Monday, April 09, 2012

Instead of irrational complexity, let's simplify health insurance

Gordon Crovitz makes some excellent points about the damage done to our democratic processes by having Congress pass such complex laws as Obamacare when the legislators don't know what is in the bill that they are voting on.
Perhaps ObamaCare will be remembered as the breaking point for top-down planning. There is not enough information available for the government to micromanage a system as complex as health care, which represents more than 15% of the economy. Austrian economist Friedrich Hayek wrote some 50 years ago about the "pretence of knowledge," meaning the conceit that planners could know enough about complex markets to dictate how they operate. He warned against "the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess."
As Crovitz goes on to point out that our problems with rising health care costs go back to having health insurance tied to our employment.
True enough, ObamaCare was built on an unworkable foundation. The original sin in health care goes back to the wage and price controls in effect during World War II. The federal government let employers avoid wage controls by adding health insurance as an untaxed benefit for employees. Employer-provided insurance has since insulated most Americans from the cost of care. The predictable result is endless demand for increasingly inefficient services.

When was the last time you saw prices posted in a doctor's office or hospital? Yet price is the key means through which information is transmitted, at least in functioning markets. There are many ways to make sure that the poor and seriously ill get medical care, including direct subsidies that don't undermine the price mechanism. But the complexity of accomplishing this goal in a hyperregulated health-care industry overwhelmed the system.

If the justices do send ObamaCare back to be rethought, politicians should address the problem with more humility. We'll know health care is on the road to recovery when basic information such as clear rules and transparent prices are again part of the system.
Other insurance plans for our lives, cars, or property are not tied to employment. If we could cut that connection and also let people buy insurance across state lines, then people could shop around for the best deal for their personal situations. If we truly wanted to bring down health costs, we need to sever this inadvertent system that arose out of WWII price controls and work to establish a more rational system. Simplicity should trump complexity.