Tyler Cowen Misses the Mark

In a post at the Marginal Revolution blog, Tyler Cowen says that it is plausible that ObamaCare could save an additional 10,000 lives a year by insuring the previously uninsured. But he wonders whether the money might be better spent on a “simple extension of Medicaid, more R&D through the NIH, and some targeted public health expenditures.” The first supposition is without any scholarly basis and the second is far from convincing.

Unfortunately, we have no idea whether any additional government health spending will generate benefits that exceed its costs. In fact, it is perfectly possible that reducing government spending on health care could generate more benefits than costs.

For example, a person can change his health risk just by choosing alternative modes of transportation. Flying is generally held to be safer than driving. Driving a small car rather than a big one is generally thought to increase the risk of injury in a crash. Riding a motorcycle is generally held to be more dangerous than driving a small car.

To the extent that increasing government health spending by taxing an individual reduces his disposable income and leads him to meet his transportation needs by driving rather than flying, or by substituting a smaller car or a motorcycle for a larger one, the increased government expenditure on health might actually increase net health risks.

Another obvious example of harm caused by increased government spending on health might be a reduction in charitable contributions that fund direct medical care. When the federal government takes more, do the Shriners Hospitals for Children get less?

Aside from the deadweight loss created by taxes, we also know that government health spending priorities differ from those in the private sector. Different spending priorities make it more difficult for health care consumers to get what they want. At present, US government health spending distorts incentives for patients, physicians, insurers, hospitals, drug and device manufacturers, and entrepreneurs.

NIH and public health programs incontrovertibly waste money both at the margin and in funding untested health care fads and fashions. After Congress told CDC to stop funding poorly done studies devoted to equating the possession of firearms to a disease, NIH began spending millions of dollars to study “gun violence” as a “public health problem.” As a result, in the name of “public health,” taxpayers have spent $642,561 to “learn how inner-city teenagers with friends and acquaintances who carry firearms and drink could possibly show up in emergency rooms with gunshot wounds.”

Given that parents and their children are already bombarded with government health safety messages, it is also unlikely that the $1.2 million NIH sent to the Oregon Center for Applied Science, Inc. to produce “texts” and DVDs to train parents of under 11 years olds about injury prevention in their homes, environments, and child’s recreation choices would improve anyone’s health enough to survive a cost-benefit analysis. The same is true of the $276,898 NIH spent on a grant to produce a DVD telling women aged 35-50 how to avoid unintended pregnancy.

Finally, there is no such thing as a “simple” Medicaid expansion. Medicaid spending is as unsustainable as Medicare spending. In many states, Medicaid expansions crowd out private coverage. Thanks to its below cost compensation, people covered by Medicaid face longer and longer waits for care. Fraud is rampant. The red tape is so bad that simple experiments in giving chronically ill Medicaid patients a budget to hire their own personal attendants produce savings of up to 20 percent.

Professor Cowen wrote that “Overall I’d like to see more numbers in the health care debate.” One important number is that annual commercial individual health insurance premiums for people under 35 averaged less than $2,000 a year in 2009. That means that these NIH grants wasted enough money to insure roughly 1,000 people.

Another important number, especially in view of Professor Cowen’s statement that “the Obama plan makes it easier to become an entrepreneur without losing health insurance coverage,” is that the Obama plan would increase taxes on modified adjusted gross incomes for many small business owners by 1 percent or more. As this post points out, that tax will likely make it much more difficult for entrepreneurs to fund their businesses.

In states with reasonable health insurance regulation, would-be entrepreneurs can purchase individual health insurance policies, a process no more difficult than buying a house or a car. Even people with chronic health problems can be insured via state high risk pools and insurers of last resort. Someone with the grit to start a potentially profitable business likely has the wit to figure this out.

The good news in Professor Cowen’s post is that progress has evidently been made in making people realize that being uninsured is not a death sentence. He writes that he agrees with Megan McArdle about the effect of insurance status on mortality statistics. She notes that it is “possible that the lack of insurance has no effect on aggregate mortality statistics. I do not think that this is likely,” she writes, “but I think it’s possible.” Why? Because “the statistics are really, really flawed.”

Unfortunately, Professor Cowen’s falls off the wagon in his second paragraph, writing that “If the Obama plan spends $90 billion extra a year on coverage and saves/extends 10,000 lives a year (a plausible estimate, in my view), that is $9 million a life, a rather underwhelming rate of return.”

If the statistics are “really, really flawed” on what basis is an estimate of 10,000 deaths from lack of insurance “plausible?”

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