FRIEDMAN FRIDAY Whining Harvard Professors Discover Obamacare 3225 JAN 5, 2015 4:29 PM EST By Megan McArdle

Milton Friedman on Medical Care (Full Lecture)

Published on Feb 2, 2014

I have written about Obamacare over and over again on this blog. Dan Mitchell has shared many funny cartoons about Obamacare too. Milton Friedman has spoken out about government healthcare many times in the past and his film series FREE TO CHOOSE is on You Tube and I encourage you to watch it. It is clear that the federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation.

We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding  principles that made our country great.  We also need to realize that a big government will encourage waste and corruption. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.

In 1980 I read the book FREE TO CHOOSE by Milton Friedman and it really enlightened me a tremendous amount.  I suggest checking out these episodes and transcripts of Milton Friedman’s film series FREE TO CHOOSE: “The Failure of Socialism” and “The Anatomy of a Crisis” and “What is wrong with our schools?”  and “Created Equal”  and  From Cradle to Grave, and – Power of the Market.

“Deplorable, deeply regressive, a sign of the corporatization of the university.”  That’s what Harvard Classics professor Richard F. Thomas calls the changes in Harvard’s health plan, which have a large number of the faculty up in arms.

Are Harvard professors being forced onto Medicaid? Has their employer denied coverage for cancer treatment? Do they need to sign a corporate loyalty oath in order to access health insurance? Not exactly. But copayments are being raised and deductibles altered, making their plan … well, actually, their plan is still extraordinarily generous by any standard:

The university is adopting standard features of most employer-sponsored health plans: Employees will now pay deductibles and a share of the costs, known as coinsurance, for hospitalization, surgery and certain advanced diagnostic tests. The plan has an annual deductible of $250 per individual and $750 for a family. For a doctor’s office visit, the charge is $20. For most other services, patients will pay 10 percent of the cost until they reach the out-of-pocket limit of $1,500 for an individual and $4,500 for a family.

The deepest irony is, of course, that Harvard professors helped to design Obamacare. And Obamacare is the reason that these changes are probably necessary.

The culprit is the “Cadillac Tax,” the hefty excise tax on high-cost plans.  The purpose of that tax is to hold down health-care costs, by making it much more expensive for employers to offer the kind of gold-plated benefit plans that shield consumers from virtually all the costs of their health-care decisions.

The economic logic is impeccable. Milton Friedman famously divided spending into four kinds, which P.J. O’Rourke once summarized as follows:

1. You spend your money on yourself. You’re motivated to get the thing you want most at the best price. This is the way middle-aged men haggle with Porsche dealers.

2. You spend your money on other people. You still want a bargain, but you’re less interested in pleasing the recipient of your largesse. This is why children get underwear at Christmas.

3. You spend other people’s money on yourself. You get what you want but price no longer matters. The second wives who ride around with the middle-aged men in the Porsches do this kind of spending at Neiman Marcus.

4. You spend other people’s money on other people. And in this case, who gives a [damn]?

Most health-care spending in the U.S. falls into category three. In theory, the people who are funding our expenses–the proverbial middle-aged men in Porsches, except that they’re actually insurance executives and government bureaucrats–have every incentive to step in, cut up the charge cards, and substitute a gift-wrapped box of Hanes briefs with the comfort-soft waistband. In practice, legislators frequently intervene to stop them from exercising much cost-control. The managed care revolution of the 1990s died when patients complained to their representatives, and the representatives ran down to their offices to pass laws making it very hard to deny coverage for anything anyone wanted. Medicare cost-controls, such as the famed Sustainable Growth Rate, fell prey to similar maneuvers. The only system that exhibits sustained cost control is Medicaid, because poor people don’t vote, or exit the system for better insurance.

The result is a system where everyone complains that we spend much too much on health care–and the very same people get indignant if anyone suggests that they, personally, should maybe spend a little bit less.  Everyone wants to go to heaven–but nobody wants to die.

Unfortunately, this is what cost-control actually looks like, which is to say, like people not being able to spend as much on health care. Oh, to be sure, we could achieve this end differently–instead of asking patients to pay a modest share of their own costs (the article suggests that this amount is less than 10 percent, in the case of Harvard professors)–we could simply set a schedule of covered treatment, and deny patients access to off-schedule treatments, or even better, not even tell them that those treatments exist. But people don’t like that solution either, which is why medical dramas are filled with rants about insurers who won’t cover procedures, and the law books are filled with regulations that sharply curtail the ability of insurers to ration care. And the third option, refusing to pay top-dollar for care, would be a bit tricky for Harvard to implement, given that they run exactly the sort of high-cost research facilities that help drive health-care costs skyward. Nor do I really think that the angry professors would be mollified by being given a cheap insurance package that wouldn’t let them go see the top-flight specialists their elite status now entitles them to access.

Instead, they persist in our mass delusion: that there is some magic pot of money in the health-care system, which can be painlessly tapped to provide universal coverage without dislocating any of the generous arrangements that insured people currently enjoy. Just as there are no leprechauns, there is no free money at the end of the rainbow; there are patients demanding services, and health-care workers making comfortable livings, who have built their financial lives around the expectation that those incomes will continue. Until we shed this delusion, you can expect a lot of ranting and raving about the hard truths of the real world.

This column does not necessarily reflect the opinion of Bloomberg View’s editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net

_____________________

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