14 April 2005

The Carnivore Cycle

One of the major theorems in thermodynamics is that the correct answer to a problem involving potential heat transfer depends upon whether the system is open or closed—that is, whether there are external inputs to the system or not. This is where we get the "heat-death of the universe" concept: By definition, the universe is a closed system, so any entropic loss of energy cannot be replaced by an external input, as in the Carnot cycle. Keeping this stultifyingly abstract theorem in mind, let's turn to a little economic theory, shall we?

The Perfesser predicts that

[T]he next time a universal single payer plan gets to the policy table, however, [] business will be first in line to back it. When you read interviews like the one Rick Wagoner gave the Journal, one can but conclude that business is itching to shift health care costs off their books and onto the American taxpayer.

Well, sure. That's what all economic actors really want to do: get an external input by shifting a cost to someone else for no burden. But wait: Where does that input come from in this particular system? Since business not only gets its income from the taxpayer, but (if one follows the increasingly tortuous chains of ownership) is the taxpayer, isn't this just adding another step to the system? After all, somebody already is bearing that burden. It's easy to spot it in Medicare, in Medicaid, in higher insurance costs for the insured that subsidize care for the uninsured. It's less easy to spot, and probably impossible to quantify—but, nonetheless, there—in reduced productivity from untreated patients, in lower potential learning from untreated children, etc.

More importantly, this hidden cost system also imposes a hidden incentive to sue—and, therefore, pay legal fees, and the salaries of insurance adjusters, and more legal fees, and expert witnesses, and still more legal fees—because the individuals who need care seek to find a way to pay for it. If, however, fear of inability to pay for medical care is banished by a working (as opposed to riddled-with-holes) single-payer system, that segment of the system is no longer a source of economic friction and dissipated energy.

In other words, the best tort reform is probably controlling not the power to sue at the drop of a hat, but the motivation to sue at the drop of a hat. That is, business should welcome single-payer insurance because it will no longer bear hidden costs or needless friction. Neither will it be subsidizing a business form that depends upon inefficiency and asymmetric access to information for its survival: selective insurance. A single-payer system—again, a working system, not an illusory one—will also allow the courts to concentrate on the outlier cases, where there remains a true dispute as to responsibility and injuries (whether so caused or not) outside the normal scope of mere medical need.

That suggestion is probably going to make me very unpopular with both the plaintiffs' PI bar and the insurance-defense bar; with the walrus and with the carpenter. So be it.