US Controversies and Big Ideas 2008 and Beyond

Individual Mandate for healthcare: the flawed comparison with auto-insurance

In the make-belief world of the current administration, supercilious comparisons are made to justify its proposed programs which have no basis whatsoever in reality. Fallacies abound and seem logical to the unsuspecting. One clear example is the justification for an individual mandate for health care. “Just like compulsory auto-insurance is mandatory, so also for health care”. Yeah, that seems like a straightforward and reasonable justification.

It goes a step further. An auto accident could cause damage to another person who probably does not bear any responsibility for it. Such a person needs compensation for the harm caused to him. The person who caused the accident will be able to pay only if he or she has an insurance plan. Similarly, the administration argues, everyone needs to have a health insurance plan to pay for their care rather than end up in an emergency room where they cannot be denied care. That society would otherwise pay for their care.

First, the individual mandate for auto-insurance does not require drivers to pay for comprehensive insurance. They only need to pay for the minimum level of liability coverage. The individual mandate for health insurance, proposed in the conceptual plans, are required to meet the standards of coverage that the Government requires each person to have which would now include pre-existing conditions. The comparable auto-insurance would include not only comprehensive coverage but also costs of repair and maintenance including oil change!

Just like a person whose auto-liability insurance includes only the minimum coverage will have to pay out-of-pocket for any amount in excess of it, the individual mandate can at the most require a minimum level of health coverage.

A more efficient alternative to individual mandate is   health savings plans. For those with very low incomes, the government could provide vouchers to fund the accounts. This would be akin to earned income credits. For emergency care, the expense could be paid over an extended period of time to cover the deductibles. The rest would be covered from the insurance plan.  

The Sophistry on Medicare: The case against Government takeover

What the Democrats lack in governance, they make up in sophistry. The issue of Medicare and Government takeover is just one example. They sneer at the apparent hypocrisy of Republicans who have taken on the role of opposing cuts in Medicare. “If you are against Government takeover, why are you supporting a government program like Medicare or even Medicaid? Similarly, the Democrats chide the elderly for opposing government takeover while insisting on retaining their own government health program.

Given an option, the Republicans are inclined to offer choice and private services to the elderly. The Medicare Advantage program was launched for precisely that reason. And the Democrats are viscerally opposed to Medicare Advantage. Better still, the Republicans would be inclined to simply offer vouchers to low income or retired folks which they can use to pay for privately delivered services.

The Medicare program has already been paid for by the elderly—it is now their turn to benefit from the investments they have already committed. That the Democrats are now considering the reallocation of funds from Medicare to their universal care experiments is only confirmation that the government cannot be trusted to comply with social contracts. When public finances are mismanaged, governments will be inclined to raid cash hordes.

The rationale for Medicare and Medicaid or for children’s programs for healthcare was not that Government provision of health is generally better than private delivery. Instead, the premise was that private markets fail to function when the elderly, the low income folks and children don’t have the purchasing power to buy health care.

With advances in knowledge about the health care business, its time to look at alternatives. The elderly can take care of their health needs if they are able to save money in their health care accounts over their working life. The poor and children of low-income households can pay for their health care with vouchers.

The Democrats are looking to make cuts somewhere to pay for universal access because they refuse to institute incentives which will help to cut costs. Resources are scarce and increasing demand for health care can only be fulfilled by supply side reforms including competition in the health care industry. The Democratic program cannot possibly increase access so they will only redistribute resources from one group to another without improving the overall system.   

 

Why the Democrats will lose

Democrats will snatch defeat from the jaws of victory. The mood of the voters is clearly in their favor. President Bush's low approval ratings and lackluster performance in his second term has turned the tide in favor of Democrats. They are also able to raise a lot more money than the Republicans. Yet they will lose

In the final analysis, their defeat will stem from their own karma rather than any right wing conspiracy, fear mongering or bad luck. You have to only listen to their sterile debates to quickly sense the poverty of ideas in that party. They have made up their minds and don't want to be confused by facts on the ground. The idea of "universal care" was tried in California, at the insistence of dyed-in-the-wool Democrats in the legislature, and flopped. Yet this has not registered with them. The surge has clearly succeeded, the Iraqis are also making political progress and their young are frustrated with the clerics but this has no effect on the thinking of Democrats.  None whatsoever.

