Health care reform’s unseen costs

Chad Wilcox nicely sums up why many libertarians lament the passage of the health care reform bill:

A libertarian professor I know once said he believed that libertarianism’s greatest intellectual contribution is a recognition of the unseen. We’ll never see what open competition could have done to health costs in markets for health care left free of government interference. We’ll never see how the voluntarily uninsured would have spent the money they’re now required to spend on plans. We’ll never see how many lives could have been saved or how much healthier we could be in a world with technological innovations that are more costly and burdensome to develop as a result of government. I’m not saying there will be no technology and no innovation, I’m saying when we make these choices “as a society ” we sacrifice the unseen what-could-have-been for a “bird in the hand is worth two in the bush” philosophy that defies the most basic tenets of economics.

Like many libertarians, I think it takes a remarkably credulous faith in government to think that this bill is fiscally responsible. But what really disappoints me about it is that it fundamentally rejects the sort of reforms I’d favor and puts up new barriers to their enactment. Specifically, I’d like to see us move away from insurance as the primary means of paying for routine health care. This bill takes the opposite approach with its individual mandate that everyone purchase insurance, immediately inviting aggressive lobbying on behalf of providers to expand minimum levels of coverage. It additionally weakens Health Savings Accounts first by increasing the penalty for making non-health care related withdrawals, then by further limiting the amount people can contribute to them. One of the few nods in the direction of penalizing excessive insurance is the so-called “Cadillac tax” and it doesn’t even go into effect until 2018 so who knows if that will survive.

The seen costs of this health care bill will become all too apparent in the deficits to come. It’s the unseen costs of making it much harder to try out the market-oriented ideas of people like Milton Friedman, Michael Cannon, Arnold Kling, and yes, John McCain, that are most depressing.

Bartenders for McCain?


Trade tips for benefits? No thanks!

The New York Times ran an op/ed today by Phoebe Damrosch suggesting that by doing away with tipping we could make waiters more professional and give them better health care. The piece is about 75% fluffy restaurant staff stereotypes, the rest strange economics:

First, restaurants need to provide health insurance and retirement planning for their employees. One way to do this would be a service charge, as practiced in Europe, put toward paying a salaried staff. Would American diners be willing to give up tipping — and its illusion of control — if it meant providing benefits and a living wage for the people who cook and serve their food?

Tipping provides American waiters with an incentive to increase their check average by pushing bottled water, extra courses, expensive entrees and pricey wines and by showing guests the door as soon as they stop chewing. The service charge shifts the focus from the money to the experience. Instead of worrying about how much money she will take home that night — and upselling and groveling her way to that goal — a waiter can worry about doing her job well: making people happy at whatever price and pace they prefer.

I feel silly for having to point this out, but the source of servers’ income is the money paid by customers. Shifting from tips to a service charge doesn’t magically create more money with which to provide health and retirement benefits unless customers end up paying more or the restaurant reduces costs elsewhere (perhaps by cutting the number of servers working each night?). Damrosch doesn’t say anything about wanting restaurants to become more expensive and even suggests that without tipping customers would feel less pressure to spend or give up their tables, so I don’t see how this math is supposed to work.

What a service charge would do is give servers less say in how their income is spent. With tipping they can spend it however they choose and enjoy a nice bonus in the form of cash tips that can be partially hidden from taxation. With a service fee the income would be fully taxed or, as Damrosch presumably wants to happen, some of the income would be shifted into untaxed health insurance expenditures or retirement funds. This might be better in the paternalist sense of wanting people to plan ahead for their insurance and retirement, but it might not be welfare enhancing for the servers. It would put them in the same position as lots of other American workers: Spending more than is optimal on health insurance because of the tax subsidy, tied to their employer for fear of losing that insurance, out of luck if they lose their job, and with less income to spend on other things. As a restaurant worker myself, I say thanks but no thanks. I’d rather take the cash.

Damrosch is right that it’s hard to make a profession out of serving due to the lack of insurance. Fortunately there are simple alternatives that don’t require getting rid of tipping and that would benefit many non-restaurant workers who don’t have employer-provided health insurance. These include giving individuals the same tax breaks on insurance that employers receive, expanding the kinds of associations that can purchase group insurance, increasing competition across state lines, and expanding HSAs. These ideas aren’t sexy and European, but they’d benefit servers without locking them into their jobs or controlling their paychecks.

