Wanted: A Better Way To Think About Health Care

If social insurance plans had been designed by libertarian-leaning policy mechanics, what might they have produced?

New Way to Care: Social Protections That Put Families First, by John C. Goodman, Independent Institute, 384 pages, $29.95

In the Depression summer of 1934, President Franklin D. Roosevelt gradually concluded that the country needed a broad-based, government-led program to assure Americans' economic security. He thus created the Committee on Economic Security, led by such long-forgotten policy mechanics as Frances Perkins, Arthur Altmayer, Edwin Witte, and Wilbur J. Cohen.

The Committee begat the Social Security Act of 1935. The legislation's central feature was billed as "social insurance": Workers would make contributions throughout their working lifetimes, the government would invest the funds in special Treasury notes, the earnings would accumulate, and at age 65 or upon disability the workers would begin to draw retirement benefits. What could go wrong?

Thirty years later, big government had advanced far enough in public esteem for presidents John F. Kennedy and Lyndon B. Johnson to expand social insurance to include government-managed health insurance for retired workers (Medicare) and government-paid health care for the poor (Medicaid). The chief policy mechanic for this great leap forward was Cohen, who ended up serving as secretary of health, education, and welfare for the last seven months of Johnson's presidency.

Let's engage in a counterfactual. Suppose those social insurance plans had been designed by libertarian-leaning policy mechanics. What would they have produced?

In New Way to Care, economist John C. Goodman supplies a plausible answer to that question. Goodman reveals the disincentives, inefficiencies, hypocrisies, astronomical unfunded liabilities, and general absurdities in the programs that currently exist. Then he goes beyond that to lay out the policy alternatives that, he argues, would make the American social security, disability, and health care universe effective, consumer-centered, and, above all, pro-liberty.

Goodman has authored at least 26 books on health and welfare policies since 1980. His most influential work was probably Patient Power: Solving America's Health Care Crisis, written with Gerald Musgrave and published in 1992. That 657-page magnum opus reviewed the evolution of health care policies in the U.S. and abroad. It lucidly explained why competitive markets and informed and empowered patients lead to efficient and beneficial outcomes, while turning over patient care to government bureaucracies inevitably leads to inefficient and sometimes calamitous mistreatment.

At that date, this notion was considered borderline preposterous by orthodox health policy wonks, whose differences arose mainly over how and to what extent the government should control health care, who should be made to pay, and what sort of provider organizations and business plans were most desirable. No one has done more than Goodman to force the principles of patient choice and provider competition upon a health policy community that has been uncomfortably resistant at best and relentlessly opposed at worst. Goodman is widely credited as the father of health savings accounts, an idea that Congress enacted in 2003 and now benefits more than 25 million American families.

In his new book, Goodman asks the pointed question: Why is government involved in retirement security, medical care, disability support, and unemployment payments? "For elderly entitlement programs," he writes, "we have made promises to future retirees that far exceed the revenue that will be there to fund them. In fact, the unfunded liability in [federal] elderly entitlement programs alone is about six times the size of the entire economy." What's more, "Even when a social insurance program is reasonably funded, individuals invariably face perverse incentives to behave in ways that undermine the purpose of the program and increase the costs for others."

Goodman goes to considerable lengths to identify those federal programs' defects, few of which were imagined by Wilbur J. Cohen and his colleagues. A six-page appendix concisely explains what socialized medicine actually looks like in practice. One would hope that this recitation would give reasonable people pause. For example, under the much-touted Canadian single-payer system, the care is rationed mainly by waiting. "In 2016," Goodman writes, "Canadians waited an average of 21.2 weeks between referral from a general practitioner to receipt of treatment by a specialist—the longest wait time in over a quarter of a century of such measurements."

Goodman focuses on how to deal with real risks that people face: outliving one's assets, dying and leaving your family without resources, becoming disabled and facing financial ruin, becoming unemployed and finding no market for your skills, or surviving a pandemic. A two-word summary of his solutions would read: "opt out." Goodman wants people to be able to exit dysfunctional systems, both to improve their own circumstances and to give those systems an incentive to improve. More expansively, Goodman wants all of those programs if not totally scrapped then redesigned to maximize choice and responsibility in light of sound economic principles.

There are some complications. One can imagine the better students of a yearlong college course taught by Goodman using this book as a financial planning handbook. But most people are likely to have a hard time working their way through some of Goodman's solutions. And it's hard to imagine some of them, however defensible they may be in an economics seminar, becoming viable policy alternatives in Congress.

Take opting out from the Social Security program. Goodman suggests that the government give a young worker the opportunity to make a one-time lump sum payment in lieu of ever paying payroll taxes or accepting any benefits. Then he could use 4 percent of his untaxed wage income to make investments that would produce larger benefits than what he forswore over his expected lifetime.

Or: A worker who has vested Social Security benefits could take an early buyout, in an amount determined by life expectancy and a government discount rate. He could then take the cash and put it to work at what he expects to be a more advantageous rate.

A young Milton Friedman might have jumped at those offers, but one may fairly suspect that many young people today will not, unless they have an appreciable amount of assets to begin with.

Another economically but not politically defensible idea is for the government to allow health insurers "to sell insurance that substantially restricts largely futile end-of-life care." This would offload to insurers the practice of the U.K.'s National Institute for Clinical Effectiveness (NICE)—that is, expertly establishing a cost-benefit tipping point beyond which the National Health Service won't pay for any more care. Just imagine an insurance salesman trying to make a pitch for such a policy.

These may not be plausible as political proposals, but they are worthwhile as thought experiments. And Goodman produces dozens of less sweeping reforms that would expand personal responsibility and allow more choices. Many of these are, or should be, within the realm of practicality.

Goodman defends several program changes made under the last administration. Chances are that President Donald Trump had little awareness of what his appointees were actually doing, but Goodman rightly credits the Department of Health and Human Services (HHS) and its Centers for Medicare & Medicaid Services director, Seema Verma. She found ways, without legislation, to expand virtual health care technology in a pandemic, pay doctors for "virtual check-ins," create "right to try" treatment options, protect emergency use of health savings accounts, expand opportunities to buy lower-cost short-term insurance coverage, and increase medical price transparency.

Unsurprisingly, The Washington Post reported in February that President Joe Biden's HHS appointees "are preparing dozens of regulatory actions to roll back much of the previous administration's legacy. That legacy, largely loathed by liberals, emphasized personal responsibility over government assistance and individual freedom over consumer protections.

As in Patient Power, Goodman looks for creative market-oriented practices abroad, even when they occur within an otherwise unappealing political context. Chilean dictator Augusto Pinochet, for example, replaced his country's collapsed social security system with one based on worker-owned accounts. These became popular precisely because employees, not the corrupt government, owned them. (Chile also created a private disability insurance program, in which "Workers make additional contributions to their retirement accounts to cover the contingency of disability, and they pay fees for group disability coverage for any portion of their wages that can't be replaced from their own accounts.")

Similarly, while Singapore is an illiberal society in several notable ways, it has adopted what Goodman calls "the most successful social security system in the world." There, he explains, "people are required to save a substantial part of their income to meet basic needs." Unfortunately, Goodman devotes only three paragraphs to the Central Provident Fund's successes.

New Way to Care is enormously valuable for anyone engaged in the debates over the future of retirement, disability, unemployment, and health care policies. Life would be better for all Americans if John Goodman and other market-oriented health policy practitioners could achieve majority support.