Here’s my opening statement for today’s Separation of Health and State Debate.  Hope to see you there!

Why We Should Separate Health and State

Government already plays
such a large role in health care that it may be hard to understand what
“separation of health and state” means. 
Let me be clear: In my ideal world, we wouldn’t just abolish
Obamacare.  We’d abolish Medicare,
Medicaid, regulation of health insurance, medical licensing, and the Food and
Drug Administration… for starters. 
Unlike many opponents of the latest legislation, I’m not saying, “Keep
your government hands off my Medicare.” 

Needless to say, my position
is unpopular.  You might even think I’m a
villain for holding it.  So just to play
into your fears, I’ll begin by quoting Dr.
Horrible’s Sing-Along Blog
.  In this
scene, Penny is telling Dr. Horrible about her last date – never realizing that
Dr. Horrible is secretly in love with her.  

Penny: But, he turned out to be totally sweet. Sometimes
people are layered like that. There’s something totally different underneath than
what’s on the surface.
Dr. Horrible: And
sometimes there’s a third, even deeper level, and that one is the same as the
top surface one.  Like with pie.

This scene perfectly
captures what I’m going to tell you about health care.  On the surface, a free market in health care
seems like the best approach.  When you
look a little deeper, the free-market approach seems naive and dangerous.  When you look deeper still, however, the free
market approach turns out to be the best after all.

Why does a free market in
health care look good on the surface? 
The same reason a free market in almost anything looks good on the
surface.  On the free market, firms
strive to satisfy the customer, and constantly look for new and improved ways
of doing business.  Why?  The profit motive: Firms that make customers
happy prosper, and firms that don’t go out of business. 

In the health sector,
however, most people – including economists! – think that free-market logic
fails.  The main complaints:

  • High cost. 
    Health care is ridiculously expensive.
  • Externalities. 
    My health depends on your health, and vice versa.
  • Moral hazard. 
    Health insurance
    encourages unhealthy lifestyles and risky behavior.
  • Adverse selection.  People with bad health are more likely
    to buy insurance, which raises rates, which makes healthy people even less
    likely to buy insurance.
  • Consumer ignorance and irrationality.  People don’t know much about health, and
    it’s costly to learn.  Even worse: They
    make systematic mistakes, and
    blindly trust medical authorities.

On closer look, however,
it’s the complaints that fail, not the market. 
Some are false or greatly exaggerated; others blame the market for
problems caused by regulation; some are true, but preferable to the alternative.  The problems with the problems:

  • High cost. 
    A mountain of regulation makes health care and health insurance a
    lot more expensive than they’d be on the free market.  Examples: Medical licensing greatly
    increases the cost of doctors, many of whom are overqualified for the work
    they actually do.  Regulation makes
    it hard to sell catastrophic and other low-cost insurance policies.
  • Externalities. 
    This is largely bait-and-switch. 
    Only a tiny fraction of
    modern health care treats contagious disease.
  • Moral hazard. 
    Insurance encourages unhealthy lifestyles and risky behavior if everyone pays the same
    rates.  But in a free market,
    insurers would charge riskier customers higher rates.  So why don’t they?  Because regulators often tie their hands
    in the interest of “fairness.” 
  • Adverse selection.  The least healthy people buy the most
    insurance if everyone pays equal
    rates.  But again, the free-market
    solution is to charge riskier customers higher rates.  Governments habitually create adverse selection problems
    by trying to equalize rates, banning pre-existing conditions clauses, and
    so on.
  • Consumer ignorance and irrationality.  If consumer ignorance were the problem,
    government could easily solve it with a good website.  What about the deeper problems of systematic
    error and blind trust?  They’re both
    very real, but argue against
    government involvement.  If you take
    any decent health econ class, you’ll hear about a pile of research showing
    that we greatly overestimate the
    health benefits of medicine – and put too
    trust in medical authorities. 
    The government’s response: 
    Encourage us to use more
    medicine, and remove financial incentives to second-guess the experts.  Real smart.

If you’re paying attention,
you might notice that I’ve suggested some
economically sensible role for government. 
What’s wrong with government programs to fight contagious disease, fund
a health information website, or study the effectiveness of different
treatments?  My answer: When you give
government an inch, it takes a mile.  Government
involvement in health care started with small measures like vaccinations.  Now it’s over 20% of the budget, and rising
fast.  Government involvement in health
care is too dangerous to allow in any form. 
We need to just pull the plug.

But wouldn’t that be unjust
to the poor?  Even if free-market health
care is a lot cheaper, there will still be some
Americans who can’t afford it.  Many
people think that a just society should proudly protect its weakest members –
just like a family would. 

I could object that the
“society as a family” analogy is oppressive, even totalitarian.  But I’m happy to accept it for the sake of
argument.  Notice: Within the family, you
are only legally obligated to care
for your minor children and your spouse. 
You are not legally obligated to take care of your siblings, your
nephews and nieces, or even the parents who gave you life!  Almost everyone agrees with this
approach.  So: If you don’t think it’s
just to legally compel people to support the parents who gave them life, why in
the world would it be just to legally compel people to support complete strangers?

It gets worse: Exaggerated
notions of how much we owe our countrymen are a major rationalization for treating
foreigners unjustly.  Billions of people
around the world earn a dollar or two a day. 
Haitians, for example, would be delighted to take a low-skilled job in
the United States – even without health care. 
But a leading argument against letting immigrants come is that they’re
already “bankrupting our health care system.” 
We’re so obsessed with helping relatively
poor Americans that we’re willing to deny absolutely
poor foreigners the basic human right to sell their labor to willing U.S.
buyers.  That’s evil enough to appall Dr.
Horrible himself.