Arnold Kling  

The Jane Galt Health Plan

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In the last of a good series of posts on health care, she writes,

Have the government pay for all health care expenditures above 15% of adjusted gross income, and cover 100% of health care expenditures by people living under 200% of the poverty line.

Her idea has the virtues of simplicity, market-friendliness, and progressivity. I particulary like the simplicity aspect in comparison with the typical wonkish health care proposal.

Unfortunately, it does not get at a real fundamental problem in health care, which is that the people who spend the most--the elderly--are the most insulated from having to pay for health care. As a result, there is a huge disconnect between saving and health care consumption.

Since the elderly tend to have low adjusted gross incomes (even though they many are wealthy), the Jane Galt plan would continue to provide a huge subsidy to the elderly and huge disincentives to save for the $100,000 of average spending between the age of 65 and death.

Also, I think that she, like many others, incorrectly assumes that everyone who spends a lot on health care is very sick and has no choice about the level of services they receive. As this example illustrates, that may not be the case.

In my view, the simplest health care solution would include:

--vouchers for the poor, to pay for basic health care and for health insurance with relatively low deductibles and co-pays

--a market for long-term catastrophic health insurance, that pays for large expenses cumulated over a period of years

--Remaining Lifetime Care Insurance to cover the age between 65 and death. This would be very expensive, high-deductible insurance. You might have a $75,000 deductible and pay a $25,000 premium. Once your expenses cumulate to more than $75,000, the insurance kicks in.

--Mandatory savings accounts, so that people save enough to have $100,000 when they reach 65 to cover the cost of remaining lifetime care.

For more on this, see my my new book.

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The author at Modulator in a related article titled Who's Paying? writes:
    Jane Galt has written a series of posts on health care that are worth while reading for all. The latest in the series is here and both Tyler Cowan and Arnold Kling quote this sentence:Have the government pay for all health care expenditures above 15% o... [Tracked on March 27, 2006 4:28 PM]
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spencer writes:

Both you and Jane are making some very good points to define the problem and set reasonable
terms for the discussion.

I see where you are comming from on the mandatory savings. But when you get right down to it, what is the difference between your idea of madatory savings to transfer resources over time and a similiar concept of mandatory premiums -- a mandatory premium has to be a tax --that make an intergenerational transfer
within a given time period?

T.R. Elliott writes:

I think this is a great idea and I look forward to your book. Seriously. I think pushing the costs to the user, forcing the creation of assets to cover expected health costs in the latter years of life, all the while admitting that health care for the poor should be provided by society is a great idea.

JohnDewey writes:


I assume you are comparing Arnold Kling's mandatory savings proposal to Medicare. Here's my biggest gripe about Medicare:

By the time I reach 65, I will have paid at least twice as much in Medicare taxes as any of my 7 siblings. I will have paid 6 to 8 times as much as two of them. But my benefit from Medicare will be the same. How can that be fair? They had the same capabilities and opportunities I had, so why should they be given an easier ride?

My second biggest gripe about Medicare: there seems to be no incentive to limit use of benefits.

I hope that Dr. Kling's book, which I just ordered, addresses Medicare's unfairness and its lack of market rationing.

JohnJ writes:

Mandatory anything is a bad idea. I prefer freedom. I don't like someone telling me what to do for my own good. If I decide that it's good, I'll do it myself. I have no problem with offering anything, but "mandatory" should not be a part of it.

spencer writes:

John Dewey -- no one is ever talking about the system ever being fair in the sense you are discussing. All the proposals include a certain ammount of transfer payments. That is a given.
What we are talking about is a system that allows a reasonable ammount of transfer payments without generating too many disincentives for the rest of the system to function smoothly.

The reason I was commenting on the idea of saving $100,000 to pay for medical care in ones old age is the impact of rising health care costs. Over the last 40 years healthcare costs have risen approximately twice as fast as income -- the CPI for medical care divided by average hourly earnings.

In 1975 if you had been writing about this idea
you would have used a figure of something like $25,000 rather then $100,000. So if someone had followed your advice in 1975 they would have come up very short 30 years later. If you project this forward for another 40 years you ought to be using something like $500,000 -- I'm just pulling these numbers off the top of my head and have not actually tried to calculate what the number would have to be, but you get the idea.

I did run one quick calculation. For someone earning average hourly earnings and receiving the average return of the 10 year T bond on their savings to have accumulated a sum of $100,000 after 40 years in 2005 they would have had to save 3.15% of their gross income each year.