Bartenders for McCain?
The point of tipping


Shunning Mackey

I hadn’t planned on writing anything about John Mackey’s health care op/ed in the Wall Street Journal, but Radley’s response to the resulting boycott of Whole Foods is worth quoting:

[…] I also think the general premise is ridiculous. I shop at Costco. A lot. If the CEO of Costco wrote an op-ed calling for a single payer health care system, I’d shrug, maybe write a blog post about why I think he’s wrong, and then I’d probably go to Costco this weekend to buy some dog food, some meat, and to try to eat my membership dues in free samples. Now, if the CEO of Costco wrote an op-ed calling for genocide against redheads, then yeah, I’d stop shopping there. But calling for a boycott of a conscientious company over its CEO endorsing proven ideas like HSAs and mainstream policies like tort reform is an attempt to push good ideas you disagree with to the fringe. It’s a way of zoning your opponents best arguments out of the realm of civilized debate. In other words, it’s a way to marginalize your opponents without actually having to debate them.

This is exactly right. Many of my friends on the left have lamented the state of debate on health care reform. We’d all like to see it move beyond death panels and keeping government’s hands off our Medicare. So it’s disappointing that when a CEO expresses cogent opinions about the matter and presents serious alternative policy proposals he is treated to such a harsh backlash. The response I’ve seen from many on the left is to dismiss him as a corporate shill or refuse to patronize his stores without giving serious consideration to his arguments.

The first response is irrelevant to the correctness of his ideas, even if the accusation is true (though I don’t doubt that Mackey truly believes what he writes). The second is counterproductive to the goal of achieving a better discourse. Is opposition to the public option really so evil as to deserve a boycott?

Reasonable people can disagree about the wisdom of the public option. Even if you support it, the only way to be sure of one’s position is to test it against the best challengers. The response to Mackey’s op/ed has demonstrated an unwillingness to do this and with it a tendency for the left to become as closed-minded on this issue as the right is currently perceived on others.


The problem of progressive arrogance

Rich Rodgers had a post at Blue Oregon this weekend lamenting the fact that some people stubbornly refuse to get on board with the public option for health insurance. He suggests that in the face of such irrationality there’s nothing to do now but agree to disagree. Maybe he’d have more luck convincing his opponents if he treated them with a little more respect. Here’s his opening:

Free market economists use models that assume that people are given complete information and make rational decisions. How absurd. No one has complete information, most people have terribly unreliable information, and people make stupid decisions all the time. Witness the election of George W. Bush in 2004.

There are many intelligent people who describe themselves as free market economists. One or two of them have probably noticed that in the real world people don’t have perfect information. Yet those silly economists persist in their crazy beliefs! Perhaps that’s because they realize that simplified models are often useful starting points for understanding the world. The arguments of free market economists don’t depend on perfectly informed buyers and sellers any more than the designs of engineers depend on perfectly frictionless surfaces.

If Rodgers bothered to look into what libertarian economists actually think he’d see that it’s often the absence of perfect information that drives them to support markets. If knowledge was easily obtainable there’d be little reason not to hand over power to enlightened planners; we’d just figure out what’s efficient and do it. Unfortunately no one person or agency has that much information, so we use markets and price signals to coordinate the dispersed and incomplete knowledge of market actors.

At the risk of being overly generous, I’m assuming that Rodgers doesn’t think we should set up public options to pay for our groceries, our oil changes, our TV sets, or any of countless other goods we consume on a daily basis. We manage to handle these transactions fairly well on our own despite our lack of omniscience. In some arenas, at least, the free market model works pretty well. It’s possible that health care isn’t one of them, but Rodger’s opening canard doesn’t provide any reason for thinking so.

Ironically, one of the leading arguments against free market health care is that consumers have too much information, causing adverse selection and the unraveling of insurance markets. That’s a challenging point! Alas, it’s not the sort you bother making when you start from the assumption that your opponents are stupid.

(It’s also telling that Rodgers’ example of uninformed, stupid decision-making was the election of George W. Bush, a decision that was political, not economic. In the political sphere people are free to make stupid choices because the personal cost of being wrong is virtually nil. This is a reason to be skeptical of further politicizing health care.)

