Final Project Example 2

            In modern society the economy is usually considered to be the most important political issue.  Due to better technology, more efficient taxation methods, and a belief that something needed to be done to counterbalance the dehumanizing forces of industrial capitalism, in the last century or so the state in most advanced countries has become more and more activist in social and economic matters.  Even when states shy away from socialistic command economies, there is a general consensus that the government must provide some sort of safety net to ensure a minimum standard of living for its citizens in keeping with their dignity as human beings.  In almost all advanced countries, as of a few decades ago, the safety net has included some sort of guaranteed health care for every citizen.  The different nations have pursued different health care policies, mostly based on their different traditions.  In the UK there is a system of government run insurance (somewhat like our Medicare system) and in some cases government run health facilities as well.  In France taxes are used to subsidize insurance provided by employers and labor unions.  In Switzerland people buy their own health insurance from private companies, often using government subsidies if they lack the necessary funds.[1]  What these disparate systems have in common is that they guarantee some sort of minimum coverage for every citizen.  This is in line with a popular political philosophy that says that health care is a right that must be guaranteed by any civilized government.  The United States is the great exception, as in many areas of public policy.  Although there are government programs to ensure health care coverage for the elderly (Medicare), the poor (Medicaid), and near-poor children (CHIP), there is no universal safety net.  The U.S. is generally seen to be more individualistic.  Americans are expected to provide for themselves in a free market economy that rewards effort, productivity, and, increasingly, education.  There is less of a sense that all are responsible for all.  The result of this is a system in which most people (about 86% of the population) has health care insurance, usually provided by employers, but about a third of those covered receive some sort of government funded health insurance (as listed above).  However, this leaves about 14% of the population without healthcare.  These people tend to be between jobs, or they are working but are just well enough off that they are not eligible for Medicaid.  Others are young and prosperous but take the gamble to not buy insurance until they are older.  These are 14% are said to have “fallen through the cracks” of our patchy network of health care policies and programs.  It has become a cliché to say that our health care system is “broken.”  It is not just broken for those who are not covered.  Even those who are covered tend to be paying very high amount for a mixed bag of health results.  America spends about a sixth of its GDP on health care, whereas other advanced countries tend to spend about a third to two-thirds as much per capita.  Even the U.S. was only spending about a twentieth of its GDP on health care back in the 1950s.[2]  Thus, Americans are spending far more than any other people on earth and far more than Americans of past generations, even though, in terms of various statistics, such as longevity, infant mortality, etc., Americans are less healthy than most other advanced, democratic peoples.  The upside is that Americans, at least those with reasonably good health plans, receive some of the best health care in the world.  It is generally known that we have some of the best doctors, best hospitals, and most innovative pharmaceutical researchers in all the world.[3]  There is now a consensus that “something” must be done to fix this American health care system.  Generally, people want lower costs, for more people to be covered, and to continue to enjoy the great quality health providers and facilities that they currently have.  This is the enormous task that health care reformers have before them.  Unfortunately thee goals are somewhat in tension as will be explained later.

            Catholics have become increasingly aware since the pontificate of Pope Leo XIII in the late 1800s and early 1900s, that Catholicism is not just a faith that deals with doctrines about God and man’s personal relationship with his neighbor.  It is thought that the Church must also work towards social justice and promulgate teachings regarding man’s duties towards entire classes of people (the elderly, the poor, the unemployed, etc.) as well as to society in general.  Catholics, in many cases, have traditionally been uncomfortable with the American creed of individual and success though atomistic competition.  Catholicism teaches that man is social in nature, with obligations towards the “common good” in cooperation with others, with an emphasis on “solidarity.”  Another major principle of Catholic social teaching is that there is a plurality of authorities in this life.  The Church is responsible for some things relating to the common good, the government for other things, and non-governmental voluntary associations (such as labor unions, businesses, non-profits, universities, etc.) are responsible for other things.[4]  Furthermore, the people or groups closest to the problem have the primary responsibility to work towards solving it.  Only if they are unable are more distant groups supposed to intervene.  Many Catholics now argue that families, employers and churches have been unable to fully provide health coverage for all Americans, and so it is appropriate for governments on the local, state, or federal level to intervene.[5]  On the other hand, Catholic teaching gives credit to the market economy as an effective, legitimate tool for providing for societies economic needs.  Thus, Catholics are not doctrinally required to support either government-run solutions or free market solutions, but can support either or some combination of the two.[6]  In this essay I will examine ways of expanding health care coverage that make sense from an economic perspective and are acceptable to proponents of Catholic social teaching.

