Monday, February 25, 2008

Why Single Payer Universal Health Insurance is a bad idea

The Nader candidacy is bringing single payer health insurance into the debate, for at least the 30 seconds of press that he is getting. I have deep reservations about this solution to our health care problem. There are two related, but separate issues to this debate. First, the moral argument that everybody has a right to health care. Second, Medicare and other universal single payer systems are more efficient from an economic perspective.

The moral argument is usually summed up as a recent article in The Hoya stated it. "A person’s quality of health should not be determined by factors like income and heritage; like food and water, all of us have the right to be healthy."

This is one of those positive rights arguments that I find so troubling. Freedom of Speech, Freedom of Religion, etc do not require expenditures and action by a government. Therefore, they do not necessitate the existence of a government to be fulfilled. Education is similar in this regard. The difficulty with education and health care rights is that somebody has to pay for it. This somebody, if it is a right, is the government. So, taxpayers and citizens pay for the service to other individuals.

I don't have a problem with this regarding education and health care because I think both benefit society far more than the impact of higher taxation. This is strictly a utilitarian argument. However, the difficulty arises from the actual provision of the services. The benefits that accrue from the provision of health care are wasted in the administration of the care. We have similar problems with education.

If the government is going to be the single payer for services, then it will result in an inefficient bureaucracy. Take education for example. Public K-12 education in this country is pretty much a complete mess. The higher education sector, with both private and public institutions competing, is the best in the world. The problem with higher education is mostly related to cost, but it is very effective. K-12 education is still not achieving results even with huge spending. Districts like DC spend more per child than almost any other large city in the nation, yet DC's results are criminal low.

Right now we have a health care system roughly equivalent to the higher education system. It provides world-class health care, akin to Harvard education, to the wealthy and well-insured. It provides good quality health care, a good state school, to the middle-class. And the poor are stuck with little to no health care, ie community college.

When somebody is arguing to go to single payer health care it is akin to arguing that we should scrap the higher education model because it costs too much and is unfair, and we should use the K-12 model of education because it will be cheaper and fair. Yet, I think it will be neither.

There are some arguments in favor of it being more efficient. First, more preventative care will be available. This will nip problems in the bud before they become more serious, and consequently more costly. Second, Medicare has lower administrative costs because they don't advertise, etc like private insurers.

I agree that the first one is probably accurate. Universal coverage would probably result in more preventative care, which is more efficient. But I don't think we need to adopt a single payer system to address this problem. The second point I think is wrong. Medicare and other single payer systems appear to have lower administrative costs. Waste and fraud cost money. Private insurers are more motivated, specifically by the evil profit motive, to combat waste and fraud. Medicare and single payer programs do not have this motivation. If their payouts go up, it is easier call for more revenue than to actually combat the fraud and waste. This cost outweighs any additional cost that private insurers face.

Lastly, a single payer monopoly has complete market power. They can dictate prices to the medical industry. Many people say: Good, that will lower costs. Yet, I fear this will lower costs in the short-term with negative, yet invisible effects in the long-term. If we dictate prices to drug companies, for example, it will necessarily impact their profits. These profits are the motivation to create new drugs. The larger these profits are, the bigger the motivation. Sure, it isn't altruism, but it is more effective. Because we are the only non-single payer system in the developed world, and also the largest market for health care, the United States provides the incentive for drug companies and the medical community to innovate. Companies take the risk to research new drugs and techniques because they know that they will be able to reap a profit in the US market. From this perspective, Europe and Canada are free-riding. They get to set prices while they know new drugs and techniques will be developed for the US market. It doesn't matter whether the companies developing these drugs are in the US or not, they know they will be able to sell them in the US. If we remove this motive we lose the benefits of drugs that would be invented because of this profit motive, but are not invented either ever or as soon as they would have been because the US removed the large profit motive.

Our big issue is not that our health care system is good. It is, just like our higher education system. Our issue is that too many people can't afford to get health care. We need to find ways to incentivize preventative care and get the burden of providing the profit motive spread across all the OECD countries, not just the United States.

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