Its not an accident that the Democratic primaries are stretching on and on. Both the contestants have about the same proposals for the voters. Barack Obama is further left of Hillary but the distance between them is not significant. In a vibrant party, you would expect major differences of opinion. Tony Blair, for example, energized the Labor Party in Britain by questioning the then prevailing orthodoxy within his party. Eventually, his party won a clear majority for several years based on a compelling platform.

In the Democratic Party, the contest is more about the sales pitch of the candidates--in either case based on false claims. Barack Obama has no track record of  leading a  path breaking initiative.  In fact, I had not heard about him before he started his campaign for Presidency. Ms Clinton's has been a senator and a first lady but she has never governed any state or anything. The idea that these rookies would even try to be the President of the most powerful country in the world is so bizarre.

The protracted primaries and close contests in primaries of the Democratic will inevitably lead to the predicted train wreck. Expect a bedlam in Denver. An ambitious Ms Clinton is unlikely to let go. The moment of truth for the Democratic party is not far away. All the anti-Bush drumbeat will come to nothing. In the end, the voters will realize that a party that does not have a program for their pressing problems is best left to deal with its own issues.

Barack Obama: the populist ghost from the third world

An African-American president would be welcome. Barack Obama, however, is more about African politics than diversity in American politics. Shorn of the apparent sophistication, Obama sounds so familiar to me--a leftist populist. Having lived in India in the 1970s and 1980s, I know what populism means and implies for the lives of ordinary people--needless suffering of the worst kind. As it turned out, the Indian intelligentia, its civil servants and politicians, including one of the worst populists of that era, actually learned from the Reagan Revolution and took a more rational path that has resulted in an economic boom in that country. I spent my youth watching the transition happen over nearly two decades as an economist and as an editorial writer for business newspapers. Laffer curve was frequently debated by economists as much as benefits of free trade.

Leadership in India learned to take an increasingly bottomline approach. Many Americans may not know this but the word bottomline till then was not used commonly in Indian English. It became popular because it is so descriptive of a mindset that uses common sense to distinguish between a promise and the real thing. Tax rates for the rich is just one of the favorites of populists and Obama is no exception. Lower taxes for the rich are actually beneficial for the larger community because they will be more willing to disclose their actual income and not evade their tax liability. This can help finance social programs for the less fortunate. In addition, lower taxes have always raised economic growth rates. 

The worst populist of that era, Laloo Prasad, presided over the ruin of the poorest state in India--Bihar--over decades. Laloo Prasad Yadav is charming. Eventhough he speaks only a smattering of English, he can entertain even a business audience enough for them to roar into laughter. These days he is the minister supervising the railways--the most important means of transportation in India. After years of decline, the railways these days are booming--one of the few success stories in the Indian infrastructure industry. Laloo Prasad Yadav retains his charm but these days he uses it to implement modern management methods in the railways industry.   

My life in the San Francisco Bay Area, including the last three years in San Francisco city, has prepared me adequetely to see through the rhetoric coming from the Obama camp. I was not surprised in the least when Michelle Obama announced that it is only now that she is a proud to be an American. Left liberals out here spout anti-US rhetoric whenever they open their mouth. Not since my days in India in the early 1980s, I have heard so much of senseless political rhetoric. Michelle Obama's proverbial slip is rooted in her habits of thinking.

In India, it was understandable why ordinary folks fell for the mesmerizing oratory of politicians. Many of them were illiterate and poor. Hope for them was a compulsive desire--a chance to liberate themselves. It comes as a shock to me that Barack Obama can influence an educated electorate with such empty rhetoric. Chris Mathews of NBC recently interviewed  Kirk Watson, a strong supporter of Obama, and asked him if he could list a single legislative accomplishment of Barack Obama. You have to see this video because I have never seen anyone fumble like Kirk Watson did--it was hilarious. He could not list a SINGLE accomplishment of the politician he admires.   

