How Conservatives Could Design a Fair and Efficient Healthcare System if they Took their Time

Senate Republicans fell short in their first attempt to attract fifty votes for their healthcare bill. Small wonder. The Better Care Reconciliation Act (BCRA), as it is called, is remarkable in many ways, but perhaps remarkably of all, it fails  to draw on a large body of conservative reform proposals. As a result, it gives the false impression that only liberals have given any thought to how to design a fair and efficient healthcare system.

Now the Senate’s Republican leaders have a second chance. Instead of rushing something out that isn't much of an improvement, they could use the extra two weeks they’ve given themselves in August for open hearings on healthcare reform. If they did so, they would have a chance to hear day after day of testimony from conservative scholars and policymakers. Here are some key points that testimony would make, if it had a chance to be heard.

Some of that testimony would focus on the top end of the spending curve. As the chart below shows (based on data from the National Institute for Health Care Management Foundation), just 1 percent of the population accounts for 20 percent of all personal healthcare spending, and the top 5 percent of population for half of all spending. Many people in that range suffer from one or more chronic conditions like diabetes, kidney failure, or AIDS that require expensive treatment year after year. Their medical needs are literally uninsurable by traditional standards. They are not just at high risk of needing care, they are certain to need it. And even if an insurer could be persuaded to cover them, an actuarially fair premium would exceed the annual income of all but the very wealthiest among the 

chronically ill.

Unintended Consequences of Healthcare Decentralization

All economic policies have unintended consequences. The decentralization of healthcare finance and policy proposed by congressional Republicans is no exception.

The Better Care Reconciliation Act (BCRA) pending in the Senate would sharply shift responsibility for healthcare toward the states. Some of the biggest changes would come in Medicaid. would sharply cut federal spending, leaving states with the choice of responding by increasing their own contributions to maintain current enrollments, or by reducing coverage. Aside from Medicaid, they would gain the right to redefine the essential services insurance must cover, to experiment with high risk pools, and to change policies toward pre-existing conditions.

A group of GOP senators skeptical of the BCRA have offered a different proposal that would permit even greater diversity in state healthcare policy. The Patient Freedom Act sponsored by Senators Susan Collins (R-ME), Bill Cassidy, MD (R-LA), Shelley Moore Capito (R-WV) and Johnny Isakson (R-GA) would give states three choices: Keep the existing framework of the ACA with most of its federal subsidies, sign up for a new market-oriented system centered on direct contributions to health savings accounts for each individual, or design a new system of their own, with federal approval.

Jobs are No Reason to Quit the Paris Climate Agreement

Donald Trump cited “jobs” no fewer than eighteen times in announcing his plans to withdraw from the Paris climate agreement. Nonsense. Jobs are not a good reason—in fact, they are no reason at all—for that decision.

Let’s start with the fact that the US economy doesn’t really need more jobs. We are already awash in jobs. At the macro level, there is no sign that the Paris accord, in place for over a year now, has hurt the steady growth of employment. Neither has it slowed the decline of unemployment, which reached a 16-year low in May. Take a look at the charts. Do you see a sharp break over the last year, since the agreement was signed? I don’t.

To be sure, the Paris agreement is not yet fully in effect, but markets are forward looking. If employers expected the agreement to put the brakes on growth, they would have been holding off on hiring already. What would be the use of taking on workers you are just going to have to lay off as soon as those onerous regulations come into play? If the charts tell us anything about Paris and the job market, it is not how great the employers expect the effects to be, but how small.

But that’s just the macroeconomic perspective. What about low rates of labor force participation and declining labor mobility? Those are real problems, but they have been around, and growing more serious, since long before the Paris agreement was even in the planning stages. Getting out of Paris will not fix them.

Would Hayek Have Supported a Carbon Tax? A Rejoinder to Robert Murphy

 On April 12, I posted "Hayek on Carbon Taxes: Prices Without Markets or Markets Without Prices?" both on this site and that of the Niskanen Center. On May 30, Robert P. Murphy posted a response on the Institute for Energy Research. I submitted a rejoinder as a comment, but some readers of the IER site have not been able to view it, so here is my rejoinder in full.

(1) With regard to “hijacking the legacies of deceased libertarians”: I would have thought that it would be obvious to any reader that to say, “Hayek would have supported a carbon tax,” is simply a rhetorical device that means “Hayek’s works contain arguments that bear directly on this issue.” I said that explicitly in the first sentence of my post. There is no hijacking going on here.

