Free Market Reforms For Health Care

As John Yoo references below, on March 10, 2011, I had a discussion/debate with my long-time friend Jesse Choper at the Berkeley Law School at a meeting of the Berkeley’s Federalist Society Chapter.  During that session I tried to accomplish two objectives. The first was to explain how the constitutional debate is necessarily framed in the wrong way if the critical New Deal cases of NLRB v. Jones & Laughlin Steel and Wickard v. Filburn are treated as the sound starting points for any discussion of the commerce power of the government. Both these decisions represent a manifest departure from the earlier Supreme Court precedents that were consistent with the original reading of the Commerce Clause, which did not allow the federal government any power over the manufacture of goods and the provision of services within state lines.  

Those pre-New Deal restrictions were, for example, scrupulously observed in drafting the 1906 Food and Drug Laws, which covered only the shipment of goods in interstate commerce while in their original packets, and the manufacture of these drugs only within the territories of the United States, where the federal government had the full panoply of police powers. It is no accident that the expansion of federal power to cover manufacturing was only conferred in 1938, after the key New Deal decisions expanded the scope of the federal commerce power by at least an order of magnitude, and probably much more. 

The second part of that discussion was directed to the proper overall reform of the health care laws.  On this point, the key mistake of President Obama’s team in early 2009 was to figure out how to lard on new restrictions in the provision of health care, without first ridding the system of all the senseless restrictions on the provision of health care that should never had been put there in the first place.

In line with this insight, I authored with David Hyman of the University of Illinois an article that took exactly that approach.  First eliminate the regulations that don’t make sense, and then worry about the question of redistribution of wealth, including redistribution through the original mandate, which has caused so much needless controversy.

Right now our statute books are littered with ill-thought out rules that restrain trade and raise the cost of doing business.  There are state licensing laws that are intended to prevent the movement of physicians across state lines, to locations where they are needed most.  There are all sorts of mandates to buy this and that kind of expensive protection—psychiatric and alcoholism benefits—that are worth to most people far less than they cost.  There are restrictions on the new entry of health care insurers into any state. There are prohibitions against the corporate practice of medicine, which prevents the creation of cheap storefront operations to supply health care in competition with the world’s worst supplier of routine care—the Emergency Room.  There are countless rules dealing with patient privacy that cost a fortune to enforce but which provide little or no benefit.  The list goes on.

The obvious line of attack is first eliminate all these, which means taking on incumbents who have much to gain from these various forms of protectionism.  Doing so has two benefits.  First, it reduces both public and private costs, and it increases access through less regulation, not costly and divisive mandates.  Second, once all this is done, then the question of health care support can be more sensibly attacked because it becomes a more limited problem. 

The Indiana health plan of Mitch Daniels is one promising line of attack to the second issue. That plan, which concentrates on giving cash payments to families in need that can either be spent on health care or kept, is a good way to start because it incentivizes people to watch what they spend on health care.  It then adds on layers with copayments, and tops it off with comprehensive protection for catastrophic losses. 

Deciding how much should be given to which people is no easy task. But compared to the wholly destructive cycle of new regulation and administrative waivers that has marked the past year under the misnamed Patient Protection and Affordable Health Care Act, working out those details is a piece of cake. 

The larger lesson is always this. First try to figure out how to get the kinks out of the operational system, and then worry about redistribution. “Redistribution last” is a slogan that is intended to improve health care across the board, and to remove much of the factional strife that is involved in its provision.

  1. Robert Promm

    Well said Prof. Epstein.  I worked in the largest HMO in the country (Kaiser) for 2 years as their corporate controller.  I could not believe how calcified, self servicing, self-dealing, self-everything the system is.  I ran screaming from the building back to good old Silicon Valley as soon as possible.

  2. Libertarian Too

    Good advice

    Do something to get the silliness and counterproductive rules out of healthcare.

    I like that slogan “Redistribution Last!”.   I can get behind providing for the truly indigent.

  3. Charles Gordon

    Employers began providing health insurance as a ruse around the apparatus of government wage controls during World War II.

    Ending this practice of conveying a benefit in the place of a wage should appeal to the patrons of Washington profligacy—it would provide a surge of federal revenue without the political pain of raising new taxes or rates.

    By compelling the employer to remit directly to the employee as wages the same amount previously withheld but paid in his name to the insurance company, part of the windfall to the employee passes into the pocket of the treasury via the higher gross reported on Forms W-2 and 1040.

    What more unfortunate an outcome of a past generation’s coercive controls than have government conjure from that policy new flows of taxes levied on the backs of today’s working dupes.

  4. Spike

    Richard, 

    On the the last podcast, you discussed the coming disaster of the price controls on the banking interchange fees.  You were prescient:

    http://money.cnn.com/2011/03/10/pf/debit_cards_limit/index.htm?hpt=T2

  5. Capt. Aubrey

    What bothers me most is that when intelligent people step back and examine the system as it exists they can often agree on many of these things but when the legislators and regulators get involved it turns back in to this feeding frenzy of special interests and pork. I wonder if can ever be fixed.

  6. Severely Ltd.

    Professor Epstein, tort reform is usually suggested by conservatives as an important first step towards meaningful health care reform, but I see you didn’t mention it. Why is that?

  7. ultra vires

    You mention that any commerce clause analysis is doomed if you start with the expansive cases of Jones & Laughlin Steel and Wickard v. Filburn, but what is the alternative (i.e. is it possible for any as-applied challenges to restore much of the original meaning of the commerce clause to the constitution or an amendment that could win favor with enough states to give much of the police power back under sole authority of the states)?

  8. James Pier

    Prof. Epstein, the list of regulatory convolutions that has accreted could ( and does) fill reams of laserjet paper, but I think two stand out:  The first is licensing requirements that enable physicians to retain monopoly status on the provision of many services that could as effectively be provided by less expensive providers.  The second is the massive intrusion of the state into drug development and marketing, which now makes what could be the single largest area of improvement and cost-containment in health care prohibitively expensive.  New drugs save lives, improve quality of life, and save big money; the FDA is in the business of new drug prevention.  

    What is it going to take for Commerce Clause jurisprudence to ever become sane?

  9. James Pier
    Charles Gordon: Employers began providing health insurance as a ruse around the apparatus of government wage controls during World War II.

    Ending this practice of conveying a benefit in the place of a wage should appeal to the patrons of Washington profligacy—it would provide a surge of federal revenue without the political pain of raising new taxes or rates.

    By compelling the employer to remit directly to the employee as wages the same amount previously withheld but paid in his name to the insurance company, part of the windfall to the employee passes into the pocket of the treasury via the higher gross reported on Forms W-2 and 1040.

    What more unfortunate an outcome of a past generation’s coercive controls than have government conjure from that policy new flows of taxes levied on the backs of today’s working dupes. · Mar 11 at 2:38pm

    I surmise you may have followed debates on this question during the ObamaCare hearings.  Any discussion of lifting the benefits exclusion on employers included creating a parallel exclusion for individuals.  The windfall you envision above is a political non-starter.

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