Certain Habits

Last night the United States Congress virtually guaranteed national bankruptcy for the United States. Social Security and Medicare, which are today jointly unsustainable—with liabilities that if capitalized today at record low interest rates would top $107 trillion. So what’s the solution? Add another, broken-at-birth entitlement—”(Sorta) Free Health Insurance for All!”—on top of it!

Free, very good health care for all is a nice idea. It’s beautiful in theory. The vision makes you feel all warm inside. And it seems an ethical imperative. But the gap between theory and reality on this one is unbridgeable.

I understand that claims that the bill will somehow streamline the system and achieve efficiencies that will slow the rate of health care inflation. But can you point to any occasion when transferring responsibility for something into the management of politicians and bureaucrats succeeded in lowering the long term cost of a program?

Milton Friedman once famously explained why bureaucracies are so bad at managing to spend less money or and to get good value for the money that they do spend. I’ll bungle the language (he was more eloquent in his sleep than I’ll ever be fully awake), but his basic insight was this: When you spend your own money on yourself, you’re careful both what you spend and that you get good value for it. When you spend your own money on someone else, you care a lot what you spend and less what you get for it. When you spend someone else’s money on yourself, you don’t care very much how much you spend, but you make sure that you get a lot for it. “I’ll have the lobster and the porterhouse, please.” And when you spend someone else’s money on someone else, you don’t care what you spend or what you get for it.

The problem with the health care bill is that it places consumers in the third category—spending someone else’s money on themselves—and it places the politician funders/managers in the fourth category—spending someone else’s money on someone else. That’s a recipe for runaway expenditures and a busted budget.

I agree that there is much in the current health care system that needs fixing. Our current insurance system, where the employer pays for health care at a cost that is (mostly) invisible to employees, and then insurance companies pay a (mostly) invisible price for the care that patients receive, is very bad if you care about getting good care for a reasonable price. If patients were in the position more often of knowing what care cost and having a financial incentive in the decision, I believe we’d get better outcomes from a cost and health perspective.

What’s broken in our current system is a misalignment of incentives. Patients can’t know, and have no reason to care, what their care costs. They often don’t even need to know or care what their insurance costs. What the health care “reform” bill does is take what’s broken in our current system, and it makes it even more broken.

In related news, EU Juncker: Greece Will Need Aid Unless Budget Cuts Sway Markets

Austrian Economists sees a humor in the situation with a South Park reference.