I believe that there are two fundamental principles that must guide us through the inevitable health care crisis that is looming on the horizon. First, we must bring personal responsibility back into the payment of health care. Health insurance was originally established to cover only catastrophic illnesses. Over the years, it has moved toward a semi-socialized program that has most of the costs covered by employers and the federal government. But in the end, all these two entities do is take our money through lower pay and higher taxes. We need to take these “middle men” out of the system for all routine health care. It would cut out huge administrative overhead costs that corporations and government spend that if we kept in our pockets would give us more money than we now have to spend on health care.

Second, we need to bring the market back into health care. Government controls health care at the local, state and federal levels. The pages of laws and regulations that control health care would make the 60,000 pages of the tax code look like a short story. The percentage of health care dollars that actually go to direct health is incredibly small. Some studies over the years have shown that 80% of the dollars in the system go to administrative costs. Government’s attempt to manage health care have contributed more than any other factor the the health care cost crisis.

For his conclusions to be correct, the following would need to be true:

1. Non-managed (“traditional”) health plans would need to be less expensive than managed care plans. However, the decision of most corporations to select HMOs, EPOs and other managed care options suggests the opposite.
2. Government managed care, such as Medicare, would have to be more expensive to administer. Though there are plenty of contradictory articles on the web, research suggests that government Medicare is less costly to administer than private Medicare HMOs, though those HMOs insure healthier patients.
3. Some significant portion of health care costs would need to be “discretionary” rather than urgent or emergent. The opposite, in fact, seems to be the case. Health plans find themselves needing to incentivize members for preventive care. These plans find such incentives to come out positive on a cost-benefit analysis because they avoid the sorts of catastrophic conditions that Jeff suggests should be the true use of health insurance. Moreover, without middlemen negotiating rates, physicians and facilities would be free to charge whatever they liked.

I’m not sure where Jeff gets his data–I don’t want to dispute his assertion that 80% of health care dollars are spent on administration but I would appreciate cited sources. More important, though, is that he seems to ignore the fact that good health is a very real public good. People with overall poor health, whether from poor nutrition, poor lifestyle, or poor preventive care, are more susceptible to the contagious diseases that are at the center of concerns about pandemics. Access to health care could even be considered a homeland security or national defense issue: healthy individuals are less susceptible to bio-terror attacks and would be better able to join the military in a time of true national emergency.

He quotes Brad DeLong indicating that between 1980 and 2004, the share of private national income earned by the top 1% of wage earners doubled from 8% to 16%. As usual, I have a few responses:

• After reading through the responses, I agree that single year rates can be misleading as many individuals may end up in the top 1% after cashing out an asset in which they had been investing earnings. For example, the small business owner who takes a smaller salary but sells for half a million dollars. A more interesting measure would look at lifetime earnings by some population cohort.
• Cost of living tends to have a more egalitarian distribution than earnings. Within a geography, health care, food, and transportation costs tend to be fairly equal. If anything, the wealthy tend to have better prices in the form of cheaper food, lower interest rates, and generally more choice (which may be offset through upscale brands, etc.).
• Finally, it’s worth noting that an increase in earning is very different from an increase in utility. In fact, those who make the most are best able to lose the most. I can’t spend $300k a year – therefore, it’s easy for me to set aside a third of that for a risky investment. Even if I make $100k per year–a very nice salary–I’ll be much less able to afford to lose any of that. My investments will be less risky and therefore, in general, less profitable.

Keeping in mind that I have absolutely no hard data to back me up, I think that Professor Cowen touches on one primary cause in mentioning, “[A]n increase in the ability of very smart and very wealthy people to buy up undervalued assets and turn them into greater value.” I’m not sure that smarts enters into the equation. What the wealthier have (and the wealthiest have lots of) is sufficient liquidity to take advantage of opportunities. Some of these opportunities will come in the form of real or financial assets, but others will take the form of moving cross country to follow job prospects, taking a few years off of school, or even deferring salary in the first place to start a company. See above with regard to risk and reward.

There’s also the nasty possibility of rent seeking behavior. Given the constant news of government bribery scandals and under performing firms getting generous government contracts we would expect that some amount of that excess income could be invested in bribery, graft, and lobbying.

Closely related is the principal-agent problem. Especially in an economy with rapidly advancing communications and information technologies, we would expect the cost (in terms of time as well as dollars) of identifying opportunities to increase. The “agents” in our economy: lawyers, realtors, other professionals and elected officials have pursued their own rent seeking behavior and those with the least excess are least well able to discern good advice from bad. Scandals with Ameriprise Financial, physician owned hospitals providing sub-par care, trial lawyers who take too large a share of a settlement, and graft-seeking congresspeople are some recent examples.

I see nothing inherently wrong with hard work and business success rewarded with wealth and I’m confident that most of the wealthy in this country have honestly earned that status. At the same time, concentration of wealth introduces and encourages some (economically) bad behaviors and it behooves us all to identify and correct them.

Why then do most colleges and universities have explicit rules forbidding student affairs staff from participating in sites like FaceBook or MySpace? Paradoxically, it is precisely because of student candor. If a student were to post, say, morbid poetry and then attempt suicide and it were found that school employees had read the poetry and did not act, the school might be held liable. But students post lots of morbid or disturbing work but engage in comparatively little self injurious behavior. And there’s no way even a highly trained professional, like my wife, could separate the dangerous from the banal.

Parents and students interviewed seemed most upset about the invasion of privacy, the inappropriateness of holding students responsible for activities outside of school, and for usurping parental responsibility. I hope that the school board has also considered their liability if students and their families come to expect monitoring? (via Consumerist)