Brad DeLong has a very good post on health care that everyone should read. It's too long and good for an excerpt to do it justice, so I'll focus on this part:
The fourth problem is a problem. (1) We as a country seem to believe in a relatively small government. (2) We also seem to believe that health care should be provided on the basis of how dire your need is rather than how thick your wallet is. (3) And we have good reason to suspect that our health care capabilities will become larger and better as time passes. (2) and (3) are inconsistent with (1). (1) and (3) are inconsistent with (2). (1) and (2) can go together only if (3) is false. I think that (3) is true. That leaves us with a societal choice to make: do we abandon (1) or abandon (2)? I favor throwing (1) over the side, but this is an important issue we can talk about.
I agree with the good professor that (3) should be off the table as an area to "improve" on. But I think that at least some of the conflict between (1) and (2) comes from the way that America--and indeed, the rest of the industrialized world--approaches the problem of (2). That is, we target welfare problems directly, with service provision or vouchers, rather than with a comprehensive income strategy.
Imagine if, rather than giving people food stamps, Section 8 vouchers, welfare payments, public schooling, and so forth, we simply had an incomes program to boost the wages of those whose productivity is not up to providing them a basic, decent standard of living? Leave the justice issues aside--I am not going to try, in this short post, to persuade commenters who disagree that all Americans should have the opportunity to avail themselves of things like housing and healthcare even if they haven't any particular skills. Just accept for the nonce that politically, America is not going to let its poor, elderly and disabled sink into the muck of immiserated poverty, and focus on more efficient ways to do what we are so obviously determined to do.
This would have a couple of salutory effects. For one thing, it would tie welfare to work (except for those who are genuinely too disabled to do anything.) That would add at least some small boost to the labor force, and hence GDP, thus reducing the cost of caring for those who can't quite care for themselves. It would also keep people on the employment train, a vehicle that can lead somewhere a lot better than a welfare check.
But that's not all it would do; it would put choice back in the hands of the consumers. Do poor people want more car and less house? Great; why not give them that choice if it doesn't cost us anything? They could even (whisper it) save the money and do something really important with it at a future date.
Now, healthcare is a special case, because unlike most of the other "basic goods" we think everyone should have, the costs can vary widely from person to person. But there are ways to deal with this--alter the income transfer for different diseases, and then let people decide how to spend the money. Maybe some of them will spend their healthcare money on a fabulous car and let their diabetes fester. This violates a lot of intuitions: the intuition that we only want to help people have medical care, not fabulous cars; the intuition that we have to protect people from themselves by ensuring that they spend the money on what they need, not what they want.
As a radical anti-paternalist, you can imagine I don't have much patience with the latter argument. Who am I to say that your life is not better with a sports car and five years to live? And to the former argument, I point out that in fact, you'll probably end up giving the wastrels less money if they do fritter it away. Because once you've actually provided people a minimum income that is adequate to take care of their basic needs, there's no moral reason not to turn away those who decline insurance from the emergency rooms. Giving people more choices also means allowing them to live with the consequences of those choices.
We'd also save money by targeting the programs to those who actually need them; I don't think I'm on particularly controversial moral ground when I say that Warren Buffett's secretary should not see her payroll taxes go to provide him healthcare.
This will not be perfect, of course. We'd still need the annoying healthcare administrative apparatus to determine, for example, how much to pay for diabetes care. But with a market in place, this isn't as hard as it is when the government is setting all the prices, because it won't be a brute force negotiation between providers and the government, with both lying and bullying the other. We'll have prices from the private sector set by the competitive action of a lot of brains trying to determine a fair price.
But one of the things that everyone involved in the healthcare debate should get over is the notion that we will find a perfect system. Every time I sit through another forum on health care policy, I am forefully reminded of Adam Smith's words in the Theory of Moral Sentiments:
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.
No matter what we do to our health care system, it will never much resemble the cool modernistic dreams of socialist realist fiction, where everything is effortlessly resolved by smugly serene Agents of the People. Especially in America, the system will be chaotic, imperfect, and cost more than it could. But this doesn't mean it will cost more than it should. We are a phenomenally rich nation--the richest in the history of the planet (in our weight class, anyway). We can afford to paper over the holes with money.