The American Way and Healthcare

Healthcare, or more aptly the provision of health insurance, has been an increasingly contentious issue in American politics, particularly over the past three years. Since the passage of Obamacare in 2010 to its potential repudiation by the Supreme Court following the forthcoming judgment this summer, American politics have become infused with this intractable problem.

There is little doubt that the current American system—a bastardized semi-competitive private monstrosity that is enfeebled by regulations, restrictions, and complications—is a disaster. It is expensive, inefficient, and unable to provide reasonable access to many Americans.[1] This has lead many on the American left, and observers from across the Atlantic, to advocate for a government solution.

However, while some champion Obamacare—the current administration’s healthcare reform bill—as a step in the right direction, many across the political spectrum find it has failed to provide an ideal solution, albeit for different reasons. Many on the left feel it does not go far enough, pining for the type of public system that exists in numerous European countries. In contrast, the right has castigated it as a tremendous overreach of government authority and responsibility, but has, as a whole, offered few alternate solutions.

That a revamping of the system is needed seems to be beyond question; however, very little thought has been given to what is the proper forum for such change. The knee-jerk reaction, as is unfortunately all too common in American society, is to turn to the biggest and most powerful institution—the federal government—to solve such intricate problems. This has left Americans, at least in the popular media, with two choices: massive government involvement or the status quo.

This artificial choice is grounded in a misunderstanding, or possibly a lack of any consideration, of what is the proper and necessary role of government. Government has become, for many, the solution-finder extraordinaire. After all, it is big, powerful, has access to considerable resources, and, most importantly, can force solutions upon society. Thus if there is a perceived problem, be it social, cultural, political, economic, or the like, many look to the government to implement a solution.

But this logic, which is seemingly pervasive and unquestioned, is deeply flawed. It, as will be argued, not only misstates the proper role of government but it also grossly overestimates the ability of the government to solve certain issues. Furthermore, automatic reliance on government as the only viable forum for such solutions stifles innovation in other sectors. This can lead to severe overextension of the power and reach of the coercive apparatus of government, inefficient solutions to serious problems, and a pernicious political landscape that only permits two voices: big-government solution-finders and anti-government reactionaries.

So what is the proper role of government? While it is difficult in the space provided to fully explore such a monumental question, a succinct answer is to provide public goods. In other words, the government has a responsibility to supply services that all citizens need and will benefit from, regardless of whether they pay for them or not (i.e. to avoid free-rider effects). Where the free market innately fails, the government can step in to make it work. This implies that the government is obligated to provide military and police forces, certain infrastructure, and laws and rules to manage certain behavior (enforcement of contracts, protection against harm from fellow citizens, etc.). In brief, the proper role for government is long-term and structural. It is about the big picture: creating, enabling, and maintaining a system that allows individuals to pursue their lives as they see fit, with minimal intrusion.

Image courtesy of Library of Congress

In a well written essay, New York Times columnist David Brooks elucidates an aspect of this argument. Brooks hearkens back to Alexander Hamilton, one the United States’ founding fathers, to argue that the government must not be concerned with the everyday undertakings of individuals (for example by providing healthcare for all), but instead focus on establishing a system that will be robust and have long-term potential. This Hamiltonian view, he claims, is what made the United States great but has, over the decades, unfortunately been abandoned.

This abandonment has led to a reformulation of the role of government into a machine that attempts to improve the daily lives of individuals. While this may be noble in intent—many of these problems are very real—it is more often than not detrimental in the end. When the government strays from its true purpose, numerous problems result. The political, social, and economic nightmare that is tearing apart Europe and, to a lesser degree, the United States is evidence of this outcome (and an unfortunate signal before a great state collapses).

When governments strive to solve problems for people, as an active role in health insurance demands, at least four immediate problems result.[2] The first two problems are inefficiencies and inflexibilities—dilemmas generally faced by any monopoly. When one entity controls an entire process there are few incentives to innovate, find more efficient alternatives, or adjust as the environment changes. What may have worked at one time, surely will not continue to be successful in the future, but such change is difficult with one institution controlling the entire process (no room for creative-destruction). Governments, particularly because of the complexity of the decision making process, are extremely likely to fall into this trap. This is often true whether the government is producing a product (universal healthcare) or simply micro-regulating an industry to meet certain (often arbitrary) standards.[3]

The third problem is that government solutions are often one-size fits all (or at best a few-sizes fit all). This innately ignores associated costs and other external ramifications that come from not allowing a diversity of solutions. It also can inevitably hurt those who could benefit from an alternative that is not provided. Any market, whether healthcare, health insurance, jobs, food, or electronics, benefits from myriad options. Government solutions, however, necessarily need to reduce options to focus on, say, the average user.

The final problem is that when the government oversteps its role of maintaining the system it innately causes political strife. Interest groups, in what is essentially a distributional conflict, arise to have laws passed and contracts awarded that benefit their interests. What was once left to private individuals to decide upon now becomes a political battleground. This is readily seen in the recent confrontations over the provision of birth control. Previously, this issue was decided by individuals and their insurers and employers in private interactions. Different individuals had different preferences and were able to access different products. But with the insertion of the government into the process, political strife was generated. Only one side can now get their way, thus necessitating a fight for control.

The expansion of government into health insurance thus has tremendous negative consequences, yet it is dubious if it can truly have the needed benefits. The intent of those who want the government to find a solution is arguably beneficent, but the reality is far from what many wish it to be. Instead, the government needs to step back from trying to “fix” the problem, at a minimum simply because it cannot succeed but more fundamentally because of the immense costs that will be generated by both its attempts and its inevitable failure. This may make some uncomfortable—after all, it negates the presupposed belief, daresay hubris, in man’s absolute ability to structure and control his environment from the top, while only providing, in exchange, the impersonal and untamable forces of nature to address some of the most obdurate problems. However, it is the only way to begin tackling these challenges.

Unfortunately, this does not leave us with a solution to America’s healthcare woes. However, limits to a top-down solution do not negate the ability for real transformation. While there is not enough space here to expound a solution, they have been offered elsewhere. For the time being, it is sufficient to say that more competition—not less—is the answer. Actions can be taken independently of the public sector to reform the health insurance system. The government, in the Hamiltonian mode, can play a small role by creating conditions that allow other players to find solutions, for instance, by removing distortions that promote the employer-based provision of health insurance and facilitating insurance competition across state lines. By unleashing natural forces, while establishing a secure framework within which nature can operate, the government will realize its proper role and enable a solution to the health insurance predicament.