Many tell us what to think. I ask my readers to be skeptical. Question me and others. 
Two university professors, Liran Einav from Stanford and Amy Finkelstein from MIT, hope God is wrong. Their newly released book, “We’ve Got You Covered: Rebooting American Health Care,” presents their vision of reforming health care in the United States.
They looked around the world and saw that all developed nations have some sort of universal health care system. Americans, on the contrary, have a messy patchwork of mixed ideas. It costs almost twice as much, does not cover everyone, and delivers mediocre results. So they concluded the United States should also have universal health care. The government should pay for basic care. Americans should have it at no charge. Those who can afford fancier coverage should buy separate insurance. Outlining this concept, they refrained from presenting specifics. We can decide the details later, they wrote.
They know the history of previous failures and realize their proposal will face obstacles. In recognizing that reality, they brought up a joke popular in their circles. An advocate of universal coverage gets to heaven and, for the good life, is granted the right to ask God a question. “Will there ever be universal health insurance in the United States?” that soul asked. God answered wisely, “Yes. But not in my lifetime.” The authors saw the cynicism. In my take, God, in their joke, knows a few things they have missed.
The economy professors ignored the market
Professors Einav and Finkelstein take as an axiom that no market solution could work in health care.
In their previous book, “Risky Business: Why Insurance Markets Fail and What to Do About It,” written together with Professor Ray Fisman, they explained the asymmetric information in the market. It causes a so-called adverse selection. In health care, it means that healthy people are less likely to buy health insurance. With mostly sick ones signing on, it is impossible to offer affordable coverage. Our academics concluded that “Adam Smith’s ‘invisible hand’ can’t work its magic in the medical marketplace.” They see coercion by the government as the only solution.
They put aside all the science, showing that perfectly symmetrical market information barely ever exists. With ideal symmetry, we have market equilibrium. The price satisfies both sellers and buyers. The market works like the proverbial Swiss watch, the same way every second, every day, and every year. There is no deviation, nothing new happens. With asymmetry of information, some market players earn more than others.
A classic example is the history of the iPhone. Steve Jobs knew something that others did not. By the time the competitors followed up, Apple dominated the market. Saying it differently, market asymmetry generates progress.
Better-informed market players can have an unfair advantage. Professor George Akerlof, in his now-classic paper “The Market for Lemons,” which earned him the Nobel Prize, explained that information asymmetry is more prevalent when market players have a disparity in education. But people learn fast. Progressives dismiss the market because of its imperfections. But those markets’ faults spur progress; ergo, by rejecting the market, our progressive professors are against progress.
Health insurance undefined
In the approximately 1,000-page-long Affordable Health Care Act, aka Obamacare, there is no definition of health insurance. If they put it in, the entire document would be logically incoherent.
In their previous book, professors Einav and Finkelstein explain what insurance should be: “The catastrophic plan is exactly what we, as economists, would say is closest to what insurance should be, at least for enrollees with reasonably high incomes. The point of insurance isn’t to pay your doctor’s bill every time you get a checkup but rather to provide protection from financial hardship when expensive and unexpected costs arise.”
In the same book, they also noted, “You can think about a longer commitment on both sides as acting as insurance against an unfavorable turn of events. If we take this logic to its extreme, maybe the best (health) insurance you can have is to sign a contract at birth.”
Those observations tell us that the authors know what insurance should be. Also, they realize that health insurance covering the entire lifespan is the only one that makes sense for an individual. As everyone will die, and likely might require medical care before that, catastrophic insurance is less prone to adverse selection; it makes sense for everyone to have it.
For reasons that can puzzle the reader, our professors did not incorporate that knowledge into their health care reform proposal. Instead of rigidly sticking to the insurance definition and following iron logic, they focused on our social obligation to assist the least fortunate. They left science behind and entered politics, but kept bringing up their academic credentials when constructing their health care concept.
Economists can do that because if their concepts fail, they can blame the viciousness of their political opponents. Engineers do not have that comfort. Things would not work, bridges would fall, and houses would collapse if engineers followed their hearts, not their knowledge. There will be no one else to blame. They might be lucky not to end up behind bars.
In that engineer’s approach, catastrophic health insurance covering a person’s lifespan is the only one we need. We should pay outright small medical expenses as they come. Some may want to have a prepaid health maintenance plan. One can find an example of that approach on the internet. Our professors are unlikely to have seen it because it is not at the top of the searches. Why? It is a question for an essay about the media.
Economy experts avoid talking about money
Politicians and pundits often mention cases of debilitating genetic sicknesses like Lou Gehrig’s disease when discussing money in health care. The authors of the book know better. Chronic illnesses often mean a financial disaster for affected individuals, but they are the victims, not the causes of the United States’ reckless spending on health care.
We can read in the book that in the U.S., “The higher-life-expectancy places didn’t enjoy a greater quantity or quality of medical care, or higher rates of health insurance coverage. Rather, higher-life-expectancy places had populations that smoked less, exercised more, and were less likely to be obese.” People with “more permissive” lifestyles are more likely to suffer from chronic but preventable ailments. Obesity and addictions are the most common causes.
Surprisingly, the authors of the new health care policy did not incorporate any mechanisms that would stipulate that individuals take more responsibility for their health.
Also, they did not address the known inefficiencies of our current system. They bring a famous study showing that in El Paso the cost of Medicare spending per individual was about half of that in McAllen, another Texas city with a similar profile. The outcome was the same. The only difference was that doctors and hospitals aggressively used more advanced and expensive treatments in McAllen. It seems obvious that for McAllen’s health care administrators, their profits came above everything else in importance, and they could get away with it. One cannot read that conclusion in the book; they suggest more studies.
