Economics, Justice, and Health Care

Some major points from someone who has trained in both philosophy and economics:

• Health care insurance exists to protect one against catastrophic loss.
  • Ordinary health care costs should be part of a household’s normal budget, like other “necessities” such as food, housing, transportation.
  • Much of current “health care insurance” is really pre-paid normal health care.
  • Since people will tend to skip incurring “normal health care costs,” it could be reasonable to include certain health care expenditures as “pre-paid” in an “insurance” program.
  • The market for health care insurance is subject to well-known market failures (moral hazard and adverse selection).
  • The market for health care (medical goods and services) itself is also subject to significant market failures (problems of access to relevant knowledge and problems caused by monopoly–drug firms, hospitals, AMA, other providers protected by licensing).
• Hence there is a significant need for government involvement.
  • For economic efficiency (ensuring that that this economic good–protection against catastrophic loss–is available at an economically appropriate price and ensuring that the medical goods and services themselves are available at an economically appropriate price).
  • For economic justice (ensuring that health care and protection against catastrophic loss due to health care costs are available to all in a fair manner).
• A mechanism needs to exist to provide people with incentive to economize reasonably about health care costs.
  • One reason for “run away health care costs” is surely that too often such incentives do not now exist.
• Employers should not be in the health-care insurance business.
  • They are only in that business because of historical accident (health-care fringe benefits are not taxable income; they are tax-deductible costs for the employer; household purchase of health insurance must be done with after-tax income).
  • Businesses waste resources to provide health care benefits–providing ordinary salary instead would lower the cost of doing business.
  • It does not make economic sense to define the relevant “group” for insurance-rating purposes as the employees of a particular business, especially small businesses.
  • Tying health care to employment makes individually purchased health-care excessively expensive (adverse selection; small “group” for rating)–this in addition to the penalty of having to buy it with after-tax dollars.
  • The present system imposes a major economic penalty on the economy by its impact of “mobility of labor.”
  • The present system is economically unjust because:
    • Arbitrary factors (whether you have a job and who you happen to work for) mean that different households face significantly different costs to purchase the same economic good,
    • For some households, the good is simply not available to purchase at any reasonable price.
  • Thus society suffers a lower level of health in the population and hence a significant lower level of “human capital,” which is a key ingredient in the overall economic wellbeing of society.
• Either all health-care expenditures should be tax deductible or any business-provided health-care program should be taxible income to the employees benefitting. This is necessary to “level the playing field.”
  • A case could be made for requiring ordinary health care expenditures to be made with after-tax dollars and only extraordinary expenditures to be tax-deductible.
  • This principle would have to apply to both employer-provided benefits as well as to household expenditures.
• Some form of health care insurance should be mandatory to prevent:
  • Adverse selection problems.
  • The ability to be a free-rider on society when one actually needs health care.
• Just as a social safety net should provide help to those who can’t afford food and housing, it should also provide help to those who can’t afford normal health care costs and health care insurance.
• “Rationing”
  • For the country as a whole, any time some economic good or service is produced, there’s an opportunity cost in terms of something else that could have been produced but isn’t.
  • No economy can satisfy all of people’s health-care wants.
  • In a pure market economy (which never exists), these trade-offs would be made by the individual households and firms making their various decisions subject to their various constraints.
    • If health care and health-care insurance markets worked right (which, as we’ve seen, they don’t), and if there were no poverty, then all the trade-offs would be determined by individuals. The “market” would do the rationing.
  • In a mixed economy these trade-offs will reflect both individual decisions and governmental (political) decisions.
  • Two crucial philosophical-economic questions need to be answered then as we make political health care and health care insurance decisions:
    • What level of health care should the system provide and at what point do we need to say “No”?
    • How do we manage the opportunities for people who are willing and able to purchase health care (directory or through private insurance) above and beyond this level?

  Summary

  • Employers should not be in the business of providing health care plans
  • Everyone should face the same cost for purchasing health-care and health-care insurance.
  • Health-care insurance cost should not be based on arbitrary rating groups.
  • A social safety net should provide access to health care and health-care insurance for the poor.
  • Significant government involvement in the health-care and health-care insurance industries is necessary for both economic efficiency and economic justice reasons.
  • Any implementation of these principles will involve an answer to a basic philosophical question about what level of health care for all is economically just, that is, what level of health care an individual has a moral right to.