But that’s just the first paragraph. After Rodgers unfairly dismisses free market arguments he goes on to say that people who oppose the public option are dupes of the insurance companies:

The insurance industry is massively funding the campaign against health care reform, especially reform that includes an option for publicly administered insurance. They want to keep making a lot of money, so they prefer to keep things the way they are. The industry is abetted by its mouthpieces on Fox News, talk radio, and in the op-ed pages of the Wall Street Journal. Their teams of strategists are rolling out some rabid crusaders to try to stop the conversation, apparently encouraging them to use tactics as close to brute force as the law will allow (and then some).

This illogical outrage and outrageous behavior obviously didn’t spring up overnight, it’s been cultivated for years by political strategists and interest groups on the right. The rabid dogs know what they’re doing–they know their role, even if they can’t control themselves. If you sat these birthers and screamers and Glenn Beck fans down and asked them to explain how the universe is put together, the story you heard would be scary and wrong, but they would believe every word of it.

While it rests uneasily on an old foundation of philosophical principles, the right’s current ‘platform’ on health care is a twisted-up mess of distortions and opportunity-driven sound bites. It makes very little sense for an ordinary working person to adopt a stance against public health insurance–what exactly is so great about private health insurance?–but rational decision-making has nothing to do with this. People are committed to being on a team, and they will fight for the team.

It’s great sport to mock the fringe elements of one’s ideological opponents — and the conservative movement certainly deserves some mocking right now — but picking on the nutjobs is no substitute for engaging with actual arguments. And if Rodgers looked beyond FOX News he’d find that arguments do exist. Free market economists have a coherent perspective on health care that’s in fact deeply critical of the current system. And the reforms they suggest, such as expanding HSAs, shifting the tax exemption for health insurance from employers to consumers, and eliminating barriers to competition among states, are logical extensions of that perspective, not cover for the interests of insurance companies.

Does Rodgers consider those arguments? Or does he instead suggest that his opponents are a bunch of country rubes? If you guessed the latter, you’re correct!

The current debate in DC has focused on 1) a national public option for everyone or 2) state-by-state decisions on whether a public option is available. Neither of these approaches successfully take into account the reality that people are bitterly divided on the issue, and will stay that way. One answer to the dilemma might be to create a national public health insurance option, but give local communities the choice to opt in or out. Union County can vote in or out. Multnomah County, same choice. Equity can be ensured via the tax code.

It’s a foregone conclusion that the major urban areas will all opt in. Both coasts will be in. In parts of the country where the political divide is intense, communities will have their say; e.g. rural Georgia will probably be out, and Atlanta will opt in. With most cities in, the population base will be plenty large enough to ensure maximum bargaining power. And the conservative communities that are whipped into a frenzy can sit this one out.

I’m picking on Rodgers here, but only because his post exemplifies the tendency I’ve seen in many progressives to ignore the best arguments of their opponents, focus on the extremes, and assume that ordinary people who disagree with them are victims of their own ignorance. This is its own kind of tribalism and with that attitude it’s no wonder disagreement seems so intractable.

I’m not writing this post to defend any particular perspective on health care. I obviously lean to the libertarian side, but this isn’t an area in which I claim any expertise. All I’m suggesting to progressives is that if they want to win over skeptics like me, demonstrating that they’ve engaged with free market arguments would be a better place to start than insulting our intelligence.


Bartenders for McCain?

San Francisco Chronicle restaurant critic Michael Bauer complains about Healthy San Francisco surcharges still appearing on restaurant checks:

I’m losing patience with the way restaurants are handling the “Healthy San Francisco” initiative.

I’ve been supportive of restaurants such as Delfina (which charges $1.25 a person) and Zuni (4 percent of the check) adding surcharges because these are well-established, moderately priced restaurants. This allowed those businesses to keep prices stable while educating customers about the added expenses. I figured it would last a few months, and once the public was familiar with what was going on, the surcharges would be removed and incorporated into the menu prices…

I’ve talked to some diners who are subtracting that percentage from the tip, kind of as a way to protest about being taxed and taxed again. Those same people wouldn’t mind if each dish cost a little more, negating the need for an additional charge, but they end up feeling cheated when the surcharge lands on the bill. Diners are becoming more vocal, too. Wednesday, in fact, Eater SF began to build a map that details restaurants implementing surcharges.

