Politics & Policy

Health Care and Freedom

An interview with Cato Institute scholar Michael Cannon.

Michael Cannon, a health-policy analyst for the libertarian Cato Institute and a co-author of Healthy Competition, recently agreed to answer a few questions of mine for the benefit of NRO readers.

NRO: Is it fair to say that the Democratic legislation on health care amounts to a government takeover of the system? That it amounts to socialized medicine?

CANNON: That’s not only fair to say — it’s imperative to say.

We’re in a dangerous spot where the Obama administration could drop the “government option” and still enact an individual mandate, which is really the most sweeping and dangerous measure in any of the bills before Congress. The individual mandate is itself a government takeover. It would reduce health-insurance choices. It would allow (indeed, require) the government to dictate the content of every health plan in the country; to dictate the relationships between doctors, hospitals, and insurers; to control the prices for health insurance and medical services; and to ration medical care. Sarah Palin’s legitimate (if hyperbolic) “death panels” claim was about the president’s plan to expand Medicare’s existing power to ration care. But the Massachusetts experience shows that the individual mandate would give the federal government that power over non-elderly patients, too. Once the government controls those decisions, what is left to nationalize?

NRO: Mickey Kaus recently asked

some of my conservative friends [to] explain to me just what it is that private insurers do that makes them worth preserving. The central problem, sketched by David Cutler in his book Your Money or Your Life, is that the free market does not reward insurers who provide excellent care. The market punishes insurers who provide excellent care, because the people who will be most attracted by excellent care are sick people, the very people who will drive insurers into bankruptcy. If private firms want to make a profit, at least in the [individual] market, the surest way to do it is to think up innovative ways to screw buyers — deny care to those likely to need it, write complicated clauses into policies that allow the insurer to weasel out of paying, etc. Everyone agrees private insurers do these things. What do they do that’s so great that makes up for it? [Overemphasis in original.]

You insist you’re not a conservative, but can you answer his question?

CANNON: I don’t know Kaus, but it appears that he may be afflicted with the typical laziness that the Left brings to health care: They start with the conclusion that government should run everything, then work backward. Everything that goes wrong is “the market,” even when the problem was created by government. If that’s the way you “reason,” who wouldn’t hate markets?

To respond to Kaus’s concerns, first, the market does not punish excellent care. Government does. Kaiser Permanente and Group Health Cooperative coordinate care, emphasize preventive care, and use electronic medical records to make medicine safer and more convenient. Why have these health plans achieved feats that have eluded Medicare? Because markets promote quality by enabling competition between different ways of paying health-care providers. But government — particularly Medicare — quashes such competition. It favors fee-for-service payment, which penalizes coordinated care, preventive care, electronic medical records, etc. (I recall an exchange with Ezra Klein where he claimed that, because physicians favor fee-for-service payment, the fact that Medicare adopted and used fee-for-service to shape the health sector should be blamed on “the market.” Oy.) It’s ironic that the same folks who say the market punishes excellent care, and who even hail the achievements of Kaiser and Group Health, are trying to drive those same private plans out of Medicare Advantage.

Also, sick people do not drive insurers into bankruptcy — price controls do. So long as insurers can charge actuarially fair rates, they will collect enough money from the sick, and have enough healthy enrollees to cover their costs. The trouble starts when government tells insurers they cannot price insurance according to risk. More sick people show up, and they buy more insurance than they would otherwise. Healthy people see their premiums skyrocket, and they drop out of the market. This is no way to run a railroad. Yet I have never discussed or debated health care with a leftist who didn’t start from the presumption that, of course, government should impose price controls on health-insurance premiums. That’s why they have some sympathy for employer-sponsored insurance: The government imposes on it a (loose) form of price control by forbidding employers to charge different workers different premiums for the same coverage.

In a free market, would private insurance cover all illnesses? Of course not. But fewer people would fall through the cracks than do right now. And let’s remember that the government could be doing a much better job of targeting Medicaid dollars to the needy.

The surest way to make a profit is to screw people? I do hope Kaus puts this theory of his to the test and launches a health-insurance company or a lemonade stand or something that demonstrates how consumers are so stupid that they will sign up for a bad deal, over and over again, never learning from their mistakes. To believe that the surest way to make a profit in health insurance is to screw people is to believe that no one will ever — ever — figure out a way to make binding commitments between insurance companies and soon-to-be-sick consumers. (Never mind that people already have.) And to believe that government provision is the remedy is to believe that binding commitments are possible when one side wields the sole, legal, and unilateral power to breach its commitments. Again, laziness.

Binding commitments and better care at a lower cost – I’d say that’s worth preserving.

NRO: Is government funding for comparative-effectiveness research a step toward rationing?

CANNON: Only in the context of government purchasing medical care. Which happens to be the current context.