JohnDewey writes:

"What we are talking about is a system that allows a reasonable ammount of transfer payments without generating too many disincentives for the rest of the system to function smoothly."

The problem for me, Spencer, is that my two non-productive siblings, and many others like them, believe in a much higher "reasonable" amount of transfer payments than I want to pay. The number of recipients of my transfer payments continues to grow, and every one of them will vote to continue receiving my money.

As far as I am concerned, the only reasonable amount of mandatory transfer to my fellow adults is $0.

JohnJ writes:

I have an idea. How about letting individual people decide how much they want to contribute to other people's welfare. We could call the new system "Charity".
Charity is not a new program. It has been around for a long time, and functions at greater efficiency rates than government ever dreamed.
The main difference between the two is that one promotes freedom, while the other does not.
I'm reminded of the discussions between Gorbachev and Thatcher. He was so concerned that the free market would not provide food to the people who needed it. "They need the state to provide it for them," he thought to himself. "What of the people who can't get food? Should we just let them starve?" He never quite realized that communism starved people to death while the free market provided abundance.
Communism by any other name...

Hootsbuddy writes:

I just finished reading the Galt series. Very pursuasive and thoughtful. (I do wish blogging were more user-friendly when you have to read a multi-part series sequentially.)That opening stat about 30% of all health care expenses occurring in the last six months of life is an eye-opener. Part of the reason may be due to earlier neglect.

Several states are providing a medicare-like safety net for kids under 18. I don't know what the results are, but it gave me an interesting idea. If the states take the younger years and the feds the ending years, perhaps the middle years could be more affordable with HSA's, subject to means-test/progressive distribution/catastrophic insurance features.

In no case do I worry that wealthy people will be short of medical care. They never have and never will be, irrespective of benefits to the rest of the population. As I watched a movie the other nite depicting the ravages of the Great Depression I recall meeting a couple of ladies, sisters, about forty years ago whose family simply shipped them over to Europe to wait out the Great Depression. No society has every suffered the loss of the carriage trade.

James writes:

"All the proposals include a certain ammount of transfer payments. That is a given."

Why not just revise the laws on armed robbery to include an exemption from prosecution in cases where (1) the victim is not poor and (2) the robber intends to use the proceeds to pay for some poor person's medical care?

Frankly, I'm amazed that people who would never favor letting anyone outside of the government act this way throw around such terms of praise as "reasonable" when they hear the suggestion that the government should act like this.

JohnJ writes:

I'd like to point out that nearly all conservative and libertarians share the view that welfare is best left to individual choice, and government should not make giving mandatory. There's also the fact that right-wingers actually practice this by making the choice to give more. States with lower taxes also tend to be states where people give more. Welfare works better without government involvement.

JohnDewey writes:

"Frankly, I'm amazed that people who would never favor letting anyone outside of the government act this way throw around such terms of praise as "reasonable" when they hear the suggestion that the government should act like this."

So am I, James.

Stuart writes:

I like the market-based solution to the issue. What I have not seen anyone address is the problem of those non-elderly with chronic issues that require high expenditures: people with mental illness, disabled people, people with chronic pain and the like. These people are able to function and have jobs and productive lives, but can do so only with pharmaceutical or other medical help, some of which is extremely pricey.

Any suggestions?

JohnJ writes:

Since there is no way to measure how much pain someone is in, other than their own feelings on the matter, we should let each person decide how important it is to them. Let people suffer the consequences for their decisions instead of subsidizing it, and you'll see a significant drop in risky behavior. The best preventative is allowing someone to see the actual, real effects of their decisions. Less people will smoke if the government stops paying for the health care of those who do smoke. The ones who do continue will feel be able to make the more fully informed decision as to the consequences of their actions. People suffering is not a good thing. The attempt to make it the government's responsibilty to ease someone's suffering for what may or may not be their own decision disconnects the reality of consequences from decisions. The best way to ease suffering is to quit subsidizing it. The free market does not react as quickly as some people would like. It takes time, but it does work. Bush's tax cuts did not stimulate the economy as soon as they were passed, and it is only recently that we've truly begun enjoying the fruits of it. More tax cuts would lead to a greater stimulated economy (also known as the Laffer curve). In the same way, over a period of time government subsidies of risky behavior have actually increased the number of people requiring those subsidies. Elimination of those subsidies would lower the number of people suffering. And best of all, those who want to contribute their own money to charity are free to do so!

John T. Kennedy writes:

Kling writes:

In my view, the simplest health care solution would include:

Why wouldn't a free market be the simplest solution?

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