After I wrote my opening statement for my debate with David Balan, I was suddenly tempted to start over.  My thinking: Since the resolution is, “Significant governmental involvement in health care is both economically sensible and morally just,” maybe I should just try to demonstrate that Balan’s complaints about a free market in health require only insignificant government involvement.  I resisted temptation before the debate, but now seems like a good time to surrender to it.  As Groucho Marx said, “Those are my principles; if you don’t like them, I have others.”  Here goes.

David Balan’s overriding complaint about a free market in health care is that it fails to care for the poor – especially the deserving poor.  Unlike many economists, he puts little emphasis on the adverse selection problem.  Balan admits that health insurance companies are actually quite good at figuring out which clients are high-risk.  As a result, people who have chronic medical problems through no fault of their own can only buy insurance at very high rates.

Fortunately, the government can handle this problem without spending trillions or heavily regulating the insurance or medical industries.   All it needs to do is provide a means-tested subsidy to make private health insurance more affordable for those who need it most.  The subsidy should be based on income, wealth, chronic health status – and, given Balan’s focus on the deserving poor – on past and current behavior.  People who engage in voluntary risky behaviors – smoking, drinking, over-eating, mountain-climbing, violence, etc. – should receive a smaller subsidy, or no subsidy at all.  The same goes for people who failed to buy long-term insurance when they were healthy and employed, then ran into health or financial troubles. 

It’s hard to say how much this would cost, but it would clearly be far less than government spends today.  The deserving poor are a lot less numerous – and healthier – than the elderly.  There’s nothing in Balan’s principles that precludes substantial co-payments.  And as Balan himself suggests, there’s no obligation for the government to subsidize insurance if there aren’t any cost-effective treatments.

What about Balan’s other concerns?  After the government helps out the deserving poor, a few other minor interventions pass the cost-benefit test.  The government can keep programs to fight contagious disease.  It can impose certification – but not licensing – to protect poorly informed and naive consumers.  This is a sensible way to protect patients without endangering the markets’ ability to prudently cut costs.  The government can also offer prizes (not grants!) for non-patentable medical discoveries.

Do all these concessions add up to “significant” government involvement?  I’ll say no. Government spending would probably add up 1-2% of GDP, and at least 90% of the regulations we take for granted would be stripped away.  We’d also say goodbye to decades of anti-market demagoguery.  We’d stop repeating the Big Lie that a free market in health is impossible – and stop scapegoating insurance companies for their understandable reluctance to sell unprofitable policies.  Instead, we’d subsidize the deserving poor, label the quacks, correct a few externality problems, and let the market work.

How about it, David?