Milton Friedman’s Healthcare

In last week’s post, I discussed why healthcare should not be left to the free market. Since then I’ve done some more reading and have come across some pretty interesting stuff by Nobel Laureate Milton Friedman. Milton Friedman doesn’t like third-party payer systems, and he really doesn’t like government-sponsored healthcare. He believes the government has no role in regulating, purchasing, or administering healthcare services. If we had it his way, he would even do away with medical licensure. Fine. But what about people who cannot afford healthcare? He thinks that poverty-struck people should be given a negative income tax to the point that they are capable of subsisting at a socially-acceptable level. From there, people can then choose how to spend their money, whether it be on healthcare, mortgage payments, or highly marketed-high-fructose corn syrup products. While giving impoverished people extra money to survive is fine enough an idea, I must question how much people at the subsistence level would really demand health insurance when faced with many other options to spend their minimal income.

The problem with Friedman’s argument is people without health insurance likely will pose a higher cost to society through more extensive utilization of emergency care services instead of primary care physicians. By getting people invested in their own health and taking advantage of preventive measures, our healthcare costs will likely fall.

Healthcare doesn’t lend itself to the Free Market

Healthcare in the United States is big business, and that’s a big problem. We spend around 16% of our GDP on healthcare, nearly double that of other industrialized nations. Additionally our system does not provide coverage for all Americans, and our life expectancy falls below other developed nations as well. For the amount of money we’re spending on healthcare, we aren’t getting a very good bang for our buck. So what’s our remedy? A healthy dose of preventive care.

As Americans, we tend to believe the free market will solve our problems better than the government can. And with some pretty inefficient government programs in our past, I agree sometimes. The problem however is that our current system is failing to deliver what it should, so we need to figure out a solution. There’s a fundamental divide between people who believe healthcare is a birthright and those who believe healthcare is just like any other good or service and should be priced/sold accordingly. To the latter, I applaud your libertarian ideals, but I also chuckle. Although Americans largely fund their healthcare directly, through insurance, or through the government, some people cannot afford coverage. And while these people do not get flu shots or go in for annual checkups, they can get very sick and receive hospital treatment that they cannot afford and won’t pay back. So while some people currently believe our healthcare system promotes capitalist ideals, everyone already has access to healthcare (however clumsy the arrangement).

A chief issue with our current healthcare arrangement is that many medical issues-and the resulting expenses-are considered tomorrow’s problems, not today’s. While this saves money in the moment, no strategy can prove more costly in the long run. A simple yearly checkup might supplant the need for hospitalization later. So instead of providing hospitals as an unaffordable last-resort, we need a system that allows all people to receive non-emergency treatment. Through providing non-emergency treatment for all Americans, more illnesses will be treated earlier and at a lower cost to society.

Although I doubt the American healthcare system is likely to drastically change in the near future, we need to attempt to provide more low cost medical services to more people, regardless of the distribution method. This is one way in which we can save money (down the road) and provide more efficient medical care to all Americans.

Get the Middlemen Out! Why we need to eliminate 3rd party payer systems in education

The Blaine Truth argued a few weeks ago about the usefulness of college considering the soaring costs of education. While this is an important question to answer, after reading that I started to think more about the root of the problem: why are education costs soaring? They have far outpaced inflation in the past many years, and the reason for this is the current funding system that relies upon a third-party payer system. In the current model, students who cannot afford college tuition receive funding from a variety of sources until their ‘demonstrated need’ has been met. Most typically, the educational institution and the federal government supply the necessary scholarships to enable students to attend college.

Poor Greg Mankiw and Why People Think the Facts Lie

Greg Mankiw seems to be the blogosphere’s favorite economist punching bag. Openly criticized by Paul Krugman and Matt Yglesias, bloggers seem to be waiting in the wings in anticipation of Mankiw’s next words. Why, you ask? Take a look at this post, in which Mankiw posts a table and link that compares income-tax progressivity across developed nations. The US comes in as the most progressive on the list (determined by comparing the share of total income and total tax revenue share of the wealthiest 10% of each population).  This isn’t fun news for the progressive community, so naturally some public intellectuals are going to be upset. The chart proves that the US more heavily depends on wealthy tax payers than do other countries, but it does not speak on the individual countries’ ability to redistribute wealth with said tax revenue.

But the bloggers are in a fury more that Greg Mankiw posts the chart without explanation than about the troubling news found in the chart (and what the chart means about the US’s low redistribution of wealth). The bloggers claim that Mankiw is forcing incorrect information upon readers when it’s just as simple that the bloggers don’t understand the information Mankiw shares. That said, I think Mankiw enjoys the controversy he stirs up by posting facts without much explanation.

Moral Hazard and the Company Expense Account

You’re in a buffet line and although you’ve already stuffed yourself, you think about getting another plate. On one hand you probably don’t need another serving. But then you think “I already paid for it, so I might as well get some more.” Perhaps you, being the health-conscious person that you are, avoid going back for a second (or third) helping. But most people will inevitably return to the buffet. Is this because portion sizes in America are sky high? Perhaps. But it also can be explained by an economic theory known as moral hazard. Moral hazard is a phenomenon that explains that people make decisions differently when they are protected from some of the consequences of their actions. In the case of the buffet, people are protected from the cost of an additional plate because they prepaid for the meal, regardless of their portion. Moral hazard shows up everywhere. Do you treat rental cars as well as you treat your own? Are tenured professors as likely to care about course evaluation as those still hoping for tenure? And what about corporate expense accounts? Chances are you’re more likely to buy that filet mignon when the boss is paying for it. Of course most expense accounts have limits, but how efficient are those limits? Because a limit exists, there’s a high likelihood that people will utilize the expense account up to the limit, not actually based on the person’s need.

While this is more a theoretical exercise than a proposal to amend corporate reimbursement strategy, expense accounts should be managed more effectively. When people don’t bear the full responsibility of their actions, they are likely to behave differently, which results in outcomes that aren’t socially optimal. Thus by somehow forcing employees bear some cost (monetary or not) of expense accounts, corporations are likely to see a drop in expenditure without a loss in happiness for its employees.

Eliminating moral hazard can benefit not just expense account providers but a whole host of industries and sectors. When consumers of a good are different than the people who pay for the good, moral hazard is likely present. College students are more likely to order another round of drinks if they do so with mom and dad’s credit card. Although moral hazard will still appear unless the person paying is the person receiving the good, the goods recipient should feel some cost. In the case of the college student, a hearty guilt trip or reprimanding could suffice. For expense account holders, more knowledge (or reminders) about nutritional values might prevent him or her from ordering dessert with dinner.

Although economics is largely based on mathematics, it is still a social science. In trying to understand how the world works, economics must dissect individuals’ actions to try to make sense of trends and behaviors. Thus studying the theory behind individual decision-making can help to better understand how people act as it pertains to economics. And hopefully it can figure out a way to make people think twice about going back for seconds at the buffet.