Wednesday, October 14, 2009

Why health care reform takes a thousand pages 

I drove last night to a local grocery store to get my wife and daughter some NyQuil D. Because of government regulation (to control manufacturing of meth) there is a law in MN that requires me to ask the pharmacist, have them swipe my drivers license and sign for the bottle. While waiting I see a sign for a walk-in clinic next to the pharmacy. There is a menu of prices for a variety of tests and services. And I wondered, "Here's a cash market that works. Requires, as best I can tell, no insurance card. The prices don't look absurd (I don't think I saw any three-digit prices.) What will happen to this when the Congress and Administration are done with their reform?"

Eric Falkenstein suggests the clinic's future is dark by analogy to Henry Manne's story of the parking lots.
The story describes what happens to a college town when parking lot owners decide to get together and squelch competition. Specifically, this was targeted towards those Saturdays when football games generated an abnormal number of cars, and many people and businesses sold space on their private driveways. The parking lot owners noted horror stories about 15-year olds parking cars, or the inability to fully insure the cars! They had a meeting where they said parking cars 'wasn't a business, it was a profession', and set up a slush fund for political action. The 'unfair and dangerous competition' was made illegal, by basically mandating fixed costs that made it uneconomic for small providers of parking spaces to operate. The new law allowed the parking lot owners to increases prices under the pretext of quality, yet the result was more congestion because the parking lot owners were not equipped, or incented, to deal with the new volume efficiently. Quality was merely redefined to mean fully licensed and bonded parking lots. Creative people got around the prohibitions by offering people $5 'car washes' on their driveways that lasted several hours, which then provoked new regulation. Each new regulation created a new problem, which then motivated more regulation.

The parable supports the principle that 'quality oriented' guild monopolies conspire with legislators under the banner of 'the public interest'. They then can raise their prices by outlawing all sorts of competition. The unanticipated inefficiencies created simply raise the cry for more regulation. The net result is worse for everyone except a few parking lot owners and the legislators they support.
The analogy to health care is then made, with a prediction:
The US health care system involves a myriad of regulations, rights, and tort liabilities, that conspire to make this market highly perverse. Any current health care provider is already playing the game, thus, doctors in the US average a salary of $150k/year, almost double that in other developed countries. Unions are growing in health care, with the common result of inflexible rules, high salaries, and an inability to fire workers. As with our education monopoly, expect the health care professionals to make out best in any solution (Michelle Obama, after all, was a $317k/year 'diversity outreach coordinator' for the University of Chicago Hospitals once her husband became a senator--we need more of those!).

The current modifications are just like the parking lot parable: more patches for problems created by prior patches. One law government obeys is the The Second Law of Thermodynamics, so the new system will certainly be more complex. Spending more money will not make it better, just create new inalienable rights and patronage jobs paid for via the magic of deficit spending.
One thing I learned in observing the tea party movement was that people are generally suspicious of laws they can't read and understand. Perhaps it's because we instinctively know that within complex laws come favors and sinecures for the connected (of whom we are not a part.) It is impossible to provide all the favors needed to satisfy the selectorate (definition) if you don't have laws that are dense. It is in the interest of this entrenched lobby in health care to conceal those gains, and Sen. Baucus and Rep. Waxman and the other legislators are simply serving those whose support they require.

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