Wednesday, March 2, 2011

Cliff Asness's excellent rant on health care

I was just rereading Health Care Mythology, by Cliff Asness. Most of his analysis is spot on. Here's a nice excerpt:
The government does not co-exist or compete fairly with private enterprise, anywhere. It does not play well with others. The regulator cannot be a competitor at the same time. It cannot compete fairly while it owns the armed forces and courts. Finally, it cannot be a fair competitor if when the "public option" screws up (can't pay its bills), the government implicitly or explicitly guarantees its debts. We have seen what happens in that case and don't need a re-run.

The first thing the government does is underprice the private system. You can easily be forgiven for thinking this is a good thing. Why not, cheaper is better, right? Wrong. They will underprice private enterprise by charging less to the purchaser of health insurance, not by actually creating it cheaper. Who makes up the difference? Well, you and your family do if you pay taxes, or your kids will pay taxes, or their kids will pay taxes. The government can always underprice competition, not through the old fashioned way of doing it better, they never do that, but by robbing Peter to pay for Paul. They are taking money from your left pocket and giving you a small portion of it back in your right pocket. They do it every day before breakfast, and take a victory lap for the small portion they return.

Second, the government ultimately always cheats when it's involved in "honest" competition. Try mailing a first class letter through Fed-Ex, or placing an off-track bet on your favorite horse with a bookie, or playing a lottery through a private company. Uh, you can't, so please stop trying, I don't want you to hurt yourself. Once the government discovers it cannot win, it changes the rules. You see, the government has the power to legislate, steal, imprison, and even kill. Those are advantages most private firms do not have, save Google, and you did not hear that from me (we all know the Google guy with one eye-brow would crush your larynx for creating a competing search engine).
There's some other nice essays on his personal site.


Ben Hutchison said...

Living outside the US in a country with somewhat "socialized medicine" (Australia), and having been exposed to a fair amount of empirical data on the economics of health care via university study, I find it amazing how proud/attached many Americans are of a system that costs so much and delivers so little in measurable demographic outcomes.

I dont know exactly why "socialized medicine" works, but the data Ive seen strongly suggests it does.

Paul Chiusano said...

@Ben - I actually don't like the US healthcare system much at all. In many ways it is the worst of both worlds... But yes, I'd much prefer a more free (as in freedom) system, and I don't think this means that everyone but the super-wealthy gets crappy health care. There's some good ideas along these lines in America's Health Care Crisis Solved.

Anonymous said...


socialized medicine "works" elsewhere becaus the US option exists. ie. if you are really sick and have something rare there is really only one place to go for it. if the US socializes, then that option will be cut off for everyone except the ultra rich (billionaires) who can afford their own private surgeons. The rest of the world benefits from the US encouraging R&D research into drugs and medical research.

The people who get screwed by socialized medicine in the US and abroad are people who contract something relatively rare, and the middle class of america that will end up paying out of pocket for it all via taxes. (yes the rich will pay too, but it's just not that big of a deal to a wealthy person - middle america will have a lower standard of living)

1Z said...

Anonymous, socialised medicine does not mean the end of private R&D. Heard of GlaxoSmithKline or Bayer?

1Z said...

Anonymous, socialised medicine does not mean the end of private R&D. Heard of GlaxoSmithKline or Bayer?