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Monday, August 24, 2009

A tale of three healthcare plans

Once the rhetoric about "death panels" is swept away, the healthcare debate in the U.S. gets complicated quickly. First, you have two (or is it three? Four?) multi-thousand page bills before Congress, which nobody seems to have read. To paraphrase Jon Stewart of The Daily Show, the debate over healthcare between Republicans and Democrats has turned into a battle between the angry and the incomprehensible.

No doubt, any of these bills would alter the American landscape in ways libertarians would deplore. At the same time, I see "healthcare reform" as inevitable. The question is only what form it will take. And that question can be reduced to a more specific one: will there be a "public option" or not?

As far as I know, every health care plan the Democrats have proposed drastically increases regulation of the private provision of health insurance. For example, the ability of insurance providers to turn down potential customers with pre-existing conditions would be curtailed. Insurance companies would also be prohibited from dropping customers from their rolls at time of renewal. Essentially, it would be more difficult for private insurance providers to refuse to add people to their rolls, and almost impossible to remove someone from the rolls once he or she was added.

Enter H.R. 3200 (a decent summary of the salient features of the bill can be found here. Ezra Klein's sympathetic summary is here.) In its current form, H.R. 3200 includes all the insurance mandates I just mentioned, and many others (more information here.) It also includes "individual mandates" -- a legal obligation, backed up by IRS sanctions, requiring every person in the United States to acquire health insurance.

The logic of including this requirement is straightforward: the greater the numbers of the insured, the more that risk is spread around, and the lower the cost of insurance for any particular individual. According to this New York Times editorial, a good chunk of the uninsured people in the U.S. could afford insurance, but opt not to purchase it. A larger chunk are too poor to purchase insurance at its current cost. Obliging people to acquire insurance -- and subsidizing the latter group, if necessary -- should drive down the cost of insurance for everyone. Or so goes the theory. Money for the subsidies would come from imposing a surtax on the wealthiest 1.5 percent.

(Of course, the insurance mandates will probably drive up the cost of health insurance, while ensuring that only the most gigantic insurance providers will have any chance of making a profit. And the individual mandate will bring those companies lots of new customers. No wonder the insurance industry has warmed to these aspects of H.R. 3200.)

From what I gather -- and, obviously, the situation could change at any time -- there is no serious possibility that health reform will proceed without the new insurance mandates, and little possibility it will proceed without the individual mandates in one form or another. Whatever the form of the bill President Obama will eventually sign, it will include these features.

This is healthcare plan #1: a heavily regulated network of private insurance providers and a legal requirement that all individuals purchase some form of health insurance from them, along with a tax hike on people making at least $350,000/year.

Healthcare plan #2 includes the public option (which is part of H.R. 3200 as it stands; that may change, as even President Obama has backed away from this portion of the bill.) The public option is a government-run, government-funded insurance plan. The insurance mandates are important here, because they ensure that private insurance providers will have to provide the same comprehensive (i.e. expensive) coverage that the public plan will.

Some have expressed the worry that, under these conditions, there is no way private insurers will be able to compete with the public option. The private providers will be pushed into bankruptcy, leaving the public plan -- the government -- as the sole provider of insurance. Earlier, President Obama dismissed this worry by, perhaps unwisely, comparing the relationship between the hypothetical public plan and private insurers to that of the U.S. postal service to FedEx and UPS, the latter firms having little difficulty competing with a government provider of the same service.

The public plan is supposed to be financially self-sustaining, though there is little explanation of how this objective is to be achieved. Tellingly, the private insurance industry does not back this part of the bill, which -- unlike the mandates -- could seriously cut into their profits.

Finally, let's consider healthcare plan #3, the single-payer, Canadian-style alternative. As a sign of how extreme this proposal is, compared to the other systems just discussed, only Dennis Kucinich and a handful of other Democrats seem to have any interest in supporting it (the bill is H.R. 676.) Single-payer isn't happening, unless the public plan really does put all the other private insurers out of business.

Nevertheless, the single-payer proposal is an illustrative comparison case. As is the case in Canada, H.R. 676 would "prohibits a private health insurer from selling health insurance coverage that duplicates the benefits provided under this Act." 

Obviously, H.R. 676 would kill many private providers of insurance. As in Canada, health care would be paid for through taxation; there is no attempt to claim that Kucinich's plan would be financially self-sustaining. The other details of the plan should not detain us. We all know that H.R. 676 would result in the government rationing health care. We know that costs would balloon, and that health care would eat up larger and larger portions of government revenue.

On final analysis, a question remains: suppose one of these health care plans is bound to pass. Which one would be better, from a libertarian point of view?