            Economists tend to be supporters of property rights and markets.  When they think of markets, at least in an idealized sense, they are often talking about “perfect competition.”  Perfect competition means that there are a great many buyers and sellers in a market.  None of the sellers have a monopoly.  If any of them charges more than the market rate for their goods or services, then a competitor will undercut them and put them out of business.  Thus, competition pressures sellers into selling their goods for as little as possible.  In theory, they will sell their products at a price equal to the “marginal cost” of the product being sold.  Basically, they sell products for about how much it costs to make them (e.g. how much the company paid for its materials and how much it paid its workers in wages.)  An example in this competition might be, say, socks.  People tend not to be very picky when buying socks and look for the cheapest prices.  Sellers are not able to charge very much, because a competitor will undercut them.  Thus, ordinary athletic or dress socks are found to be at a reasonably low price that is relatively uniform from brand to brand and store to store (other than some designer socks perhaps).  This can be considered a case of successful market capitalism.  People find the product they need (socks) in abundance and at reasonably low prices.  People are not calling for government intervention into the sock market.  However, at other times the market does not work so well.  There are market failures.  For example, sometimes a company will dominate a market and become monopolistic.  They can raise prices because they are more powerful than much of their competition.  They can do this because they are a highly respected name brand (e.g. Godiva Chocolate or Nike Sneakers) or because they have a patent on a particular product (e.g. Apple’s IPhone).  Even if the company is not a pure monopoly, if it has some significant ability to raise or lower its prices at will without automatically being undercut, the company has “market power” and does not face perfect competition.  One reason many economists support health care reforms is that the American health care system is not a perfectly competition system.  This helps explain the high and rising prices that Americans face (although some of the price increases have to do with improved services due to technological advance).  Doctors can be seen as a monopoly of sorts.  Not just anyone can set up shop as a doctor.  One must go through years of medical school, obtain certifications, etc.  These high barriers to entry allow doctors to charge high fees and ensure that they do not face too many competitors.  This is similar to the behavior of labor unions, who restrict the entry of laborers into certain industries, thus restrict the supply of labor and keeping wages high.  There are also monopolies in the pharmaceutical industry: patents.  A company with a patent on a medicine or a medical device has a monopoly on that product for several years, which allows them to charge high prices.  Patents are an example of intellectual property rights.  Generally, economists favor property rights and markets (i.e. the right to buy and sell property).  The dilemma of intellectual property rights is that the two principles are in tension: if one grants patents then other companies are restricted in their ability to buy and sell that product.  Thus, there is not a competitive market.  On the other hand, if patents are not granted, then intellectual property rights are not protected and there is less economic incentive for companies to innovate.[7]  Lastly, Medicare is a government-run insurance provide that is so big that it has bargaining power with health care providers over prices.  All of these “market failures” have relatively reasonable justifications.  People want highly trained doctors, so they are not so bothered by the monopolistic doctors “labor union.”  They want to reward inventers, so they are not so bothered by some use of patents.  And they want to take care of the poor and elderly, so they do not mind the existence of Medicare and Medicaid. 

            I think recognition that these monopolies (or at least, the lack of perfectly competitive markets) is necessary to understanding the high costs and the inefficiencies in the health care system.  Those pundits of a more free market orientation, such as Newt Gingrich or a number of economists, favor improving the health care market.[8]  Some might argue for the loosening of restrictions on health care provision, so that nurses can do more of the tasks that doctors do.  Other might argue for weaker patent laws.  Others want Medicare and Medicaid to be a smaller part of the health care system.  Some would like to improve consumer information so that they can more intelligently choose the best providers and avoid the worst ones.  Another idea is to make health care more portable between employers or to encourage citizens to buy their own insurance and not rely on employers.

            On the left there are calls for vastly more government intervention into health care.  Some economists see the utility of setting up a government monopoly on insurance (i.e. a “single-payer system”, perhaps by expanding Medicare) that would be powerful enough to negotiate with the other monopolies—doctors and insurers—to win lower prices for patients.[9] 

            Both approaches to health care reform—the free market approach and the government approach—have their merits, but I think a mixture would be the best.  A free market approach might help slow the growth in costs and might remove some inefficiency, but it would do little to expand coverage for low-income Americans.  A single-payer government-run system would face too much political opposition, and even if it were to become law, it would likely lead to rationing and lower-paid, lower-quality doctors.  Some small reforms I would favor, which would help control costs, would be to weaken patent restrictions, reform medical malpractice law, and provide more consumer information about doctors and prescription drugs. 

As far as more drastic reforms go, I have some sympathy for the Massachusetts model similar to the Massachusetts health care plan.  In that plan all citizens are required to buy insurance.  Those who are unable to afford insurance even after spending 8% of their income on it are given a government subsidy to make up the difference.  And under a certain poverty threshold, people are given a government subsidy and not required to spend any income on insurance.  This system makes use of the efficiency of markets while expanding coverage.  However, it has been incredibly expensive (as it seems that any program would be that achieves universal coverage).  It seems that no one understands how to solve our health care difficulties, so I would give a lot of flexibility to states in making their own health care laws.  I would probably insist on certain things, such as universal coverage.  And I would encourage states to follow a more market-oriented path like Massachusetts’s.  But I would allow states a lot of leeway in designing their plans.  That way, if it turns out that one plan works a lot better than the rest, the other states can imitate that plan.

I think there are two remaining issues.  First, citizens must be told the truth about health care reform: it will be very expensive.  It may cost hundreds of billions of dollars per year.[10]  It may be unwise to attempt to pay for this entirely through taxation of the rich.  First of all, high marginal tax rates can hurt the economy.[11]  Second, if Americans do not have a sense that they are spending their own money, but instead are just spending the money of the rich, they may be less responsible and intelligent in forming the health care plan.  I think some sort of middle class tax increase, whether on income or on gasoline consumption, is likely necessary.[12]  This will be a sacrifice, but it will reinforce the idea that all people, including the vast middle class, should see the uninsured as their brothers.  Lastly, only about 30% of disparities in health are caused by disparities in health care.[13]  Reforming health care will not solve America’s health inequities.  The health debate must be broadened.  Only when the poor and lower middle class are able to find better jobs, move to safer neighborhoods, and pursue better education will we be anywhere near a just society in terms of the health and well-being of our citizens.