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Book Reviews

Libertarian Health Policy

Accustomed to thinking that health care is consuming us rather than the other way around, I initially found the subtitle of this book jarring, since it seemed to imply that the health care industry needs more, not less, freedom to pursue its costly projects. The liberation theme serves mostly, however, to dramatize the libertarian leanings of the authors and their publisher. As it turns out, a major premise of the book is that the health care industry needs to be far more accountable to cost-conscious, quality-aware consumers than it is now. Thus, their proposals to "free" health care are intended mainly to enable industry players to respond more directly and effectively to consumers’ preferences.

The most helpful way to view Healthy Competition is as an effort to recast health policy debates in libertarian terms. The authors do this by first reminding the reader (with obligatory references to Frederick Hayek) that, all things considered, market competition is the ideal process—far superior to government—for solving intractable economic problems. Then, they simply propose a competitive market process as the best way to discover solutions to the industry’s inevitable problems, emphasizing the market’s generally superior ability to process complex information and to winnow bad ideas from good ones. The authors’ crucial point is that as a precondition for success, "a competitive health care market needs consumers who are free to choose from competing options and who face tradeoffs among competing options" (p. 5). Precisely because this condition has not been satisfied for more than half a century, their argument that health policy should finally be based on faith in cost-conscious, quality-aware consumers deserves an impartial hearing.

The authors, both affiliated with the Cato Institute, are strong advocates of health savings accounts (HSAs). Although HSAs are widely heralded as an inspired policy innovation in themselves, they are best understood as a by-product of a distinctly second-best, but still promising, strategy for rectifying the severe market distortion caused by the tax: destroying the effects of the tax law’s long-standing exclusion of health insurance premiums from individuals’ taxable income. Whereas policy wonks have long viewed capping this tax subsidy as a true no-brainer, this straightforward reform has always been a political nonstarter. In 2003, however, Congress extended comparably favorable tax treatment to HSAs, an alternative way of paying for health care. This leveling of the playing field on which consumers and employers purchase health care may in time increase the cost-consciousness of enough consumers that new, more efficient forms of health coverage will materialize. Healthy Competition, however, ignores the challenging practical problems of integrating HSAs with various kinds of health insurance.

Much of the current enthusiasm for HSAs arises, it seems, not so much from their potential contribution to health policy as from their value as a new tax break for high-bracket taxpayers. Wealthy taxpayers are already seeing the value of paying their basic health care costs out of pocket rather than from their HSAs, thus allowing earnings on the latter to accumulate tax-free for later distribution as retirement income. There is therefore a powerful tax-equity argument for making the earnings from HSA investments taxable with individuals’ other income. Like HSAs themselves, Healthy Competition, which advocates even larger HSAs, may find favor among those whose principal interest is in creating new tax shelters for the rich.

In general, Healthy Competition relies too heavily on a simple vision of consumers freely and competently choosing health care for themselves in a largely laissez-faire world. Indeed, the authors seem bent on minimizing the role of health insurers, placing most of their faith in consumers’ ability to prosper in one-on-one relationships with health care providers. Yet too much choice with limited or indigestible information can disable, not empower, consumers, leaving them fearfully at sea. For these reasons, many consumers might rationally choose a corporate agent—for example, a health insurer—to assist them in making hard choices. Indeed, if the authors’ basic precondition for a competitive market—cost- conscious, informed consumers with a full range of options—were met, many consumers might prefer to receive care not in one-on-one settings but through highly integrated health plans like the Kaiser Permanente system. In any event, although the authors wish that HSAs could be still larger and used to pay for even more health services, their principal hope is right on the mark: that consumers will "choose the combination of health insurance and medical services that gives them the best mix of [lower prices and higher quality]" (p. 5). One of the book’s most interesting and original policy ideas would have Congress allow consumers to select a health plan regulated by a state other than their own. The idea here is to instantly widen consumer choice and to foster competition among the states in designing regulatory regimes appealing to various subsets of consumers.

Ironically, in neglecting to address the realities of consumer choice in complex markets and failing to come to terms with (or even mention) the sobering findings of behavioral economics, Healthy Competition misses an excellent opportunity to demonstrate that consumers’ difficulty in making complex choices does not necessarily disqualify them from choosing for themselves (or qualify government to act on their supposed behalf). Indeed, the point to which the authors should have given much more attention is the large number of ways in which consumers can overcome their difficulties and in which various private and public entities and the legal system can assist them in so doing. The book’s several illuminating references to the value of private information sources as substitutes for government regulation are only part of the answer to those who think that consumers’ ignorance and limited competence automatically trump arguments for the free market.

Healthy Competition provides extensive and creative suggestions for expanding the role of cost-conscious consumer choice in both Medicare and Medicaid and for putting these programs on more stable long-term footings through various privatizing strategies. Other provocative libertarian ideas laid out in the book include the authors’ argument that federal regulation of prescription drugs and medical devices may cause more deaths than it prevents. In this case, they provide persuasive responses to concerns that an unregulated market would wreak havoc on patients, observing how private researchers and other groups already certify or otherwise test and confirm the safety and efficacy of prescription drugs for various off-label uses. Finally, the authors strongly criticize policies that foreclose a market for transplantable organs, citing evidence that relatively low payments would increase the supply of organs, saving thousands of lives.

Although Healthy Competition does not provide a definitive treatment of any of these subjects, it is a valuable challenge to the health policy community to take health policy debates to a moral plane where consumer welfare and individual freedom are given more than just lip service.

Clark C. Havighurst

Editor's Notes

 
Clark Havighurst (hav{at}law.duke.edu) is the William Neal Reynolds Emeritus Professor of Law at Duke University School of Law in Durham, North Carolina.

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