The third world got rid of its populists. These days emerging economies is the term used to describe the former third world. These economies are now managed by econocrats. Common sense rules in these countries.

Obama, the ghost of the third world populists, has managed to find an audience in America! This is so surreal. I shake my head when I listen to him. I can't believe it is happening here.

In these troubled times in the USA, it is important to remain cool-headed--the traditional American mindset. There is no question that choices have to be made. The world economy is a lot more competitive than just a few years back. India and China pose real challenges--no question about it. Ballooning health costs are a drag on the American economy. Social security costs can rise enough to ruin America's credit rating in the world.

While daunting, none of these problems are insurmountable. America's innovation engine is alive and kicking. A revolution in biotech, clean energy and nanotech is not far away. Health care costs can be lowered by providing incentives for people to take care of their health. Universal health care cannot be a cure for obesity or smoking or risky sexual behaviour which account for much of the increased costs. Financial education can help ordinary folks invest their money profitably rather than depend on the government.   

Political quacks prescribe wrong medicine for health policy

Among the welter of brain dead notions propagated by an ossified Democratic Party is the idea that universal access to health care will necessarily improve the quality of life in the USA. Their spokespersons cite the higher life expectancy in their own mecca in Europe. The reality is that citizens in countries like Canada are pressing for access to health care in the private sector especially in its Western provinces. Also, health tourism in Canada is rising as its citizens,unwilling to wait for care, are traveling to countries like India where they can buy care at a lower cost. This is the kind of failed "universal care" system that Democrats are prescribing for the USA.

In the final analysis, access to health care will depend on its costs. Efficient use of resources can free resources that can be shared with those who do not have the means to pay for their health care. Just like food stamps ensure that the poor can eat, health vouchers could be used to help the uninsured pay for their care. This can only happen if the patently inefficient health sector is reorganized to lower costs. Walk into most doctor's office and you will still see paper files! Yes, here in the USA.

All too often patients are unable to distinguish between disease and a wellness issue. For a long-time, I suffered from stomach acidity, diarrhea and similar problems. All tests, however, showed that I was fine. Much later, after doing my own research, I realized that I had a digestion problem which could be cured by consuming fibrous foods, eating whole grain bread and by avoiding gluten. Doctors, on the other hand, were mindlessly prescribing pills which aggravated the problem. Many others told me a similar story. Just imagine how much money must be lost in the absence of elementary education about common conditions best cured by home remedies.

Recently, the Milken Institute has assembled facts to show how easily health costs can be lowered in the USA. Obesity and smoking account for a very high share of the trillion dollars that it costs to treat chronic diseases like diabetes, pulmonary problems, etc.  Surely, this is something that individual responsibility will help reduce. If we had to pay insurance premiums and not our employers, we will pretty soon see sense and lower our weight. Similarly, we would quit smoking.

Most individuals are daunted by the prospect of paying for their own health care. They tend to overlook the benefits; their health premiums will be reduced if they take preventive measures to improve their health. If they stay well, the value of their health accounts will continue to increase and could be later used for their retirement.

Costs are also high because doctors are unable to absorb all the information they need to prescribe the best therapies. I was reading recently about a study which looked at how doctors treat infected tonsils.  As a  parent, I was aware of two contrary approaches to treatment of tonsils of my then young child; you either live with the recurring cold and cough that he suffered or have the tonsils removed. This study that I incidentally read in the book "Random Walk down Wall Street" found that in a sample of patients, half were advised to live with the problem and the others to have the tonsils operated. When those who were advised to live with the problem took a second opinion, half were recommended an operation and the others to live with the problem. Again, those who were advised to live with the problem were taken to other doctors and the result was the same each time. This is like rolling a dice to come to a conclusion.

The fund of medical knowledge out there is just too much for individual doctors to absorb on their own. Doctors need information technology that can help store data on the procedures followed and the outcomes. They can then rely on statistically valid approaches besides their own individual judgment rather than take chances with their patients.

In the end, common sense will help solve problems in the health sector. This is entirely missing in the way Democrats think....