.5 percent of our income on health care. The next most expensive country is Switzerland at 11.5. The next most expensive is Canada at 10.5. All of our competitors are between 9 and 10 percent. That means every year, it’s like we write a check to all of our economic competitors for $800 or $900 million. And they cover everybody — we only cover 84 percent, and we don’t get better outcomes. We get worse outcomes.

This would make sense, if a government-run health care system would decrease costs and increase quality of care. Unfortunately, there is no evidence that socialist health care systems maximize utility. It is also worth noting that this talk of writing checks to trading partners is evidence of a zero-sum economic mentality of the type that fosters protectionist policies.

So the point I tried to make is that this is an economic imperative. To just give you one example, before the economic collapse of Sept. 15, 2008, with the Lehman Brothers failure, median income after inflation in our country was $2,000 lower than it was the day I left office in 2001 — that’s back in the dark ages. I mean, we went through all those years, and one big reason is, after inflation, health care costs doubled.

Inflation: another problem caused primarily by government intervention in the economy.

So my argument was, this is an economic imperative as well as a health care imperative. Second thing is that on the policy, there is no perfect bill, because there are always unintended consequences. So there will be amendments to this effort, whatever they pass, next year and the year after and the year after. And there should be. It’s a big, complex, organic thing.

If a bill is not perfect in that it violates individual rights and involves government stepping outside its proper bounds, then it should never be passed. No societal progress is worth the cost of even one violation of individual freedom. It is “big, complex, organic” legislation (such as the programs of the New Deal) that shackle our economy and stunt our growth.

But the worst thing to do is nothing. That was my argument on the economics and on health care.

This single statement sums up the liberal/Keynesian economic philosophy. But no political rhetoric can change the fact that the very best thing a government can do for an economy is nothing.

Medicare Denies More Insurance Claims Than the Private Sector

Mark Perry writes:

The purpose of the American Medical Association’s “2008 National Health Insurer Report Card” is to provide physicians and the general public a reliable and defensible source of critical metrics concerning the timeliness, transparency and accuracy of claims processing by the health insurance companies that are responsible for paying these claims. Billions of dollars in administrative waste would be eliminated each year if third party-payers sent a timely, accurate and specific response to each physician claim.

An analysis of almost 10,000,000 insurance claims by the AMA to seven private insurance companies and Medicare between March 2007 and March 2008 reveals that more than half a million (574,591) claims were denied, and the chart above displays the percentage of claims denied by each insurer during that period. Medicare led the group with the greatest percentage of insurance claims denied (6.85%), more than double the denial rate for private insurers like UHC (2.7%), Coventry (2.9%), Humana (2.9%) and CIGNA (3.4%).

‘Medicare and Freedom’

Greg Mankiw has a new post that begins by pointing to an op-ed by Paul Krugman. Krugman writes:

the modern G.O.P. considers itself the party of Ronald Reagan — and Reagan was a fierce opponent of Medicare’s creation, warning that it would destroy American freedom. (Honest.)

Mankiw continues by quoting an article from today’s Wall Street Journal written by three past presidents of the American Medical Association:

the right of patients to privately contract with physicians to ensure they have the medical care they want, without penalty—regardless of what the government pays—must be recognized and protected. Today, if a doctor wants to bill a patient for additional payment over the Medicare reimbursement, he has to withdraw from Medicare entirely for two years. A patient who agrees with this arrangement can’t receive any Medicare money for that service, either.

Mankiw concludes:

So, if you include the right to sign mutually advantageous contracts and engage in the gains from trade as part of “freedom,” then President Reagan was not so far off the mark.

The problem, it seems, is that Medicare sometimes tries to push the price of medical services below their equilibrium levels (a phenomenon that will likely get more severe with the Medicare cuts being envisioned in the pending healthcare reform bills). Such price controls naturally lead to private attempts to circumvent them, which in turn lead to regulations to prevent that behavior. These new regulations cannot help but impinge on economic freedoms.

Below is the audio of Ronald Reagan giving his case against socialized medicine:

Government can fix health care, like everything else

HT: Carpe Diem

The Politics of Health Care Nationalization

Let us assume, for the sake of this post, that President Obama’s attempt to nationalize health care is not A) grotesquely immoral, B) another giant leap towards socialism, and C) a sure-fire way to decrease health care quality for Americans. With this mindset, The Economist has an excellent look at The Politics of Health Reform.

From Democracy to Aristocracy

Normally, I only link to articles that I (for the most part) agree with. But Peggy Noonan published an WSJ op-ed which gives a great view of the facts of the health care nationalization debate – though I very much disagree with the assessment of those facts.

