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Thursday, February 3, 2011

Paying for Health Care

One of the knottiest of economic problems is that of the free rider. That is, a person or organization that benefits from a service without actually contributing to the cost.

Take, for example, a township where revenues for the Fire Department are derived from subscriptions. The intent is that those who do not pay receive no service. Next, consider the owner of a row house who does not pay for fire protection while all of the other houses on the block are covered. When that house begins to burn, however, the Fire Department will still provide its services in order to protect the houses belonging to its paying customers.

That is the free rider problem in a nutshell.

While health care is not a constitutional right, Federal law requires that anyone, whether or not that person has insurance or the ability to pay, who presents at an Emergency Room must be treated. That is another example of the free rider problem and it is exacerbated by the fact that many of these persons could have been treated for much less money had they neither deferred, as is usual, seeking medical help nor sought it in the most expensive possible place.

Since these patients do not pay their bills, the costs are transferred to those who do in ways that are entirely lacking in transparency.

The Fire Department free rider problem has a relatively simple solution: most Fire Departments are funded by the taxpayer and all homeowners are required to pay property taxes. Solving the health care problem is harder and many of the options are unattractive:
  1. should service be refused to those who have no insurance?
  2. should there be a mandate to buy insurance as in the current much disputed health care bill?
  3. should those who are insured, or who can afford to pay, continue to pick up the tab for those who can not or will not pay?
  4. should health care be publicly funded?
The first option is morally repugnant, the second may be found to be unconstitutional, and the third describes the current highly unsatisfactory situation. Given that approximately fifty percent of current health care expenditures are paid directly by the government through Medicare, Medicaid, Veterans Administration and the military, principled objections to government paid medical care can no longer be sustained - at least not with a straight face.

Assuming that the individual mandate is found to be unconstitutional then, although no one really wants to address the issue, the question will be whether government funded medical care should be available to all - as in the Canada and the United Kingdom. A public option alternative, competing with the current much hated insurance companies, may make insurance more affordable (although Medicare has conspicuously failed to reduce costs) but, without an individual mandate, the free rider problem still exists.

Our nation has the most expensive health care system in the developed world. At the same time the fact that more than forty million residents have no medical insurance - and therefore only limited access to care while simultaneously inflicting massive costs on everyone else - is a disgrace. The so-called Affordable Care Act (less politely referred to as ObamaCare) is so far from being the solution that it may actually be a classic example of the old saying that the cure is often worse than the disease.

At some stage, our leaders - and the interest groups - will have to address the overall cost of medical care. Sooner - i.e. before it consumes the entire economy - would be better than later but, given the other issues facing us, nothing much is likely to happen until after the 2012 elections.

Your correspondent would be satisfied if a real debate, primarily addressing the issues of cost, were to take place in the next two years. If that were to happen, the prospects for real reform would be much enhanced.

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