Newsletter of The Independent Institute Volume 22, Number 3 Fall 2012 Curing the Healthcare Crisis By John C. Goodman hould all Americans be paid for by others, who bear an undeserved cost. Srequired to have health Economically, he is imposing an external cost on insurance? The Patient Pro- others. If we let him get away with this, others tection and Affordable Care might emulate his example and the cost for the Act (PPACA) said yes. Its rest of us could grow. constitutionality aside, is a So is the solution to mandate that everyone mandate a good idea? have health insurance? On average, people with- The short answer is no. There is noth- out health insurance consume only ing that can be achieved with a mandate about half as much health care as that can’t be better achieved by a care- everyone else. Of the amount of fully designed system of tax breaks. care they consume, they pay for The most common case for an about half. Thus the “free ride” for individual mandate is the free-rider the average uninsured person is argument. Imagine a community about one-fourth of what everyone in which everyone dutifully pays else spends on health care. monthly health-insurance premi- Forcing Joe to buy insurance that ums, except Joe. Then one day Joe pays for the same amount of care every- gets sick and finds he cannot pay the one else gets would be neither fair nor full costs of his medical care. So the rest of us chip equitable. To get Joe to pay his own way, we need to in and pay for the remainder of Joe’s care. The take from him an amount of money equal to about upshot: When he was healthy, Joe got to consume one-fourth of the average health-care spending of all his income instead of paying premiums, and insured people and either distribute it to everyone after he got sick he managed to “free ride” on else or put it in a fund to pay for the care eventually everyone else’s generosity. required by Joe and others like him. Ethically, Joe is getting an undeserved benefit How could that work? Let’s say that $X is the average health-care spending by insured people. John C. Goodman is a Research Fellow at the One solution would be to make Joe pay a fourth of Independent Institute and President and Kellye that in extra taxes each year. Or, we could achieve Wright Fellow in Health Care at the National an equivalent outcome by giving everyone who Center for Policy Analysis. has insurance a tax break equal to that amount, but deny the break to Joe and everyone else who IN THIS ISSUE is uninsured. This system is not all that different, at least Curing the Healthcare Crisis .....................................1 in principle, from our current tax system. For President’s Letter ...................................................... 2 people who get insurance at work, the employer’s The Independent Review ........................................... 3 premium payments escape individual income Independent Institute in the News ..........................4 and payroll taxes. By contrast, families who are New Book: Living Economics .................................... 5 uninsured (and therefore receive taxable wages Policy Forum: John Stossel ......................................6 rather than nontaxed health insurance) face a Conversation with Alex Tabarrok .............................6 higher tax bill. Thank You to Our Supporters ................................... 7 So far, so good. But if we want to build on this Student Interns at the Institute ................................ 8 (continued on page 7) 2 The INDEPENDENT EXECUTIVE STAFF DAVID J. THEROUX, Founder, President, and Chief Executive Officer MARY L. G. THEROUX, Senior Vice President MARTIN BUERGER, Vice President and Chief Operating Officer President’s Letter ALEXANDER TABARROK, Ph.D., Research Director BRUCE L. BENSON, Ph.D., Senior Fellow IVAN ELAND, Ph.D., Senior Fellow ROBERT HIGGS, Ph.D., Senior Fellow ROBERT H. NELSON, Ph.D., Senior Fellow A Health Care Contract CHARLES V. PEÑA, Senior Fellow BENJAMIN POWELL, Ph.D, Senior Fellow WILLIAM F. SHUGHART II, Ph.D. Senior Fellow Randy T. Simmons, Ph.D. Senior Fellow with America ALVARO VARGAS LLOSA, Senior Fellow RICHARD K. VEDDER, Ph.D., Senior Fellow LINDSAY BOYD, Marketing and Communications Director ith the Supreme Court de- ROY M. CARLISLE, Acquisitions Editor CARL P. CLOSE, Research Fellow, Academic Affairs Director cision upholding the Pa- GAIL SAARI, Publications Director W SARAH TARVIN, Associate Director of Development tient Protection and Affordable BOARD OF DIRECTORS gilbert I. collins, Private Equity Manager John Hagel iii, Co-Chairman, Center for the Edge, Deloitte & Touche USA LLC Care Act (i.e., “ObamaCare”), the sally S. harris, Vice Chairman of the Board, Albert Schweitzer Fellowship PETER A. HOWLEY, Chairman, Howley