Good Governance Ideas

As a political moderate (that’s the term I use to describe a “classical liberal” who is, in terms of today’s political spectrum, socially liberal and economically conservative), I’ve often disagreed with both parties on their approaches to policy. This is still true for the health care bills floating through Congress. Ostensibly, the Democrats want to address rising costs and uninsured people, but the Baucus bill focuses heavily on the latter. The CBO projects that costs will rise compared to the current plan. I recently listened to a podcast on why costs are high, and agree for the most part with the argument that none of the stakeholders have any incentive to hold costs down. Patients don’t foot the bill, doctors will be sued unless they order tests for every remote possibility, and insurance companies are too cowardly to confront the other two.

How do we turn back the tide? One idea is to expose patients directly to the cost of treatment and to force care providers to compete on cost. The insurance companies can function as it does with respect to car insurance. For a premium, the insurance company will pony up to a certain amount per year in treatment. Patients will be required to put their own money into health savings accounts, which will function much like IRAs and be subject to a government match up to a certain amount. Note that there is no adjustment or subsidy depending on income level. It’s really the individual’s responsibility how much value they place on their care and how much they expect they will need. So, if you start saving when you’re young, you’ll have a nice nest egg when you’re older and more susceptible to needing care. Having this system of patients paying out of pocket will make them more price-sensitive, acting as a market-driven deterrent against excessive treatment and rising cost.

The second component of my plan is to have hospitals and clinics compete in terms of pricing. All other businesses except for utilities and monopolies compete. The end result is reduced prices and increased choice. What if hospitals offered patients treatment options and an accompanying price, leaving the choice of which one to pursue in the patient’s hands? It just seems ridiculous to me that consumers are so insulated from the cost of procedures. Do you know how much that MRI you just got costs? Exactly!

Thinking along these lines, I come up against my basic opposition to entitlement programs. The two issues I have is that they’re inefficient and unfair. The first is obvious. There’s a problem when a person receives more benefits (food stamps, unemployment insurance, welfare, medicaid) when poor, so much that it pays more to earn less (when the difference is relatively small). Note my earlier reference to a 70% marginal tax when benefits are factored in. This is inefficient because it prevents the economy from operating at peak efficiency. Individuals have reduced incentives to work and to contribute to the overall welfare of the country.

The second problem of fairness is that a wealth transfer program run by the more numerous poor will always seek to take more and more from the rich. We’ve seen taxes go up and entitlement programs expand. Where is the limit? There’s nothing putting checks and balances on the growth of handouts. A person, once accustomed to a certain level of comfort, will seek to improve that level, and for the poor, nothing is more convenient than Robin Hood politics. The issue of fairness also ties back to the problem of inefficiency. For a rich person, what is the incentive to work more and create more jobs when most of the extra money earned will go to subsidizing a poor person?

With that said, I’m not against some kind of social safety net. After all, circumstances change, disaster can strike, and the rich can suddenly become poor. A safety net is also in society’s best interests, reducing drug use and crime, which are common results of poverty. Therefore, I propose scrapping all entitlement programs and tax breaks, shifting them into a flat rate handout to every taxpayer (including foreign full-time workers who pay taxes) and citizen (including unemployed ones). A single cheque every year for say $8,000 adjusted for inflation would be less than the per capita expenditure of current entitlement programs plus the overhead in administering them. This plan is neutral in terms of income level. An added bonus is that the money is more tuned to individual needs (individuals can allocate spending in different ways) rather than to whatever limits the legislators deemed appropriate. Finally, $8,000 is more than enough for subsistence (I’ve lived on less) and a few creature comforts. If individuals want to better their material existence or find fulfillment in some endeavour, they can work and earn money on top of that basic guarantee. That is a positive and powerful incentive.

I’m also in favour of an overhaul of the current tax system. First to go is the income tax. It is one of the worst taxes out there because it counters productivity and reduces incentives to work. Next are taxes associated with investment, such as dividends and capital gains taxes. Again, investment is a net positive for society, so why should we put roadblocks against it? What kind of tax would I replace them with? A single VAT tax levied federally. VAT is done for efficiency reasons; it’s harder to dodge a tax collected at each stage of the product lifecycle. It also discourages consumption, which Americans do far too much of. Finally, it’s just more convenient when the sticker price is the price individuals actually pay.

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