Letters to Congress: Health Care Reform

I try to write to my elected officials every six months or so, and why not again tackle that most important of topics that I know nothing about, which is health care reform? So here's what I sent to Senators Casey and Specter and Congressman Fattah.

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I am writing today as one of your constituents on a topic you've heard a lot about and have spent a lot of time on. Despite your many responsibilities, you have managed to stay on top of this issue, and I appreciate your diligence and service. I am but one constituent, and an admittedly under-informed one at that, at least on this topic; but I wanted to do my part in the democratic process and share with you my thoughts on the issue.

Even though I am a cold-blooded capitalist, I understand that not all goods and services can be efficiently rendered through a completely free market. Certainly when it comes to a topic as basic and yet complex as health care, this is true. And yet I tend to lean towards skepticism if not outright opposition when an industry's price signals become out of whack, as a result of over-regulation, asymmetric information, or sub-optimal incentive structures.

I believe this to be the case when it comes to health care. Again, I am not arguing for a completely free market here; there are too many inherent distortions and too many commendable public interest goals to leave it to consumers and producers to do business without some government involvement. However, I think that introducing some market mechanisms can not only lead to better bang for our buck, but can enhance and at the least not detract from some of the public interest goals you are trying to achieve.

1. When insurers compete, we win. One of the nice things about capitalism is that producers bust their tails to satisfy us customers, or else they don't stay in business. Unfortunately, in most states, one or two insurers control the vast majority of customers. According to a recent Wall Street Journal article, allowing insurers to compete across state lines would create healthy competition and ultimately lower rates.

2. John McCain was right. Senator McCain was lambasted in last year's presidential campaign for suggesting that health care benefits should be taxed, but he was right; and President Obama has thankfully not closed the door on the idea. By not taxing health care benefits, we encourage companies to over-buy them, driving up prices. We also penalize both entrepreneurs and those who work at companies that don't offer benefits, two groups I'm pretty sure you don't want to penalize.

3. Mandates usually lead to less of what you're trying to mandate. Requiring people to be covered and requiring insurers to insure those with pre-existing conditions is likely going to have some unfortunate and unintended consequences. Economist Martin Feldstein notes that even if you fine people for not being insured, they'll still opt to not buy in until after they have a condition worth insuring. Insurance, after all, is to cover you in the event of a problem; but if you can wait to pay premiums until after you have the problem, you will.

4. Leave insurance for what insurance is for. Health savings accounts plus insurance for large and catastrophic needs is the way to go instead. David Goldhill's cover story in last month's Atlantic Magazine reminds us that auto insurance doesn't cover oil changes and windshield wipers; if it did, both insurance premiums and oil changes and windshield wipers would cost much more. Restoring some semblance of price sensitivity to some basic health services would go a long way to reforming our convoluted cost and incentive structure.

I know you've heard these and other arguments, and both sides of them, in many settings and from many citizens. It's likely I'm not telling you anything you don't already understand. But it's your job to listen to your constituents. And it's my job to let you know what I'm thinking. So thanks for listening, and best of luck in these efforts.