Management Group upcoming 2012 elections will be PHILIP HUDNER, ESQ., Of Counsel, Botto Law Group, LLC GARY G. SCHLARBAUM, Ph.D., CFA, Managing Director, crucially important in repealing Palliser Bay Investment Management Isabella P. Speakman, President, The Curran Foundation W. Dieter Tede, President, Hopper Creek Winery this measure and replacing it DAVID J. TEECE, Ph.D., Chairman and CEO, Berkeley Research Group, LLC David J. Theroux, Founder and President, The Independent Institute with a truly affordable healthcare system. As a Mary L. G. Theroux, Former Chairman, Garvey International SALLY von behren, Businesswoman result, we have an enormous but time-sensitive BOARD OF ADVISORS LesZak balcerowicZ Professor of Economics, Warsaw School of Economics window of opportunity to redefine and redirect jonathan bean Professor of History, Southern Illinois University debate toward market-based healthcare. herman belZ Professor of History, University of Maryland thomas bethell Led by our Research Fellow John C. Goodman Author, The Noblest Triumph: Property and Prosperity Through the Ages Thomas Borcherding and based on his new, acclaimed, Independent In- Professor of Economics, Claremont Graduate School Boudewijn Bouckaert Professor of Law, University of Ghent, Belgium stitute book, Priceless: Curing the Healthcare Crisis, James M. Buchanan Nobel Laureate in Economic Science, George Mason University A Health Care Contract with America aims to do ALLAN C. CARLSON President, Howard Center for Family, Religion, and Society ROBERT D. COOTER this. It comprises five critical principles: Herman F. Selvin Professor of Law, University of California, Berkeley Robert W. Crandall Fairness: All families should receive the same Senior Fellow, Brookings Institution RICHARD A. EPSTEIN James Parker Hall Distinguished Service Professor of Law, University of Chicago tax relief when they obtain private health insur- George Gilder Senior Fellow, Discovery Institute ance, regardless of where they obtain it. Nathan GlaZer Professor of Education and Sociology, Harvard University Ronald Hamowy Universality: Unclaimed tax relief funds Emeritus Professor of History, University of Alberta, Canada STEVE H. HANKE should be made available to local safety-net insti- Professor of Applied Economics, Johns Hopkins University JAMES J. HECKMAN Nobel Laureate in Economic Science, University of Chicago tutions to be used in case the uninsured cannot wendy kaminer Contributing Editor, The Atlantic Monthly pay their own medical bills. LAWRENCE A. KUDLOW Chief Executive Officer, Kudlow & Company JOHN R. MacARTHUR Portability: Employers should be free to pur- Publisher, Harper’s Magazine DEIRdre N. McCloskey chase portable insurance for their employees. Distinguished Professor of Liberal Arts and Sciences, Univ. of Illinois at Chicago J. Huston McCulloch Professor of Economics, Ohio State University Patient Control: Patients should be free to man- Thomas Gale Moore Senior Fellow, Hoover Institution age more of their own healthcare dollars. Charles Murray Senior Fellow, American Enterprise Institute Michael Novak Real Insurance: Insurance should not just pay Jewett Chair in Religion and Public Policy, American Enterprise Institute JUNE E. O’NEILL for the cost of becoming ill, it should also cover Director, Center for the Study of Business and Government, Baruch College P. J. O’rourke Author, Peace Kills: Americas Run New Imperianlism and Pariliament of Whores the future costs associated with incurring a pre- Tom Peters Co-Author, In Search of Excellence: Lessons from America’s Best-Run Companies existing condition. Charles E. Phelps Provost and Professor of Political Science and Economics, University of Rochester Paul Craig Roberts Already, coverage for Priceless has included Fox Chairman, Institute of Political Economy Nathan Rosenberg Business, Fox News, CBN News, and The Wall Fairleigh S. Dickinson, Jr. Professor of Economics, Stanford University PAUL H. RUBIN Professor of Economics and Law, Emory University Street Journal’s Opinion Journal TV, plus articles BRUCE M. RUSSETT Dean Acheson Professor of International Relations, Yale University in Barron’s, Politico, American Spectator, Forbes, Pascal Salin Professor of Economics, University of Paris, France VERNON L. SMITH Roll Call, Health Affairs, Boston Globe, Daily Caller, Nobel Laureate in Economic Science, George Mason University Joel H. Spring Newsmax, Washington Examiner, and Austin States- Professor of Education, State University of New York, Old Westbury Richard L. Stroup Professor of Economics, Montana State University man Journal, among many more. Thomas S. SZasZ Emeritus Professor of Psychiatry, State University of New York, Syracuse To help boldly advance this campaign, please Robert D. Tollison