September 20, 2004

The End of Liberalism

Ramesh Ponnuru pens an important piece in the latest National Review. (Subscribers only, sorry!) He claims that the President's acceptance speech was not only not "a 'laundry list' of domestic-policy proposals" but it was also "a practical plan to end American liberalism (as we know it)."

Strong words. And a strong article. I reprint the section on HSAs because it is germane to a discussion on this blog about health care.

Bush's health-care policies are a break with 60 years of tradition. During World War II, employers found they could evade wage controls by offering health benefits to their workers. After the war, the IRS decided to treat those benefits as deductible. Born almost accidentally, the system acquired a peculiar logic. Most people got their insurance through their employers. They therefore had little incentive to control costs. Health insurance became less a way of dealing with unpredictable and catastrophic expenses and more a way of prepaying for routine medical care. Employers thus had to hire HMOs to control costs by rationing care.

So the system generates constant problems and anxieties: Losing a job means losing health insurance, prices keep rising, individuals do not control their own health policies, and so on. Naturally, there is a constant demand for government intervention to solve these problems. The system, so to speak, wants to move in the direction of centralization and bureaucratic management; our welfare state seeks completion. Conservatives have generally had to choose between new regulations and subsidies, on the one hand, and defending a dysfunctional system on the other.

President Bush's health-care policies would move us in a very different direction. Their logical end point is a world in which most people do not get their health insurance through their employers. Instead, they would get higher wages. They would use the additional wages to insure against catastrophic medical expenses and to pay for routine expenses out of pocket. As more people paid out of pocket for these expenses, a free market would emerge and prices would fall. Individuals would own their health-insurance policies, which would remain theirs when they changed employers.

The centerpiece of Bush's proposed health-care policy is the health savings account. Those accounts offer a tax break to people who buy low-cost, high-deductible insurance policies and pay out of pocket for most of their routine medical expenses. Thus, federal tax policy moves toward neutrality between insurance and out-of-pocket expenses. The incentive toward over-insuring disappears. Naturally liberals are against the idea: Six decades of the status quo have conditioned them to think that the point of insurance is to socialize costs. They fear that letting people, especially healthy people, opt out of a system that doesn't serve them well will cause that system to unravel. Free-market conservatives should hope that they're right.

Health savings accounts became law in Bush's Medicare bill. In his convention speech, he promised to strengthen them in various ways. He also proposed another substantial change. Right now, individuals and small businesses that buy health insurance are subject to expensive state mandates. If you buy any insurance, you have to get a gold-plated policy. So companies that do not want to cover hair-replacement therapy for their workers may have to get it or leave their work force uncovered. The press releases accompanying his speech, however, said that the president wants to let individuals buy health insurance out of state. If people can leapfrog out of their states' health regulations, a competitive marketplace in those regulations will have to develop especially if Bush goes the next step and lets small businesses take advantage of interstate commerce in health policies, too.

These domestic policies add up not only to an ambitious agenda for Bush's second term, but to an ambitious social-policy agenda for conservatism. In effect, Bush is adapting market conservatism to modern circumstances by applying it to sclerotic bureaucratic systems that have not adapted.

Posted by jk at September 20, 2004 05:10 PM

On 9/16 - 'Health Care Reform' - I said, "Whatever reforms we make must lead us back toward the power of natural market selection that helps put the inferior providers of other products and services out of business. Anything that doesn't meet this test will only make matters worse."

And Ramesh says Bush is already implementing it? Glorious!

I must also point out, as this is a perfect opportunity to do so, that the ultimate cause of the current condition of the healthcare industry has been traced by Ponnuru right back to where I would have predicted: government meddling in the free market. "During WWII, employers found they could evade wage controls by offering health benefits to their workers." WHY THE HELL SHOULD THEY HAVE HAD TO EVADE WAGE CONTROLS IN THE FIRST PLACE!? Idiocy.

Posted by: johngalt at September 21, 2004 09:06 PM
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