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John Goodman
Kim Ritzenthaler/Genesis
John Goodman

Healthcare hubris

Q&A | No social system is more complex than healthcare, says economist John Goodman, and the president’s attempts at centralized reform will backfire

Issue: "Inside Election 2012," Oct. 20, 2012

John Goodman, president of the National Center for Policy Analysis, is a long-term analyst of healthcare: The Wall Street Journal and National Journal have both called him the “Father of Health Savings Accounts.” 

What’s the biggest mistake we make in healthcare? Believing that the way you make healthcare accessible is to make it free at the time of delivery. We forget when we think that way that if money is unimportant, the non-price barriers on healthcare become that much more important. Non-price barriers to care include: How long does it take you on the telephone to get an appointment with the doctor? How many days do you have to wait to see that doctor? How long does it take you to get from where you are to the doctor’s office? How long do you have to wait when you get to the doctor’s office?

So we need more doctors, nurses, clinics? We’re not doing anything to incentivize them. 

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What would incentives look like? Jeffrey Brenner is a doctor in Camden, N.J., one of the poorest places in the whole country. Brenner, a real entrepreneur, goes to the hospital records and discovers that 1 percent of the people in Camden are responsible for 30 percent of the hospital costs. He takes under his wing one of his worst cases: an alcoholic and drug addict who weighs more than 600 pounds. He spends half the year in the hospital and the other half abusing himself. Brenner enrolls him in Alcoholics Anonymous, gets him off drugs and alcohol, gets him going to church. The man loses weight and gets healthier, so the costs go way, way down. 

Is that a special case? Brenner found other patients whose costs could be brought down just by changing behavior. He saves millions of dollars for Medicare and Medicaid, yet gets paid zero for saving all that money. We should say to Brenner, “Every time you save the taxpayer a dollar, we’ll give you back 20 cents.” Let’s hope he becomes a millionaire. Let’s tell all the other doctors, “if you can figure out how to lower our costs and improve quality, we’ll pay you.” That’s the opposite of the way they think in Washington right now.

Should we have economic incentives for people to stop smoking, lose weight, and exercise? We now subsidize bad behavior through our healthcare system, as does every other developed country.

What about someone without those behavioral problems: He does everything right, then something disastrous happens. How would you create incentives to try to help that person? When unexpected expenses are large, that’s why we have insurance. But for the smaller stuff, people ought to control their own dollars, and make their own decisions.

So your proposal is ... Give the same number of dollars to every American for a refundable tax credit or healthcare insurance—same dollars, no matter where you get your insurance. 

In 1993 and 1994, before these bright Patrick Henry students were paying attention to the politics, Democrats attempted to centralize national healthcare and failed. Republicans from 2003 through 2006 occupied the White House and had a majority in both houses of Congress, but they did not push decentralized plans like your tax credit approach. Republicans not only didn’t do the right thing but wound up doing the wrong thing, which was expanding Medicare to prescription drugs and covering the 80 percent of seniors who already had coverage for prescription drugs. That essentially gave away taxpayer dollars we didn’t have to give away, and created one more unfunded liability.

So prescription drug coverage didn’t improve the health of 80 percent of seniors, but merely moved payment? Right, seniors got to keep more of their money, and the rest of us pay.

So better to help the needy rather than set up a universal program. But what about CHIP—the children’s health insurance program? Didn’t that help a lot of kids? The idea is to provide free health insurance for poor children, but the estimates are that one out of every two children (or more) entering the free government program dropped their private health insurance to get there. 

Still, many kids got to see doctors. One recent study found that children entering the CHIP program don’t get more care. With CHIP, because payments for the doctors are so low, they have trouble finding doctors. 

So are all these governmental expansions examples of what economist Friedrich Hayek called “the fatal conceit”? That’s the belief that people can manipulate and control complex systems they don’t understand and expect good outcomes. When they do that they get all kinds of unintended consequences. It’s like walking into a nuclear power-plant and pushing buttons even though you don’t know anything about nuclear power-plants. That’s what policymakers do in healthcare: They’re changing this rule, changing that rule, and they have no idea what the consequences will be. 


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