Thursday, February 07, 2008

Health care and wages

Mike the Mad Biologist brings up the connection between universal health care and wages: a letter to the editor of the Boston Weekly Dig complains
Thanks for leaving us with the mandatory health insurance law. I really appreciate being told that I'm legally obligated to have health insurance by January 1st (which I don't), and pay $196/month (which I can't afford), or be subject to a $219 yearly penalty (which will soon be $912). To repeat: I can't afford to spend $196/month for health insurance, so somehow I can afford $912 for the year for nothing???

So basically, because of your landmark law, I can now look forward to bussing tables at Applebee's, or whatever mid-level chain restaurant I'll be forced to work at for a second job.

There are two distinct dimensions to this question, the ethical/political dimension and the economic/systems dimension.

The ethical/political dimension is simply this: Should everyone have health care, or should we deny health care to some people in the same way that we deny Maseratis to some people? Health care is expensive and valuable, why not simply provide it to only those able to pay for it?

This is an ethical question; it's not a matter of truth. You either approve of or don't approve of providing health care to everyone. If you don't approve of giving health care to everyone, I can't say you're mistaken, all I can do is call you a heartless bastard and wish I were religious so that I could really believe in a hell you could rot in.

Having summarily dismissed half* my readership with an exhortation regarding sand, asses and pile-drivers, I'll talk about how to provide health care to everyone. And I mean everyone: not everyone wants health insurance, but everyone wants health care.

*I kid! I don't think even my conservative and Republican readers would actually countenance throwing sick people out on the street en masse, and I doubt I've retained many Libertarian or neoconservative readers.

The free market is simply not going to work. There are too many points of market failure. First, health care is infinitely valuable: No matter how rich you are, you'll certainly trade all your wealth and pledge your future to save life and limb. Second, health care is inherently expensive; it's physically impossible to give even basic health care on the cheap. Third, health care requires extensive expertise, expertise that the lay person cannot efficiently analyze in sufficient detail; we can't just count on random people filling the gap between supply and demand.

Because health care is infinitely valuable, people can't simply opt out if the price is too high; by definition, the price cannot be too high. Because health care is inherently expensive, there's an enormous economic barrier to entry. And because health care requires extensive expertise, it's trivially easy to bottleneck the market in the evaluation and certification of that expertise: Physicians control medical certification; in economic terms, the fox is guarding the hen house. Add to this people's seriously deficient ability at probabilistic reasoning and you have a recipe not just for market failure, but market catastrophe.

There's no possible way that a health care system will ever be truly efficient in any economic sense; if nothing else, the infinite value of life and health makes considerations of economic efficiency ambiguous. Even if we could save half our health care costs at the sacrifice of one life, the person being sacrificed — and it might well be you yourself, gentle reader — would not consider it a bargain. Still, we can do better than free market catastrophe or abandoning any sense of humanistic values. So we have to do something by noneconomic methods, and that means getting the government involved (The only alternative is the church; I'll pick the government any day.) Involving the government means some direct or indirect form of regulation and taxation.

It's worth noting again that we presently have "universal" health care and it seems entirely implausible that we will abandon the notion altogether. The problem with our current universal health care system is that tens of millions of people rely on bankruptcy-producing private care and/or pure government charity. It's simply moronic even from a cold-eyed macroeconomic perspective to bankrupt tens of millions of people; the rich and middle class depend just as much as the poor and working class on a wider distribution of wealth and resources, and I think my Google PhDs in medicine and economics are sufficient to conclude that healthy people are more productive than sick people.

Because our health care system is universal, and it will stay universal, any plan that doesn't talk about providing health care for everyone must be viewed with suspicion. Those whom the plan doesn't cover will be covered somehow, presumably by our present system of ruinous private fees and/or charity.

The second question is: who pays and how much?

If everyone has to pay, then yes, our editorialist will have to pay. But so will everyone he's competing with. He has a good chance under universal payment for the market (freed of some market failures noted above) to react by distributing the costs in the form of generally higher wages. All employers will have to raise wages somewhat, raising prices, reducing profits slightly, until a new equilibrium is reached. Americans — especially low-wage workers — are already working about as much as physically possible; it seems likely that this money will not come entirely from squeezing even more productivity from low-wage workers. (Furthermore, the plan as he describes it will actually cost him a whopping $18.25 per month while the economy adjusts to its new equilibrium.)

If people can arbitrarily escape payment, then there's zero pressure to distribute the costs across the whole economy. If our editorialist wants something more than bankruptcy and charity, he's going to have to work a second job, for the rest of his life, because he'll be competing with people who will make this trade-off.

A health-care plan that puts all the burden of health care on some kind of tax, whether income/property/business taxes or universally mandated payments has some chance of being widely distributed. A plan which requires a non-trivial cost as an optional fee has zero chance of being widely distributed. It will just take wealth from those people barely able to afford the fees, and leave a class of low-wage workers relying on the present-day system which has failed us so badly, humanistically and economically.


  1. Fascinating. So if I'm reading this right, your response to the letter to the editor above would be, "you're welcome"?

    What I'm reading here is that the only answer is forcing everyone to pay because as long as there's a way to opt out, the system will never right itself and equilibrium will not be achieved. Is that correct?

  2. Basically, yes.

    If paying is optional for something required, people will not make the optional payments. But TANSTAAFL: someone will pay in the end.

    One way or another, everyone pays for health care. Take the $200/month per employee as taxes from employers, for example, and the macroeconomic effects will be the same.

    The money has to come from somewhere, and no matter where you take it from, the economy will adjust until the effects are distributed in equilibrium. However, where you initially take it will affect which equilibrium is favored.

    The only alternative to change the current, broken system would be one supported entirely by conventional taxes.

    See also Badtux's comments on the microeconomic effects of an "optional" system.


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