Separation of Health and State Debate: David Balan’s Opening Statement

Thanks to Bryan for agreeing to this debate, and for letting me post my opening statement on his blog. A few words on my background. I'm an economist here in Washington DC, and a fair bit of what I do involves health economics. While it's no great secret who I work for, in settings like this I avoid identifying my employer just to make it extra super clear that I am speaking only for myself. I got to know Bryan and some of the other GMU Economics folks a few years ago when I gave a seminar out there, and since then we have had a good many extremely interesting and highly spirited (GMU people are very into “spirited”) chats about health care and many other things. We don't agree on much, but we have fun and we learn a lot (or at least I do), and hopefully that will continue here.

Let me start with a bit of throat clearing. First (and this should go without saying, but I'll say it anyway), this is not a "debate" in the sense of two people using rhetorical tricks to try to score points off of each other. Bryan and I disagree on a lot (that's why we're "debating"), but the goal here is to explore our disagreements and to see how much truth we can uncover in the process. Don't be shocked if you hear us agreeing on something, or if one of us concedes a point to the other. In fact, I think part of what will make this interesting will be to think about how it is that we have quite a lot in common (both in terms of actual propositions that we would both support and in terms of our intellectual styles), and yet we reach very different conclusions. Second, this debate is not about the merits of any specific health care plan or system. While I am still stumbling around in a joyous delirium over the U.S. health care reform that passed the other day, this debate is not about the merits of that reform or about how it compares to alternatives. My purpose here is to argue only that there are strong moral and economic grounds for significant government involvement in health care. The exact nature of that involvement is beyond the scope of this debate.

With that out of the way, let’s get started. The proposition that is being debated is "Significant governmental involvement in health care is both economically sensible and morally just." The “economically sensible” part and the “morally just” part are inter-related, but at the cost of a bit of over-simplification I’ll treat them separately, starting with the "morally just" part.

Suppose that everyone in society had exactly the same health status, and everyone needed a certain amount of health care to avoid debilitating illness or death. Also suppose that health care is sufficiently expensive that the poorer people in society cannot afford it, by some reasonable meaning of the word "afford," through not-too-much fault of their own. (I’ll ignore the question of how fault is determined and just talk somewhat vaguely about the “deserving” poor, however you think that should be defined). What should happen? Should the government intervene and require the rich to subsidize health care for the deserving poor? Your answer to that question should be the same as your answer to the question of what should happen with regard to any other essential thing that deserving poor people cannot afford. That answer will depend on many factors, including how expensive health care is and how beneficial it is; how concerned you are that public provision, and the taxes required to pay for it, will damage work incentives; how averse you are to governmental action in general; and many other factors. But let's assume for argument's sake that there are some circumstances under which, all things considered, you would favor some significant governmental redistribution towards the deserving poor. (I'll talk a bit below about where it leaves us if you're not prepared to assume this.)

How do things change when you introduce the fact that not everyone has the same health status, and some people need much more health care than others? This brings us into the world of risk and hence the world of insurance. We routinely buy insurance against major losses such as our houses burning down because we're better off paying a small insurance premium in all states of the world than we are paying nothing when our house doesn't burn down but losing everything when it does. The same idea holds for insurance against catastrophically bad health outcomes. Each of us has some probability of getting seriously sick and needing health care that is much more expensive than we can afford. It makes sense to buy insurance against that eventuality just like it makes sense to buy insurance against our houses burning down. The problem is that you can't buy health insurance when you're already sick, just like you can't buy fire insurance when your house is already burning. So when should you buy health insurance? Well, presumably you should buy it before you get sick, just like you should buy fire insurance before your house catches fire. The problem is that all houses start out not burning, whereas some people start out sick or with a propensity to become sick. A for-profit insurance company will not insure an already-sick person for the same reason that a for-profit insurance company will not insure a house that is already on fire. Absent government intervention, there is simply no way that you can insure yourself against being born sick, or of becoming sick early enough in life that you cannot have been reasonably expected to have bought insurance against becoming sick (here I’m leaving aside the very real possibility that you buy insurance but the insurer finds a way not to pay if you become sick). This brings us right back to the scenario we described above where everyone's health status is the same. In that world, the right thing to do depends on your attitude about what to do when people are born poor. But being born sick is just another version of being born poor: it means that you have expensive needs that you cannot afford to satisfy on your own. (By the way, do you know where I got this point from? Bryan Caplan!) If you thought it was appropriate to insure against the one, you should be in favor of insuring against the other.