Plan #1 is ripe for predatory rent-seeking: indeed, it could have been written by the insurance industry itself. It will result in some people paying more for insurance than they otherwise would -- a tax hike, in everything but name, except the money will flow directly to large insurance companies instead of the coffers of government. Unlike auto insurance requirements, which you can opt out of (albeit with difficulty), no one can abandon his or her body. Obviously, this plan, like the others, is redistributive; but the direction of redistribution (not unlike eminent domain after the Heller case) is from one private party (individuals) to another (private insurers.)

Plan #2 will deprive these insurance companies of sought-after revenue. The public option, if it could really be financially self-sustaining, would at least provide people with an alternative. On the other hand, the worries about the public plan putting private insurers out of business could come to pass. But if all went according to plan, competition between the government plan and private insurers might indeed drive down costs (if the mandates didn't bring them right back up again.)

Plan #3 will demolish private insurers and vastly limit consumer choice. People will have no choice but to get their health care through the government. At the same time, there are no mandates, in the sense that no one would be required to literally purchase insurance (at least, no more than anyone is required to purchase police and fire protection.) The only institution people will be legally obliged to deal with will be the government itself -- something people are already obliged to do, anyway.

Obviously, each plan is bad, but which is worst? And why?

Posted by Terrence Watson on August 24, 2009 | Permalink


As far as I know, every health care plan the Democrats have proposed drastically increases regulation of the private provision of health insurance..................................
Posted by Terrence Watson on August 24, 2009

And the news value here is???? 90+% of the people that read the WS blog live in Canada and are completely or almost completely unaffected by changes to the US healthcare system.

Which one would be better, from a libertarian point of view?
Posted by Terrence Watson on August 24, 2009

Unless you live in the US who cares.

Posted by: The Stig | 2009-08-24 4:34:46 PM

I came up with a plan for the US to truly punish Canada = deny them access to the US private health care system. Too cruel?

Posted by: Zebulon Pike | 2009-08-24 5:06:49 PM

From a Canadian and European perspective, #3 is the worst.

The only way to deal with the unlimited demand that would result would be to ration care and cap prices. This would have devastating effects around the world.

1. Today the U.S. is the most profitable market for medicine. It effectively subsidizes many other markets (including Canada). If prices were capped, companies would no longer be willing to subsidize our drugs.

2. We would also no longer be able to go to the U.S. to access the "for profit" system. There would be shortages there as well.

3. Innovation. Without the U.S. to drive profitability, pharma, biotech, and device-making companies would no longer have any incentive to produce anything.

In essence, our free-ride would be over.

Posted by: Charles | 2009-08-24 5:39:41 PM

They are ALL bad. You forgot to mention that these bills will require a fine for the uninsured that could be $2500 a year. Somehow illegals will be exempted -you can bet on that- but get the same coverage as those fined.

Yes, the Public MANDATE is a very real threat to the so-called "competition" since the bill(s) would outlaw the companies from writing new individual policies. Effectively forcing people to the Public Mandate.

We'll end up like other countries denying treatment to the oldsters first and then delaying and cancelling surgeries when there aren't enough beds.

The Democrats say only between 10-13 million of the uninsured will be covered by their plan, interestingly this is the same number they use for the population of illegal aliens. Maybe thats a coincidence, I dunno.

I guess the other 30 million are out of luck. Others say we will cover 30 million more people and spend 30% less on healthcare. Does anyone think thats possible with some really harsh rationing and long waiting (and dying before treatment) lists?

There is no "crisis". They claim that everything is a "crisis" when the politicians are really greedy.

Deny free healthcare for illegal foreigners. Deny free schools for illegal foreigners. Deny food stamps and section 8 housing for illegal foreigners. Verify Social Security numbers for all hirings.

No police state required. If they come here and work and don't get arrested for a cime, cost us taxpayers anything, then no problem.

If these bills give us a healthcare system like UK or Canada I will be trying to start an online travel agency where people pay a monthly fee for flights to India or where-ever if needed, so they can pay for the care they'd no longer legally get in this country. =o)

Posted by: GeronL | 2009-08-24 6:25:36 PM

I came up with a plan for the US to truly punish Canada = deny them access to the US private health care system. Too cruel?
Posted by: Zebulon Punk | 2009-08-24 5:06:49 PM

Truly punish Canada? Bwhahahahahahahaha Private health care exists in Mexico, India, Thailand, etc and is as good as what is available in the US at a lot less cost. Increasingly Americans who are paying out of their own pocket use foreign private health care too. I suggest Canadians use non-US private health care and further weaken the US system.

Posted by: The Stig | 2009-08-24 7:12:28 PM

In essence, our free-ride would be over.
Posted by: Charles | 2009-08-24 5:39:41 PM

Bwahahahahahahahaha. Our free ride would be over!!! Bwahahahahahahahahaha.

Then why don't US pharmaceutical and medical technology companies stop selling their products in Canada??? Or maybe US prices are so inflated that consumers there are being ripped off.

Posted by: The Stig | 2009-08-24 7:33:46 PM


One reason it might be relevant: Canadian libertarians want to abolish the single-payer system. However, even if things like the Chaoulli decision manage to chip holes in the Canadian system, it's unlikely Canada will move to a full flown free market system any time soon.

That raises the question, then, of other plans: plans that aren't truly free market, but that aren't single payer, either. That the U.S. is thinking of instituting such a plan makes it an interesting test case, and worthy of discussion.

Moreover, to the extent the comparison of the three plans I raised is instructive, it might also give Canadian libertarians a sense of what the best they can hope for is. If the free market bastion of the United States can't stomach a free market in health care, then Canadians probably can't, either. Or so one might argue.

Posted by: Terrence Watson | 2009-08-24 9:55:01 PM


By the way, I have access to the stats. You're actually wrong about 90 percent of our viewers being Canadian, at least judging from IP addresses. I still find that surprising.

But regardless, if the U.S. screws up its health care system, you can get that will have implications for Canada.

Posted by: Terrence Watson | 2009-08-24 10:01:39 PM

Nice thought Geroni but you will find that there are already firms that get patients over to India where they receive excellent care at an affordable price.

Posted by: DML | 2009-08-24 10:51:38 PM

NO CO-OP'S! A Little History Lesson

Young People. America needs your help.

More than two thirds of the American people want a single payer health care system. And if they cant have a single payer system 77% of all Americans want a strong government-run public option on day one (86% of democrats, 75% of independents, and 72% republicans). Basically everyone.

Our last great economic catastrophe was called the Great Depression. Then as now it was caused by a reckless, and corrupt Republican administration and republican congress. FDR a Democrat, was then elected to save the nation and the American people from the unbridled GREED and profiteering, of the unregulated predatory self-interest of the banking industry and Wallstreet. Just like now.

FDR proposed a Government-run health insurance plan to go with Social Security. To assure all Americans high quality, easily accessible, affordable, National Healthcare security. Regardless of where you lived, worked, or your ability to pay. But the AMA riled against it. Using all manor of scare tactics, like Calling it SOCIALIZED MEDICINE!! :-0

So FDR established thousands of co-op's around the country in rural America. And all of them failed. The biggest of these co-op organizations would become the grandfather of the predatory monster that all of you know today as the DISGRACEFUL GREED DRIVEN PRIVATE FOR PROFIT health insurance industry. And the DISGRACEFUL GREED DRIVEN PRIVATE FOR PROFIT healthcare industry.

This former co-op would grow so powerful that it would corrupt every aspect of healthcare delivery in America. Even corrupting the Government of the United States.

This former co-op's name is BLUE CROSS/BLUE SHIELD.

Do you see now why even the suggestion of co-op's is ridiculous. It makes me so ANGRY! Co-op's are not a substitute for a government-run public option.

They are trying to pull the wool over our eye's again. Senators, if you don't have the votes now, GET THEM! Or turn them over to us. WE WILL! DEAL WITH THEM. Why do you think we gave your party Control of the House, Control of the Senate, Control of the Whitehouse. The only option on the table that has any chance of fixing our healthcare crisis is a STRONG GOVERNMENT-RUN PUBLIC OPTION.

An insurance mandate and subsidies without a strong government-run public option choice available on day one, would be worse than the healthcare catastrophe we have now. The insurance, and healthcare industry have been very successful at exploiting the good hearts of the American people. But Congress and the president must not let that happen this time. House Progressives and members of the Tri-caucus must continue to hold firm on their demand for a strong Government-run public option.

A healthcare reform bill with mandates and subsidies but without a STRONG government-run public option choice on day one, would be much worse than NO healthcare reform at all. So you must be strong and KILL IT! if you have too. And let the chips fall where they may. You can do insurance reform without mandates, subsidies, or taxpayer expense.

Actually, no tax payer funds should be use to subsidize any private for profit insurance plans. So, NO TAX PAYER SUBSIDIZES TO PRIVATE FOR PROFIT PLANS. Tax payer funds should only be used to subsidize the public plans. Healthcare reform should be 100% for the American people. Not another taxpayer bailout of the private for profit insurance industry, disguised as healthcare reform for the people.

God Bless You

Jacksmith — Working Class

Twitter search #welovetheNHS #NHS Check it out


Senator Bernie Sanders on healthcare (http://www.youtube.com/watch?v=RSM8t_cLZgk&feature=player_embedded)

(http://www.youtube.com/watch?v=IbWw23XwO5o) CYBER WARRIORS!! - TAKE THIS VIRAL

Posted by: jacksmith | 2009-08-25 12:21:40 AM

"Bwahahahahahahahaha. Our free ride would be over!!! Bwahahahahahahahahaha."

I don't even know how to respond this crap.

Posted by: Charles | 2009-08-25 5:32:25 AM

I'll make this short and sweet Stig, since actual debates with you are impossible.

2 words: public relations.

Posted by: Charles | 2009-08-25 7:18:32 AM

Mr. Watson said, "We all know that H.R. 676 would result in the government rationing health care. We know that costs would balloon, and that health care would eat up larger and larger portions of government revenue."

I am curious, how do we know this? Canada pays far less for their healthcare than we do for ours. Are you saying that the Canadian gogernment is better than ours? It seems to me you are pretty down on our government. People keep saying odd things like, "Do you want your healthcare run like your post office?" as if that was somehow an appropriate comparison, or that that post office is not effecively run. I have mailed off many parcels in this last week, by both UPS and USPS. Both arrived in the same day, nothing was lost, all was good. In fact, all was better with the USPS because it was cheaper.


HR 676 is the only way to go!

Posted by: Larry | 2009-08-25 9:28:53 AM

"Canada pays far less for their healthcare than we do for ours."

Larry. We ration. We cap prices. We don't have access to the best medicines, or precedures. We also wait for our procedures. It will only get worse as demand increases. We also free-ride. You are paying for a part of our system.

It amazes me that in the 21st century that people still don't understand this, but it bears repeating: there is no free ride.

Posted by: Charles | 2009-08-25 11:53:59 AM


I'm not down on the U.S. government any more than I am other governments.

But it's not hard to see why once you move to single payer you have use rationing if you have any hope of keeping costs under control. When you lower the "effective" cost of health care (for any particular individual) to zero, many people will use more of it, just like any other commodity that suddenly doesn't cost anything. Of course, the actual cost of health care is never zero; it's only that the person paying the cost is now different than the one receiving the care.

In Canada, the provinces do the rationing, but there is no question about the fact that it is being done. I wrote an op-ed about a particular case of rationing-gone-wrong a few years ago.

But don't get me wrong: I think single payer (maybe not this exact bill) might be better than the insurance company bail out that's being planned under the name of health care reform now.

Thanks for your comments!


Posted by: Terrence Watson | 2009-08-25 12:43:14 PM

That raises the question, then, of other plans: plans that aren't truly free market, but that aren't single payer, either.
Posted by: Terrence Watson | 2009-08-24 9:55:01 PM

Plans like that already exist in numerous countries such as Germany, Holland, Austria, etc. So why not dissect and discuss / debate the merits of those systems rather than worrying about what the might Americans do.

Posted by: The Stig | 2009-08-25 3:03:41 PM

I don't even know how to respond this crap.
Posted by: Charles | 2009-08-25 5:32:25 AM

I'll ask you again Charlie. If Canada is such a bad place for pharmaceutical and medical equipment manufacturers to do business in, why do they sell their products here? Are they selling their products at a loss?

Your basic business belief is that if country A invests in plant, equipment and RD then country B which hasn't has to be getting a free ride.

Posted by: The Stig | 2009-08-25 3:22:37 PM


True. I've heard that Germany's plan fits the description of plan #1 pretty well. The problem is that such a system has been in place for a while there, so there's no debate, less analysis, less comparative policy work going on. These different policies are being compared and debated in the U.S. right now -- as a policy wonk, I find it kind of exciting, once you get past the stupid rhetoric about mandatory euthanasia.

There are also reasons that what works in Germany might not work in Canada and the U.S. Obviously, the latter two nations are bigger geographically, with more diverse populations, and different cultures.

For these reasons, what's being debated in the U.S. right now might be more relevant to Canada than what is already settled policy in Germany, etc.

Posted by: Terrence Watson | 2009-08-25 3:26:58 PM

I was trying to come up with an example to refute Stig's point about free riding, but it hasn't happened yet.

Suppose Canadians are paying less per pill for Viagra than Americans are. Pfizer isn't forced to sell to Canadians. It must still be making a profit by doing so, just a smaller one (so to speak.)

Maybe the problem is that the country where the Pfizer is making higher profits is contributing proportionally more to the development of the next big drug -- maybe -- but I'm not sure why that fact in particular is ethically relevant. Any difference in the price Pfizer charges in two countries would have that result, whether it was caused by a price cap or simple supply and demand.

I'm beginning to think libertarians should just stay away from fairness arguments. We're not very good at them.

Posted by: Terrence Watson | 2009-08-25 4:04:42 PM

Larry. We ration.
Posted by: Charles | 2009-08-25 11:53:59 AM

Unless a good or service is available infinitely it gets rationed. In the US it is rationed by your ability to pay. If you can't afford it you don't get it. So dispense with the BS that rationing of healthcare doesn't occur in the US.

Posted by: The Stig | 2009-08-25 9:02:01 PM


I never said rationing doesn't occur in the U.S. I did say you can't cap prices and think there will be no consequences. You can't cap prices while thinking that you won't pay for it; so the argument that we pay less for healthcare than the U.S. is absurd. Please stop taking just one sentence and interpreting it out of context.

I've also argued in the past that the very institutions you so vehemently insist need to exist drive up costs and make healthcare unaccessible to large parts of the population. You evidently don't care about that.

Do you know the difference between a profit and an economic profit Stig? I'm beginning to think not. Pharma and biotech cos often do not recoup their costs of capital when selling in Canada (i.e. they generate cash flows, but not enough to recoup their costs of capital). They raise prices in the U.S. to make up the difference.

Profits on an absolute basis are largely irrelevent. They really only matter on a relative basis (i.e. versus how much capital is being used).

Btw, your idiotic "bwawawawa" routine doesn't exactly encourage me to respond to you. Perhaps if you showed a little bit of respect I would likewise show you a little as well.

Posted by: Charles | 2009-08-26 5:34:16 AM

I never said rationing doesn't occur in the U.S.
Posted by: Charles | 2009-08-26 5:34:16 AM

As an apologist for the US healthcare system you conveniently omit rationing occurs in the US while you endlessly drone on and on that it occurs in Canada. You also conveniently omit that large segments of the US population have no healthcare coverage, or are under insured or that a major illness can cause bankruptcy.

Your hackneyed thesis is that Canada and probably the rest of the world is getting a "free ride" from the US because they don't pay what they do in the US shows complete ignorance of how these companies operate. Pharmaceutical firms develop drugs for a global market and price them based on local conditions. To suggest that someone in most of the world who earns a tenth or a quarter of what a person in the US does will pay the same as the US is ludicrous. You never seem to believe that if the US price was the world price people wouldn't buy the product because it was too expensive. To you discounting is bad because it reduces what you see as maximum profit while forgetting that discounting may be the only way the drug would be affordable. Your view of the world is blinkered by what you see in the US. Take your blinkers off and view reality.

Posted by: The Stig | 2009-08-26 12:06:27 PM


Are you going to counter with actual arguments?

"As an apologist for the US healthcare system"

False. Lies. I have stated on almost every occasion that I am against the U.S. healthcare system. Just because I don't like the Canadian one does not make me an apologist for the American one. Please learn how to debate logically.

"Pharmaceutical firms develop drugs for a global market and price them based on local conditions. To suggest that someone in most of the world who earns a tenth or a quarter of what a person in the US does will pay the same as the US is ludicrous."

You haven't adressed anything I have said in my post Stig. Do you understand the concept of return on invested capital? If an industry has very low barriers to entry, then a firm will be able to offer low prices. If a country has 1/10 the income of the U.S., the costs had better be much lower or the drug will simply not be sold in that country. If a country, like Canada, forces pharma companies to spend a very high amount of R&D, and then caps prices so that recovery of that R&D (+ a compounded return) is impossible, they will not sell the product in Canada. There are countless examples of drugs that are not sold in Canada, but are in the U.S. Since most pharma companies don't want to be accused of being monsters however (i.e. not selling life saving drugs in Canada), they will sell them (at a return that would generate a negative NPV) and raise the price elsewhere where there are no caps (in this case the U.S.) to compensate.

"To you discounting is bad because it reduces what you see as maximum profit while forgetting that discounting may be the only way the drug would be affordable."

Are you saying discounting is the same as capping? So you would force pharma companies to sell their drugs at a price that would make it impossible to recoup their capital? How do you propose keeping the current regulatory system (which raises the costs of pharma companies at double the rate of inflation every year) and lower prices? It's not possible.

You believe in free rides Stig. Again: there are no free rides! Oh, and I'll let this debate stand as evidence of who understands the healthcare industry, and who does not.

Posted by: Charles | 2009-08-26 12:40:30 PM

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