Economic vs. Personal Feedom in Singapore

Today’s New York Times carries an op-ed by Singaporean novelist Balli Kaur Jaswal on censorship in her home country. It begins by describing the deletion of scenes from American TV shows that feature taboo subjects like vibrators and nonbinary gender identification. It continues with a tongue-in-cheek account of her efforts, together with high-school friends, to figure out just what “sex” was by raiding their mothers’ stashes of contraband women’s magazines. But the real point of the op-ed is a serious one: In Singapore, freedom of information is spotty, at best.

The story sent me running to one of my favorite data troves: The rich collection of statistics on economic and personal freedom put out by the Cato Institute’s Freedom of the World project. Singapore is famous for its economic freedom. On the Cato economic freedom scale, it earns a score of 8.71 out of a possible 10, second only to Hong Kong’s 9.03. The high rating is helped along by sound money, free trade, and a small government, along with perfect 10s in areas like freedom to dismiss workers, freedom from minimum wage requirements, and freedom to practice your chosen profession without a license. These economic freedoms pay off in terms of prosperity. Singapore’s GDP per capita is third in the world, after Qatar and Luxembourg.

When it comes to personal freedom, though, it’s another story. On Cato’s personal freedom index, Singapore ranks seventy-seventh out of 159 countries, a little better than Cambodia or India, but not as free as Turkey or Papua New Guinea. What’s the problem?

How Big Government Affects Freedom and Prosperity

Economists, libertarian economists included, love to measure things. The Human Freedom Index (HFI) from the Cato Institute is a case in point. Its authors have assembled dozens of indicators of personal and economic freedom. They invite interested researchers to use them to explore “the complex ways in which freedom influences, and can be influenced by, political regimes, economic development, and the whole range of indicators of human well-being.”

I am happy to accept the invitation. This post, the first of a series, will take a first look at what we can learn from the data about the relationships among freedom, prosperity, and government. The relationships turn out to be not quite as simple as many libertarians might think. 

The Data

The Human Freedom Index consists of two parts. One is the Economic Freedom Index (EFI) from the Fraser Institute, which includes measures of the size of government, protection of property rights, sound money, freedom of international trade, and regulation. The other is Cato’s own Personal Freedom Index (PFI), which includes measures of rule of law, freedom of movement and assembly, personal safety and security, freedom of information, and freedom of personal relationships. The Cato and Fraser links provide detailed descriptions of the two indexes.

In order to explore the way freedom influences other aspects of human well-being, I will draw on a third data set, the Legatum Prosperity Index (LPI) from the Legatum Institute. The LPI includes data on nine “pillars” of prosperity, including the economy, business environment, governance, personal freedom, health, safety and security, education, social capital, and environmental quality.
The EFI and PFI cover 160 countries and the LPI 149 countries. In this post I will use the set of 143 countries for which data are available in all three indexes. The Cato, Fraser, and Legatum links above provide detailed methodological information.

Hayek on Carbon Taxes: Markets without Prices or Prices without Markets?

As far as I know, Friedrich Hayek never wrote a word about climate change, but two of his most famous works contain arguments that bear directly on this key issue of environmental policy. Judging from what he wrote about the role of science in public policy and the use of knowledge in society, I think that if he had lived on into the twenty-first century, he might have supported a carbon tax.

The role of science in public policy

Hayek’s 1945 article, “The Use of Knowledge in Society,” draws a distinction between two kinds of knowledge. One is “knowledge of the particular circumstances of time and place,” that is, knowledge that is widely dispersed among individuals, each of whom sees only a small part of the whole picture. The other is scientific knowledge, which, he says, we can reasonably expect to find in the possession of a suitably chosen body of experts.

Most of the article focuses on how best to make use of dispersed knowledge. However, near the beginning, Hayek comments briefly on the role of scientific knowledge:

It may be admitted that, as far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available— although this is of course merely shifting the difficulty to the problem of selecting the experts.

Hayek quickly moves on to his main subject, but he returns to the issue of scientific knowledge several years later.  In a 1960 essay, “Why I am Not a Conservative,” he explains the differences between the conservative worldview and that of “liberals,” a term Hayek uses in the European sense for what Americans would call classical liberals or libertarians. Liberals, he says, are prepared to come to terms with new scientific knowledge, whether they like its immediate effects or not. Conservatives, in contrast, are more wary of science: