Kyle writes:

[F]or decades, we’ve allowed students in need to get federally subsidized loans to attend both public and private colleges and universities. Some states, even provide scholarships and grants that can be used at private institutions of higher learning. So how is it that for years we’ve used public funds to support sending needy children to private schools and the public university system has yet to collapse under the weight of such anti-public measures? Nor has public support for public universities declined in the interim.

First of all, comparing our public education system at the elementary and secondary level to our system of public universities is a lot like comparing apples to arugula. Whereas public schools let anyone sign up and attend for free, public universities are still exclusive institutions, and charge a fee in order to attend.

Second, who says that all these loans and grants have actually benefited poor students?  Many private institutions already had (and still have) their own scholarship programs for low-income students.  There was no need for government’s to subsidize their tuition further. (Actually, many private schools have similar programs at the elementary and secondary levels….)

All that extra federal cash simply allowed public universities to keep raising their tuition higher and higher and higher over the years. That’s the thing about subsidies. The more you subsidize something, the more expensive it becomes.

Who’s to say private schools accepting vouchers wouldn’t simply start charging more for their tuition as well?  I’d say that is a very likely outcome.  Meanwhile, public schools – which don’t charge admission like public universities and which must accept every student who comes knocking – will have fewer resources at their disposal.

This is not to say that we shouldn’t rethink public schools.  We might even find ways to make entire districts operate more like a batch of charter schools, with far more independence and autonomy and creative license.  But providing subsidies to students will only make good education more expensive.  It won’t necessarily destroy the public school system.  But I don’t think it will help it much either.

“This, then, is the fundamental conservative problem: you can either have universal coverage or you can have a quasi-free market.  There’s no way to have both, but no one is willing to say publicly that it’s OK to leave millions of people without healthcare.  So instead conservatives hem and haw and nibble around the edges with things like HSAs and tax exclusions, even though these ideas don’t do anything to make healthcare coverage more widely and securely available.  No free market solution can do that.” ~ Kevin Drum

Well, the man’s got a point, doesn’t he?  Read the rest of the post to see exactly how any attempt to expand Medicare or start a new public plan with the intent of covering all the uninsured in America is almost sure to end up tightly regulated and far, far from a market solution.  Which is sort of obvious, I realize.  But it’s illustrative of the direction these things will go….

First of all, I can live without a purely market solution.  I’ve always supported safety nets, and so some government involvement, I believe, is necessary.  (Indeed, for markets to work well, I think safety nets simply must exist, otherwise when specific industries fail, or when downturns in the economy inevitably come about, the backlash and push toward more government intervention is much stronger.)

My goal is not so much to come up with the perfect market solution, free of all government tethers, as it is to avoid a system prone to massive cost inefficiencies, regulatory capture, and anti-competitive practices.  Granted, that is largely what we have now, so if the alternative is simply more of the same plus a few million more people covered, that’s a good thing.  But it’s hardly the best thing.  A government further bloated by big entitlements is going to be an expensive one to maintain (and so far nobody is proposing meaningful defense cuts as one potential redirection of revenue.)

So what if Americans were given a choice to opt into the public plan or take a voucher that could be used to buy into a co-op or purchase a private plan?  Money for vouchers would then be diverted out of the public plan’s budget.  This would help drive competition and would decrease to some degree the chance of capture within the public plan. [Read more →]

Although I think it’s really too early to draw that conclusion for certain, given the lengthy approval process for new drugs, I’m actually starting to think that there’s some merit to the idea that universal care of some sort need not stifle innovation.  The trick, however, is in how that universal care is structured, I think.

If universal care is structured as a national health insurance plan or, God forbid, as a national health service, then I think you do wind up with stifled innovation.  The reason for this is pretty obvious – at that point, you do have government making decisions for the entire market as to what drugs can and cannot be covered or given.  Additionally, as Megan McArdle has so often pointed out, there is a strong case to be made (although admittedly I’m not entirely persuaded given the employer-based structure of our system) that the private nature of our system allows us to figure out what works and how much it should cost, information that is then used by the rest of the world in setting their own health care systems.

On the other hand, what if universal health care were instead structured as a voucher system rather than as a government run insurance or health care service?  Under this voucher system, everyone would receive a health care voucher (ideally taking the form of a credit card) for a certain sum every year depending on their income level.  This sum would be based on a pro rata share of what the federal government already spends on health care via Medicaid, Medicare, and – most importantly – employer health insurance tax credits.  The vouchers could be spent on just about anything reasonably related to health care, ranging from doctor visits to contact solution.  Anything left unspent in a given year would carry over to the next year (although I can see an argument made for it to be “use it or lose it”). 

This proposal would not stifle innovation because government’s sole involvement would be in determining the amount of the vouchers.  Individuals would entirely govern how and where their health care dollars were spent, and pharmaceutical companies and medical practitioners would adjust their practices to capture those dollars.  In other words, they’d have to meet the actual demands of health care consumers rather than the mandates of government or employer-based insurance companies.  This would encourage, rather than discourage, innovation.

To be sure, I see two (ultimately three) pretty clear objections to this sort of proposal.  The first objection would come from liberals, who I assume would argue that this proposal doesn’t do enough to cover catastrophic expenses.  But that’s where the individual insurance market would come into play – individual insurance is perfectly suited for such catastrophic expenses.  In fact, insurance from catastrophe is supposed to be the entire point of insurance.  But insurance from catastrophe, as opposed to insurance from mundane and anticipated expenses, is going to be quite affordable and inexpensive.  Additionally, a voucher recipient could choose to allocate some portion of their voucher to insurance (keeping in mind that under my proposal, anything unspent in a given year carries over to the next year).  If the program is appropriately means-tested, even the poorest of the poor should be able to afford a basic level of catastrophic health insurance from the private market.  I’m open to suggestions as to how to handle medical care for the poor that perhaps exceeds the voucher amount but does not amount to a catastrophic expense, but if the program is properly means-tested, there should never or almost never be such gaps.

