Affordable healthcare is better for you

I often oppose orthodoxy… in markets and specific investments, for example.

I fit well into that mode, especially when it comes to public policy issues. For example, I am contrarian in the field of health care.

Personal freedom? We are no freer to choose our own doctors on most private insurance plans than we are on a single payer system.

Inexplicable bureaucracy? Insurance company managers are just as horrible as the government variety.

Expensive subsidies? If you get your insurance from your employer, you get one enormous tax subsidy. Your insurance payment is not taxed, even though it is just as much part of your compensation as your salary.

But the big problem for me is this: the economic benefits of affordable health care outweigh the costs.

Here’s my case… and I want to know if it’s a convincing case for you.

How did we get here?

The US does not have a “health system”.

What we grew out of a deal between the United Automobile Workers and the Detroit automakers in the late 1940s. Employees would accept lower wages if they got cheap health insurance on the company’s bill.

But no one expected that deal to be final. They assumed that post-war American citizens, so many of whom had just made sacrifices to preserve their country’s freedoms, would eventually receive government-sponsored health care to support the private system.

But that didn’t happen. Instead, the company-based insurance system expanded to cover all industries. Eventually, government-sponsored programs like Medicare and Medicaid emerged to fill the gaps for the unemployed: the unemployed (Medicaid) and retirees (Medicare).

Then both the corporate and government systems became anchored by special interests.

For a variety of reasons—in fact, employers, employees, insurers, and the health care system had no incentive to rein in costs and premiums—the system got to the point where the US has one of the worst health outcomes of any developed country.

And the highest rate of bankruptcies due to medical bills.

In other words, our “health system” is a mishmash of workarounds and counter-solutions that became permanent because no one could agree on anything else.

It hurts our economy enormously.

The US spends more of its gross domestic product (GDP) on healthcare than any other country – 16%. But other economy-wide effects of our employer-based insurance system are driving our GDP below its potential. Let’s look at three.

  1. Lock job: Many people take and keep jobs because they get health insurance. They stay in those jobs longer than they would otherwise. That means overall labor mobility in the US economy is lower, undermining labor market efficiency.
  2. Lower rates of entrepreneurship: The US has one of the lowest rates of new business formation in the developed world, and it’s getting worse. That’s because starting a business here is riskier than in other countries…because until it makes a good profit, you can’t afford health insurance. For this reason, young people in the prime of their lives do not start businesses, which harms employment.
  3. Delayed retirement and a weak labor market: Older workers are staying longer in their jobs in the US to maintain access to business insurance. That means less space for younger workers, leaving them understaffed and hurting their long-term career prospects.
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In addition to $4 trillion in annual direct costs, these dysfunctional aspects of our health care system cost the U.S. economy 3 to 5% of GDP by some estimates every year.

Can you afford a private highway?

So, is it “socialist” to promote some form of public support for health care? Barely.

Here’s how I see it: Healthcare has similar impacts across the economy to the highway system, the legal system, and national defense.

Each is more than the sum of its parts. When properly executed, such “public goods” contribute more to economic activity than they cost. If you try to do those things individually, you sacrifice a lot of economic dynamism.

The typical argument, of course, is that public health care is being rationed. We hear horror stories of Canadians or British standing in endless queues for medical procedures. (Of course, under a private system, there’s also rationing…if you can’t afford it, you don’t stand in line at all.)

But a British-style National Health Service is not the only option.

Many countries, including most of the Latin American countries favored by American retirees, have hybrid systems. The most common is to have a public system for primary care and preventive care – neighborhood clinics where you can face the facts or get your child vaccinated – and a private system for more advanced health needs. If you want to get private insurance and go to a private hospital for surgery, nothing will stop you. If you can’t afford it, you may have to wait in line for public care.

But there are significant benefits. First, we would avoid job freeze, low entrepreneurship rates and delayed retirement. Second, the availability of low-cost primary and preventive care would reduce the incidence of chronic long-term conditions that ultimately cost us all a lot of money when uninsured people show up to the emergency room – diabetes, heart disease, and so on.