2.7.09

CONTEMPLATING TRADEOFFS. In The Wall Street Journal, George Newman contemplates some health care policy commonplaces.

- "The cost of health care rises two to three times as fast as inflation."

That's like comparing the price of hamburger 30 years ago with the price of filet mignon today and calling the difference inflation. Or the price of a 19-inch, black-and-white TV 30 years ago with the price of a 50-inch HDTV today. The improvements in medical care are even more dramatic, leading to longer life, less pain, fewer exploratory surgeries and miracle drugs. Of course the research, the equipment and the training that produce these improvements don't come cheap.

(Via Betsy's Page.) That's a regular feature here, where the argument is that if it's available at a positive price when it wasn't available at any price previously, it's a cost reduction.

There are several other points, some more defensible than others.

- "Shifting funds from health care to education would make for a better society."

These two services have a lot in common, including steadily rising cost. What is curious is that this rise in education costs is deemed by the liberal establishment smart and farsighted while the rise in health-care costs is a curse to be stopped at any cost. What is curiouser still is that in education, where they always advocate more "investment," past increases have gone hand-in-hand with demonstrably deteriorating outcomes. The rising cost in health care has been accompanied by clearly superior results. Thus we would shift dollars from where they do a lot of good to an area where they don't.

It's a non sequitur as a policy commonplace, and it detracts from the article. There are, as regular readers know, better uses for the resources that have gone to education than the uses revealed preferred by school boards and university administrators. On the other hand, education and medicine are activities in which the Baumol "cost disease" hypothesis has some bite: a practitioner may have more drugs to choose from, but it takes as long to do the inoculation as it did in the one-shot-treats-all era; a teacher may have more techniques to choose from, but it takes as long to review a paper as it ever did.

- "The cost of treating the 45 million uninsured is shifted to the rest of us."

So on Monday, Wednesday and Friday we are harangued about the 45 million people lacking medical care, and on Tuesday and Thursday we are told we already pay for that care. Left-wing reformers think that if they split the two arguments we are too stupid to notice the contradiction. Furthermore, if cost shifting is bad, wait for the Mother of all Cost Shifting when suppliers have to overcharge the private plans to compensate for the depressed prices forced on them by the public plan.

- "A universal plan will reduce the cost of health care."

Think a moment. Suppose you are in an apple market with 100 buyers and 100 sellers every day and apples sell for $1 a pound. Suddenly one day 120 buyers show up. Will the price of the apples go up or down?

These two points don't cohere. On the one hand, the author is taking advocates of government health care to task for an internal inconsistency: uninsured people go to the emergency room where taxpayers pick up most of the tab, which makes the number of uninsured irrelevant. On the other, he's suggesting that the uninsured don't go to the emergency room, but they'll show up at some clinic once taxpayers pick up all of their tab? That's not well reasoned. Perhaps, though, there is a different tradeoff. The advocates of government health care suggest that routine exams might preempt more expensive treatments the emergency room discovers. (That's what Health Maintenance Organizations were supposed to do, but I digress.) On the other hand, government-as-single-payer has a lot in common with coal-mine-as-single-employer or state-liquor-store-as-single-stockist. Lowering costs by depressing wages implies reduced output.

- "U.S. companies are at a disadvantage against foreign competitors who don't have to pay their employees' health insurance."

This would be true if the funds for health care in those countries fell from the sky. As it is, employees in those countries pay for their health care in much higher income taxes, sales or value-added taxes, gasoline taxes (think $8 a gallon at the pump) and in many other ways, effectively reducing their take-home pay and living standards. And isn't it odd that the same people who want to lift this burden from businesses that provide health benefits also (again, on alternate days) want to impose this burden on the other firms that do not offer this benefit. What about the international competitiveness of these companies?

That's a more cleanly worded version of the argument I offered here.

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