It’s gotten to the place that I can’t hold my tongue any longer. Enough with the surcharges. Here’s my proposal of how restaurants should handle the situation: Incorporate all these expenses into the menu prices. At the bottom of the menu, the restaurant could say something like: “Our prices include the cost of buying locally produced, sustainable ingredients and providing a living wage, sick leave and health insurance for all employees.”

While it may be unpleasant to be reminded that social policies really do cost money, transparency is a good thing. One of the reasons the scope of government has expanded so much in the past century is that it’s gotten very good at obscuring the tax burden (income tax withholding and the bogus “employer contribution” to Social Security being two of the most egregious examples). The Healthy San Francisco initiative, which requires many SF restaurants to provide health insurance for their staffs, dramatically increases labor costs. Diners should know that the extra dollars appearing on their bill are going towards paying politically mandated benefits, not sourcing better ingredients or taking extra care in the kitchen.

In addition to raising costs, the initiative prevents businesses from expanding because the amounts they must spend on health care are tied to their number of employees. The LA Times reports:

“We will always have 18 [employees] now,” vowed Anna Weinberg, a co-owner of South, a 50-seat restaurant featuring Australian cuisine that opened in October. Weinberg plans to open her next eatery on the Westside of Los Angeles.

San Francisco costs already are among the nation’s highest, experts say. “It costs me triple to hire a waiter than a New York City restaurant,” Scherotter said. Health insurance costs at his Palio D’Asti are doubling to $120,000 a year under the new program, he said…

Local establishments, they point out, already are paying a $9.36 hourly minimum wage, the nation’s second highest and 17% higher than in any other California city. They also are the only employers in the state required by law to grant paid sick days to all workers.

All of which raises the unasked question of why restaurants should be relied upon to cover their employees’ health insurance. Our current system arbitrarily allows employers to pay for health insurance tax-free, but if an individual buys his own insurance he gets no break. This has predictably led to a market dominated by employer-provided health insurance that often leaves restaurant workers out in the cold. Businesses can’t afford to provide coverage, or employees are only part-timers, or they change jobs frequently and go without between gigs. For all of these reasons, making it easier for individuals to buy their own insurance would be better for many service industry workers than tying them to employer-provided plans.

While I’m hesitant to enter the minefield of health care policy, and especially reluctant to be seen as endorsing John McCain (or any other candidate), one bright spot of a McCain presidency would be a more favorable tax policy for workers in the service industry. Fixing the disparity described above is a cornerstone of McCain’s health care plan. He advocates health insurance tax credits for individuals and families, allowing people to buy insurance across state lines to increase competition and decrease costs, and expanding the kinds of associations that can establish group plans. All of these ideas would bring concrete benefits to those of us in the service industry. (Details here. Note that this does leave problems for people with high premiums, a subject McCain will have to further address.)

Is that enough to make me excited about a McCain presidency? Hell no, and I’m not seriously advocating a “Bartenders for McCain” movement. But the change would be a significant consolation if he wins and gets it passed, and one that I doubt many of my friends in the industry are aware of. And if the plan works, San Francisco might finally be able to drop those pesky surcharges.


Big Tobacco fights back

Apparently political contributions from tobacco companies are causing consternation in California right now:

The nation’s largest tobacco company has donated $50,000 to the Ventura County Republican Central Committee as the local party gears up to help GOP candidate Tony Strickland in what is expected to be a multimillion-dollar campaign this fall in the 19th Senate District…

The role of tobacco money in politics has long been controversial, and many candidates decline to accept contributions from the industry. However, health groups in Sacramento say the influence of tobacco money in politics is on the rise.

“There’s an alarming trend of the tobacco industry increasing its influence by ramping up its political contributions,” said Jim Knox, vice president of the American Cancer Society Action Network.

Knox noted the tobacco industry played “a major role in killing healthcare reform in California last year. They don’t issue press releases, they don’t testify at hearings, but they’re hard at work in the halls of the Capitol.” … Part of the financing of the healthcare plan was to have been a $1.75 per-pack tax increase on cigarettes.

If Californians don’t want tobacco money in political campaigns, they should stop bullying the smoking minority with exorbitant tax hikes. If they they think health care reform is an important goal, they should pay for it out of general revenues. What they shouldn’t do is bully smokers, tie their health care programs to a declining revenue stream, and act indignant when the tobacco companies fight back.

[Via Seeing the Forest.]

Boosting tobacco tax won’t serve kids’ health