I know of two instances of typical irregularities in health care spending. The first case is about removing a large, benign tumor. A patient had high-deductible health insurance with a Health Saving Account (HSA), so they started with a first visit paid by funds from the HSA. By a stroke of luck, that surgeon with many wealthy patients knew how the rich do it. The surgery would require about half of the day in the hospital and anesthesia. It would cost more than $10,000. The patient would pay their deductible of $5,000, and insurance would cover the rest. But in cases like that, the rich go to a small private clinic, where the surgery, by the same doctor and anesthesiologist, could be done for $3,500. That surgeon also recommended a place that could do an MRI for about one-third of the price that the hospital would charge. Following the doctor’s financial advice, that patient spent about $4,500 of pre-tax money for the whole deal, including all the tests and follow-up visits. Neither the hospital nor the insurance company was involved.
The chatty doctor explained that patients needing expensive knee or hip replacements are most common in that private clinic. If they can pay outright several thousand dollars (about one-third of what local hospitals charge), they can have that surgery done almost the next day whereas the hospital waiting time could be a few months.
The authors of the proposal for health care reform did not mention even once Health Saving Accounts, nor the emerging private market serving primarily the affluent. With the significant cost savings, it would be natural to seek an expansion of the same concept so even people of modest income could get cheaper health care without waiting.
Another case is about someone tripping on an icy sidewalk and breaking a wrist. Within 30 minutes, that person was brought to the emergency room. A family member knew that broken bones are relatively easy to put in a cast within the first hour. After that, the swelling makes it practically impossible. The emergency room did not have an orthopedic surgeon on duty, so it did not matter. As it was Friday evening, the emergency room did an X-ray confirming the broken bones and scheduled an appointment with an orthopedic surgeon for the following Monday. By then, the bones had started healing the wrong way. A relatively complex surgery was needed, with inserting metal pins to set the bones correctly. Insurance paid several thousand dollars without hesitation; the patient paid the $1,000 deductible.
The orthopedic surgeon confirmed that there had been a fair chance of setting the bones correctly during the first hour after the accident. The patient would have avoided the surgery; the only fee would have been for the emergency room visit, roughly as much as the deductible. No one wanted to explain why no orthopedic surgeon was on duty in the emergency room. Despite that, they had a few more patients with broken bones that night. Hospitals make money not when treating their patients in the best manner; they do it through more expensive procedures.
Dr. Suchi Saria is a machine-learning expert and health AI pioneer. She works on algorithms detecting illnesses in their incubatory stage by analyzing rudimentary medical tests. In her TED speech, she brings an example of sepsis that could be cured if detected early by those algorithms. But she faces opposition from hospitals for the same reasons that the person with the broken wrist experienced. In the 13th minute of her speech, she says: “Hospitals are not rewarded for saving lives. They are rewarded for doing more procedures. If we prevent a patient from getting septic, some hospitals lose money.”
Our two professors try to fix our health care without addressing problems of this kind. Why?
America or ‘Amerina’?
To the misfortune of both professors, I reached for their book in the middle of my rereading of “Democracy in America” by Alexis de Tocqueville. For readers that might not know, after a nine-month-long visit to the United States in the early 1830s, de Tocqueville wrote a book that still is considered the best explanation of what America is all about. In great detail, he compares the American system with the European of the Enlightenment era.
Rulers in Europe at that time saw respecting subjects’ rights and needs as noble and beneficial in the long run. Americans moved that further; they did not want to be the subjects. Americans considered themselves sovereign citizens. They did not need and did not want the government patronizing them. They wanted the government to protect their freedom, not dispense it.
Professors Liran Einav and Amy Finkelstein wrote their health care reform proposal like the Enlightenment sages advising the absolute ruler on manipulating the masses. They argue that “the need for universal healthcare is rooted in our unwritten social contract: access to essential health care, regardless of resources.” They silently dismiss our social contracts written in the Declaration of Independence and the Constitution, outlining how we should manage our affairs. In their book the America observed by de Tocqueville never existed.
Many Americans today may nod to the reasoning of our two professors. The Americans that de Tocqueville met were unlikely to have agreed. They would reject the government patronizing them. Feeling capable of arranging among themselves the challenging issues, they would expect the government to tame the wrongdoers.
Whenever the authors explain the benefits of their proposal, a thought comes that their arguments could be convincing if the poor people met by de Tocqueville in the following century did not build the wealthiest nation in the world. If our professors can prove first that the concept outlined in 1776 did not work, their reasoning deserves sincere consideration.
In their defense, our professors are among many well-intentioned people taking the same approach. From the beginning of the 20th century, many Americans found comfort in the government taking care of their problems, giving up their rights for the biblical “bowl of pottage.” America entered the road that Argentina took about a century ago. If de Tocqueville visited America today, he would see “Amerina,” America with the Argentinian twist.
American health care policy blends old American ideas of the sovereign citizenry with the concepts of caretaking governments that still dominate in Europe. Each of these concepts has its benefits, but they are not compatible. Mixing them gives us the worst outcome; it is our messy health care.
It could happen that Americans today will opt to choose the European option. It would mean the end of America as de Tocqueville saw it. Seeing his beloved America dead, God might die of despair too. Then, our professors can get their universal health care implemented.