The other objection would be from the pro-free market side of the equation.  This objection would be that my proposal leaves too much room for bureaucratic headaches – after all, who would evaluate whether an expense was reasonably related to health care?  This is a legitimate concern, but one that has an easy solution – accept that there may be a certain level of fraud in the system.  This level ultimately should be mitigated substantially by allowing unused funds to carry over from year to year.  I think you can have a skeleton force of auditors to spot-check expense reports, but for the most part, you just don’t worry about it. 

The only time fraud would become a significant concern would really be where someone has spent their entire voucher and is making a claim against their individual insurer or in the much rarer case where the voucher has been spent and there is a gap between the voucher and the amount of individual insurance coverage.  In the former case, the insurance company itself would be perfectly capable of conducting the audit and simply deducting the amount of the fraudulent charges from its coverage – where the fraud is significant and clear (say, more than 20% of the annual voucher amount), they could also forward the charges on to the federal prosecutor’s office.   If the vouchers take the form of a credit card, there will be a clear and easily audited paper trail.

The other, much rarer, instance would be where a claim is being made against the government for coverage of a gap between the voucher and the private insurance.  This is where your handful of federal auditors would come in.  Again, the clear paper trail would give a clear picture of whether or not the claim is legitimate or the result of fraudulent expenses.  If the fraud is such that the person cannot repay the government or pay for the required medical treatment on his own, then you can provide the person with the treatment but also prosecute them for the fraud. 

Moreover, the idea of having personal credit cards for health care benefits is one that has some precedent.  This is more or less how many employers already handle personal health savings accounts. 

Thoughts from the commentariat?

Peter Suderman, from his new perch at Reason Magazine, dissects the looming breakdown of the public option in Obama’s push for health care reform.  At the crux of the issue lies the cost, which the CBO estimates at $1.6 trillion dollars over the next 10 years.  This is a hefty pricetag.  I’ve been following all of this and reading a good deal on the subject of regulatory capture and public choice theory, and suffice to say, I’ve had some pretty eye-opening discussions especially with brother Mark on all of this, so I’d just like to revisit health care in light of what looks to be a reform bill that – when it’s done – will probably bring the worst of all worlds together into one epic reform failure.

Mark pointed out something to me that I think is too often left out of the health care debate, which is essentially that there is a pretty striking difference between subsidizing the supply side (i.e. insurance providers) vs. the demand side (consumers of health care insurance) in that the former is more likely to become a subsidy of fewer providers, whereas the latter at least theoretically would be better for competition and leave the door open to many different providers.  Thus a health insurance voucher program would at least theoretically be less likely to unduly benefit a handful of insurance companies over the rest.

This makes sense to me, though I still worry that voucher programs would meet up with a few problems – namely pre-existing condition limits, but also the fact that we already have such an entrenched system that it seems unlikely that many new health insurance providers would be able to emerge.  The system has been anti-competitive for so long, I’m not sure how we can turn it back to a more decentralized, competitive environment.

But I wonder if we should break this out a little more.  So here’s some ideas: [Read more →]

I.  FREE MARKET ECONOMICS ARE NOT ABOUT CONTROLLING PEOPLE

I find these criticisms a bit off.  First, Chris’ argument against the field of economics as a form of study is almost identical to some of the arguments made by the undeniably mainstream libertarian Will Wilkinson against the practice of economics as a useful policy tool.  While I don’t pretend to speak for John, I think most advocates of free market economics would actually agree with this critique – while economics may be useful at creating the most “efficient” outcome for achieving a particular result, they are not useful as a tool for determining which results are better or worse or are more worth pursuing. 

But to me that doesn’t mean that basic economics is worthless, nor does it have anything to do with understanding markets.  It just means that the democratic value of any sort of science as a policy tool is desperately limited: it can, at least theoretically, give us a path for achieving solutions; what it emphatically cannot do is tell us what is and is not a problem, nor what would constitute an acceptable solution, and it definitely cannot evaluate whether solving the problem is more valuable than the inevitable collateral consequences. 

[Read more →]

“[T]he folks at Harvard, Columbia, and Yale, are held accountable by … whom, exactly? Oh, that’s right: they’re accountable to their customers, who by virtue of their participation in a market that – ideally, at least – enables them to choose between different providers are thereby enabled to vote with their feet on the question of who it is that they think most likely to meet their needs at the right price.” ~ John Schwenkler responding to Freddie

What John is missing here is the very simple fact that education, like health care, does not operate in the market the way that say the restaurant business does.  I go to eat at a local pizza place and the pizza there is no good, I don’t eat there any more.  Pretty soon that pizza place goes under because the food sucked, the service was terrible, etc. and a new pizza place that started up a little while ago had better pizza, comparable prices, and better service.  The market has spoken.  We all have better pizza thanks to the free market.

See, pizza and food-service in general are good fits for free markets.  Same with bikes and mp3 players.  It’s pretty easy to say “I liked that, I want to buy more of it” when we’re talking about cheese burgers and fries.  It’s a little trickier when we’re talking about education.  For one thing, education has no immediacy.  We don’t know what we’ve bought and paid for until the year has passed.  Or maybe a few years.  Or maybe a whole educational lifetime. [Read more →]