NRO: Should people be required to buy health insurance?

CANNON: No. As I suggested earlier, compulsory health insurance is nationalized health insurance, with all that implies for health-care costs and quality.

But the greatest loss would be to individual freedom. As the Congressional Budget Office writes, “A mandate requiring all individuals to purchase health insurance would be an unprecedented form of federal action. The government has never required people to buy any good or service as a condition of lawful residence in the United States.”

The Left’s most powerful argument in favor of an individual mandate — that the uninsured sometimes end up in the ER, unable to pay their bills — isn’t powerful enough. The appropriate response to that problem is not to take away the freedom of non–free riders. The appropriate response is to leave the non–free riders alone, to place the cost of “uncompensated” care on the would-be free riders, and to write off any remaining uncompensated care as the price of living in a free and decent society.

NRO: Is universal coverage a goal legislators should pursue?

CANNON: A threshold question is, Do legislators have the authority? If we’re talking about Congress, the answer is clearly no.

Even if it were constitutional for the government to pursue universal coverage, however, it would still be unwise. You just can’t get to universal coverage in a free-market way. Some people do not want health insurance. The only way to cover them is through coercion, their freedom be damned. The imperative to cover every last person will require massive government intervention, and even people who want health insurance will lose the freedom to choose what their insurance covers. Again, when government compels people to purchase health insurance and dictates what they purchase, costs will climb and quality will stagnate. Free markets will not provide universal health-insurance coverage. And that’s okay, because free markets will reduce unmet need by making medical care more affordable — which also makes it easier to meet what need remains.

What bothers me most about what I call the “Church of Universal Coverage” is its hypocrisy. They claim that compulsory health insurance promotes individual responsibility because it prevents uninsured people from showing up in the ER unable to pay for the care they need. But consider: All members of the Church of Universal Coverage — as well as you and I — want to live in a society where we don’t let people die just because they cannot pay their medical bills. Surely, they recognize that this preference will induce some people to free-ride on their (our) generosity. Yet rather than pay for the predictable costs of their own choices, Church members want to pay for it by taking away the freedom of their fellow citizens. Shifting the cost of your choices onto others is the opposite of personal responsibility.

And these people claim the moral high ground.

NRO: So what should we do about health care?

CANNON: From the beginning of this health-care debate, I’ve argued that the three bad ideas, which must be stopped at all costs, are individual/employer mandates, a new government program, and any expansion of price controls. If we can close the lids on those coffins, we will have scored a victory. (I hold the view that our side can safely ignore the inevitable legislation to “fix” Medicare’s physician price controls. There’s no victory or loss for free markets there.)

If Obamacare fails, all sides will still recognize a need for health-care reform, and free-market advocates should capitalize on that opportunity with a three-pronged strategy. First, we need to change who controls the money. Give each Medicare enrollee a voucher and let him choose any health plan on the market. Give poorer and sicker seniors bigger vouchers, but hold the overall growth in Medicare spending to inflation. That will make Medicare financially stable — without government rationing. Also, reforming the tax treatment of health insurance — “large” health savings accounts are my preference — is not just about reducing distortions at the margin. The tax exclusion for employer-sponsored insurance separates workers from $9,000 of their earnings, gives that money and the power to choose the workers’ health insurance to someone else, and effectively imposes price controls on health-insurance markets. That’s more like a tax than a tax cut. Large HSAs would return that $9,000 to the workers who earned it.

Second, we need to tear down barriers to trade between the states by making state health-insurance and clinician licenses portable. Each state bars from its markets both insurance policies and clinicians licensed by other states. That stifles innovation and protects low-quality state regulators. Congress should use its power under the interstate-commerce clause to tear down those trade barriers. Residents of New Jersey (a.k.a., health-insurance hell) should be able to buy lower-cost health insurance from Pennsylvania. Doctors and nurses licensed by California should be able to practice in other states under the terms of their California licenses. Likewise, health plans like Kaiser that rely on nurse practitioners and other mid-level clinicians shouldn’t have to devise all-new workflows when they want to expand into new states. Those two changes would make health care more affordable and cover tens of millions of uninsured without costing taxpayers a dime.

Third, reform Medicaid and S-CHIP the way we reformed welfare. Medicaid almost perfectly mirrors the old, corrupt welfare system. It encourages states to expand their rolls, and there are too many people on Medicaid who don’t need to be there. Congress should give each state a fixed block of money and the flexibility to target that money to the truly needy. The results will be similar: Medicaid rolls will plummet, and non-needy people will start providing for themselves.

And, generally speaking, conservatives and libertarians need to spend a lot more time educating themselves and the public on health care. This has not been our strong suit, and we are seriously outgunned. Fortunately, we do have the better argument.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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