The problem with Michael Moore's policy ideas.

Health and medicine explained.
July 1 2007 11:55 PM

Michael Moore and the Beige Bomber

He's got the indictment of health care right, but not the fix.

Michael Moore's shtick cracks me up. As entertainment, most of his movies are great fun. In Sicko, though, he goes beyond his usual ranting. After spending the first half of the movie railing against the American health-care system, he actually puts forward a policy prescription. Moore thinks the United States should adopt a free, single-payer, national health system like Canada, the United Kingdom, France, or Cuba—socialized medicine, in the words of his critics.

So, how does the movie stand up on policy grounds? Moore is right in his indictment of the American health-care system but overhasty in his readiness to blow it up. 

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Moore begins by blaming the profit motives of health-insurance companies for the main ills of U.S. health care. While it's easy for free-market types (and I consider myself one of them, mind you) to dismiss his critique of a profit motive, in the case of health care he isn't so far out there. He has a bead on one of the classic examples that economists use of market failure. 

If you set up a market-based health system, allowing insurance companies to pick and choose who and what they will cover, you give them overwhelming incentives to dump, deny, avoid and neglect the sick people. And when you operate the system mainly through employers (as we do), you impose intense costs on U.S. industry and you ensure that the pool of people without insurance tends to include the unhealthiest, costliest cases around. Economists call this "adverse selection" and when there is too much adverse selection—when the health of the people in the uninsured pool is extremely different from the average person in the country—the market may fail completely. Insurance companies may just deny people coverage entirely. 

This is a problem at the core of our health care woes. Moore finds scores of examples—people with tumors, heart problems, lost limbs and digits, you name it. And in each case the insurance company finds a way to deny paying for people's illness even though the people actually have health insurance. He also shows people who simply cannot get insurance because they have pre-existing conditions, are too heavy, are too light, and on and on. 

Without any rules against cream-skimming, the insurance companies have every incentive to keep dumping the sick people—often retroactively, after they become sick. Moore shows the insurance companies literally giving bonuses to the reviewing doctors who deny the most claims. If you can pay premiums to your insurance company for 30 years and then they can just drop you when you have a stroke, the system is seriously broken. 

So first half, so good. Moore's public policy indictment is pretty much on target. And it's easy to buy his thesis that it persists because of the massive political contributions by insurance and drug companies. His telling evidence: The 14 congressional aides who left to become lobbyists following the recent Medicare changes; the $100 million spent to defeat President Bill Clinton's reform proposal in 1993; former Rep. Billy Tauzin's jump from helping to move the prescription drug bill through Congress to heading a major lobbyist drug company association, at a salary of $2 million a year. 

Addressing cream-skimming is at the heart of every responsible program for U.S. health-care reform, in states like Massachusetts and proposals from presidential candidates John Edwards and Barack Obama (to whom I'm an economic adviser). These plans take aim at "pooling," for example, by allowing insurance companies to insure an entire state or region as a whole in exchange for serving everyone in that pool—no dropping, no denials, no shenanigans. The insurance companies get the certainty that the group they insure has the same level of health problems as the general population; they give up the cream-skimming.

For Moore, though, the answer is not reform of the current system. It is having the government run it all. He sets out on a worldwide tour to show us how great a single-payer system is in countries that have it. And here's where his policy prescription goes into overdrive.

At the most simplistic level, giving free health care to everyone costs a lot of money.  Especially since people tend to use things more frequently when they are free. Let's say the universal and free coverage part cost an additional $200 billion a year. How do you pay for it? This is the vexing question for single payer. Most advocates counter that health costs in single-payer countries are dramatically lower than in the U.S. private-care system. Switching to a U.K.-like single-payer system would cost a great deal of money initially, but if it would eventually get our costs down to U.K. levels, we could afford it.