What has been most unsettling is not the congressmen’s surprise but a hard new tone that emerged this week. The leftosphere and the liberal commentariat charged that the town hall meetings weren’t authentic, the crowds were ginned up by insurance companies, lobbyists and the Republican National Committee. But you can’t get people to leave their homes and go to a meeting with a congressman (of all people) unless they are engaged to the point of passion. And what tends to agitate people most is the idea of loss—loss of money hard earned, loss of autonomy, loss of the few things that work in a great sweeping away of those that don’t.

People are not automatons. They show up only if they care.

What the town-hall meetings represent is a feeling of rebellion, an uprising against change they do not believe in. And the Democratic response has been stunningly crude and aggressive. It has been to attack. Nancy Pelosi, the speaker of the United States House of Representatives, accused the people at the meetings of “carrying swastikas and symbols like that.” (Apparently one protester held a hand-lettered sign with a “no” slash over a swastika.) But they are not Nazis, they’re Americans. Some of them looked like they’d actually spent some time fighting Nazis.

All of this is unnecessarily and unhelpfully divisive and provocative. They are mocking and menacing concerned citizens. This only makes a hot situation hotter. Is this what the president wants? It couldn’t be. But then in an odd way he sometimes seems not to have fully absorbed the awesome stature of his office. You really, if you’re president, can’t call an individual American stupid, if for no other reason than that you’re too big. You cannot allow your allies to call people protesting a health-care plan “extremists” and “right wing,” or bought, or Nazi-like, either. They’re citizens. They’re concerned. They deserve respect.

…the health-care protesters have to make sure they don’t get too hot, or get out of hand. They haven’t so far, they’ve been burly and full of debate, with plenty of booing. This is democracy’s great barbaric yawp. But every day the meetings seem just a little angrier, and people who are afraid—who have been made afraid, and left to be afraid—can get swept up. As this column is written, there comes word that John Sweeney of the AFL-CIO has announced he’ll be sending in union members to the meetings to counter health care’s critics.Somehow that doesn’t sound like a peace initiative.

It’s going to be a long August, isn’t it? Let’s hope the uncharted territory we’re in doesn’t turn dark.

To me, this seems like the wrong time to be admonishing opponents of health care nationalization to show restraint. So far, there have been no reports of violence, yet we have union members being sent in to “counter” the critics? Sounds like an intimidation tactic to me. To be clear, I’m not advocating violence or obscenity or anything of the like. But let’s not all rush to the sinking side of the boat. The group that needs to be restrained is our socialist Congress and (what appear to be) their thugs. At this point, raising our voices and standing firm against socialized medicine is not just overdue, it’s a moral imperative.

The United States of America is transitioning from a republic to an aristocracy. In a letter to John Adams, Thomas Jefferson once said:

I agree with you that there is a natural aristocracy among men. The grounds of this are virtue and talents.

The modern aristrocracy that is forming is not based on virtue or talent. It is an aristocracy of political pull, clout, power – in short, it is an aristocracy of force. The U.S. fought a civil war to purge from itself the last vestiges of fuedalism and aristocracy. It would be a disgrace to return to rule by the few, with a gun as their final argument.

The Rabble

At town hall meetings across the nation, liberal members of Congress are being confronted by angry citizens over President Obama’s nationalization of the health care industry. The media is deriding these citizen for debating the plan in an uncivilized manner. Granted, I prefer a calm, rational debate over some of the more sensationalist demonstrations that we’ve seen at events like the Tea Parties. However, this harsh reaction to health care nationalization is a natural response to what many citizens perceive as a threat to their liberties. Investor’s Business Daily has an eloquent take on on the matter:

It is meddling in people’s lives and has no business going into the private places it is invading. Americans have both the right and the duty to stand up to forces that want to subjugate them.

Polite discourse is always preferred, but when liberty is threatened by an aggressive government, civil dialogue is not enough. Voters need to exercise their right to press their representatives and influence legislation.

Lawmakers should not be allowed to hide behind claims that they are being accosted by rabble. If they’re going to put a boot on people’s necks, the people have the right to confront their oppressors.

The writing is on the wall. Politicians are certainly going to hear more angry rhetoric and may even be forced to deal with some civil disobedience. Another possible externality of health care nationalization may be black market health care services. Nationalization (in the guise of “reform”) will bring standardization of care. With standardization, some procedures desired may become cost prohibitive or even unavailable. If this happens, an underground economy for medical care could very well arise. But when has any collectivist government (be it led by a single individual or a mob) taken a look at the economic consequences of its actions? For President Obama’s administration, I think all means lead to a single end: control.