There's a great deal more that could be said here, but that's the essence of my moral case for governmental involvement in health care. For those (important) health expenses that are reasonably predictable, there should be a public guarantee of provision for the poor just like there should be for a public guarantee of a minimum standard of food or shelter. For those health expenses that are not predictable, there should be universal insurance because anyone who ends up getting sick is like someone who was retroactively born poor, and it's impossible to buy insurance against that, just like it's impossible to buy insurance against actually being born poor.

But what if you don't, as a matter of principle, buy the idea that it's ever appropriate for the government to use its coercive power to compel the rich to support the poor? Some take that position on general libertarian grounds, which I disagree with but which are beyond the scope of this debate. But there is another objection to the idea of governmental support for the poor that I do want to address here, because I think it has considerable merit. People who are born poor in rich countries like the U.S. are much richer than poor people in poor countries. Furthermore, those rich-country people who really are poor in an absolute sense (such as people who are born with serious illnesses), are much more expensive to help than are poor people in poor countries. It can be fairly argued that to the extent that rich people are morally required to spend resources on helping the poor, it should be the much poorer and cheaper-to-help foreign poor. While I am not the complete non-nationalist that Bryan is, I am sympathetic to this argument. I follow it in my personal charitable behavior; almost all of my charity goes to extremely poor foreigners. But I don't regard that as much of an issue for this debate. If it was remotely feasible that instead of guaranteeing health care for poor Americans we would spend a similar amount of public resources in helping very poor foreigners, I would be inclined to go a long way in that direction. But it's just not relevant for practical politics.

Now let's turn from the “morally justified” part to the "economically sensible" part. I have argued that there is moral merit in providing for the health needs of the deserving poor. But that only works if such provision would confer some reasonable return on investment: there is presumably no moral obligation for a society to bankrupt itself in order to provide expensive care that does the poor almost no good. So is health care for the poor a reasonably good bargain? I think that it is. While there is a distressingly large amount of evidence that much of modern health care, particularly in the U.S., has little or no health benefit (the policy implications of this fact are a whole ‘nother story), I don't think there is much doubt that certain kinds of health care are highly valuable, and that having access to them significantly improves the length and quality of one’s life. Is it too expensive? Well, all of the wealthy countries of the world, and some less wealthy countries, have been able to provide it at what appears to be tolerable cost, in that it is not bankrupting their societies (those same societies have also, to a greater or lesser degree, ameliorated other kinds of poverty, also at no overwhelming social cost). This does not prove that it’s a good bargain, but it at least proves that it’s not a catastrophically bad one. And even if you think that it’s a pretty bad one, you could make governmental provision of health care less generous (say by means-testing benefits) without violating any of the principles of my argument.

Up to now the discussion has centered on the moral obligation to provide health care for the poor, and the “economically sensible” considerations were limited to whether this moral obligation can be satisfied at tolerable economic cost. But there are a bunch of other, more conventionally “economic” reasons for government involvement in health care, of which I’ll list just a few. First, healthy people are more productive. Second, there are significant externalities and spillovers related to health: we're all better off when our fellow citizens are healthier. Third, there is a strong case for governmental involvement in medical research and development. Private firms only have an incentive to do research that will lead to patentable innovations; they have no incentive to test whether an apple a day really does keep the doctor away. Fourth, there is a case for governmental regulation to ensure that health care is safe and effective (no selling poisonous snake oil), and that health insurers actually pay up when you get sick. You could argue that the market will take care of this by itself through reputation effects, but look around!! Fifth, there are some instances where the government is simply more trustworthy than private firms, and that trust allows economically efficient things to happen that otherwise wouldn’t happen. For example, it seems pretty clear that in the coming years people (not just poor people) are going to need to be induced to limit the health services that they consume; we just can’t provide everything to everybody all the time. The problem is, it’s hard to get people to agree to limits when the ones doing the limiting are unregulated private insurers who have an incentive to cut whatever care they can get away with cutting, rather than cutting care that is of low value. But if it is the government doing the limiting (either directly or through regulation of private insurance), and this limiting is being done through a rational process that people trust, then it has a chance of happening. I could go on.

My bottom line is this. Guaranteeing health care for the deserving poor and guaranteeing catastrophic health insurance for everyone is morally required provided that health care provides significant benefits and can be provided at a tolerable social cost. These conditions are easily satisfied in contemporary prosperous societies. There are also a number of other practical reasons, not directly related to moral obligations to the unfortunate, for various kinds of governmental involvement. This is a very minimalistic framework: there could be a great deal of variation of opinion about optimal policy even among people who buy into it. Since Bryan is going to be arguing for no governmental intervention at all, I look forward to hearing which part(s) of the framework he rejects. Let the games begin! (Oh, another thing Bryan and I do together is play nerdy games.)