Wednesday, April 22, 2009

Naïve questions about healthcare reform

By: David Adesnik

My knowledge of our healthcare system is basically limited to my own experience as a patient. The actual health care has been quite good. But my experience with health insurance has been pretty awful, mostly because I've spent time at three universities and two different jobs over the past several years.

Right now, I have insurance through COBRA, which means I still have insurance through my previous employer, but have to cover my employer's share of the cost. Basically, I'm now paying three times as much for the same insurance. With premiums as high as they are now, that really hurts.

Not surprisingly, I tend to believe that our healthcare system needs a major overhaul to make it more affordable. What kind of overhaul? I don’t know. I know what I want -- portable and affordable insurance that covers the same high quality services I get now. I just have no idea how to get from here to there. As such, my ears perked up Sunday when Larry Summers, the economics point man at the White House, said this on Meet the Press:

By doing the right kind of cost-effectiveness, by making the right kinds of investments and protection, some experts that we--estimate that we could take as much as $700 billion a year out of our health care system. Now, we wouldn't have to do anything like that, we wouldn't have to do a third of that in order to pay for a very aggressive program of increased coverage.

That seems like a silver bullet. Is it really possible that we could save that much just by being more efficient without consuming less healthcare? I sure hope so. But if healthcare is a business, why haven't insurance firms noticed these mountains of inefficiency and improved their own profit margins by squeezing them out of the system?

But say for a minute that these inefficiencies really are there and ripe for elimination. Summers' estimate suggests that if we get rid of inefficiency, we could either finance a government-supported program to provide healthcare to the uninsured, or we could build a much leaner private insurance system that makes coverage affordable for the currently uninsured.

My sense is that the Obama administration is leaning toward the former option, but we may not know the details for a while. Personally, I don't like the idea of the government taking charge of such a massive program if there is a way for the private sector to do it equally well. If inefficiency is killing the system now, I'm not inclined to believe that more government is the answer. But who is out there, leading the charge, explaining how to save the healthcare system in a way that encourages competition and entrepreneurship, rather than central direction?

I'm all ears.

Cross-posted at Conventional Folly

Friday, April 17, 2009

From Taipei: why we should trade freely with Taiwan

This week marks the thirtieth anniversary of the Taiwan Relations Act, the Carter-era legislation that defines the contours of the relationship between Taipei and Washington. I’m in Taiwan for the occasion on my first trip to East Asia, and, as an amateur on Taiwan issues, I’d like to share what I’ve learned with AIP supporters, who may find interesting the changing dynamics of a country whose meteoric rise from an agrarian country in the 1950s to a country whose purchasing power parity approaches that of Japan (the world’s second largest economy) shows the power that principles of entrepreneurship and personal responsibility can achieve in practice.

Taiwan’s ruling party, the Koumintang (KMT), believes that engagement with China, primarily through the completion of an Economic Cooperation Framework Agreement (ECFA) with Beijing, will bear fruit for Taiwan’s economy and security in the long run. In doing so, President Ma has broken with the policies of his predecessor, Chen Shui-bian, who is currently on trial for corruption charges. KMT officials point to the opening of direct flights with China that have cut travel time from Taipei to Shanghai from 6 hours to 90 minutes (travelers used to have to change planes in Hong Kong) and less heated rhetoric (the lack of a repeat of something similar to the Taiwan-targeting Anti-Secession Law and the absence of other incendiary rhetoric) as proof of their success so far. The KMT also appears hopeful that they will achieve recognition of an observer-type status for Taiwan at the World Health Assembly, the governing body of the World Health Organization, in May; a role at the WHO would be helpful for a country that suffered the SARS crisis primarily in private as its international isolation severely limited its ability to coordinate response and prevention with international health authorities. Events at the WHO next month and further events over the next year – including any potential shifts in the Chinese militaries deployment of missiles in its southeastern coastal provinces – could validate the Ma approach, at least in the short term.

Yet serious questions remain for President Ma’s policy: there remains no solid answer on what China believes it can actually gain from further engagement with Taiwan. The PRC, through annual defense budgets that show double-digit percentage growths over previous years, has made military conquest of Taiwan a much more realistic possibility through advanced military capabilities in the air, on land, and in the sea; today, over 1400 missiles target Taiwan directly. Nationalist elements, seeing Taiwan as the last piece of reunifying China, could use negotiations and military power to demand greater and greater concessions from Taiwan as stepping stones towards re-enveloping Taiwan into Beijing’s sphere of control. The KMT dismisses this possibility while the opposition Democratic Progressive Party (DPP) argues that the ECFA and other KMT policies erode Taiwan’s sovereignty and identity.

The US can help stabilize the situation by opening trade with Taiwan, whose export-based economy desperately needs expanded market opportunities abroad. The PRC has attempted to use trade to isolate Taiwan’s export-reliant economy (Taiwan leads in production of flat panels, mobile phones, and other electronics): in 2007, after South Korea signed an FTA with ASEAN, South Korean trade with ASEAN member nations grew by 24 percent compared to an 11.8 percent growth rate between Taiwan and ASEAN states. In 2004-2006, before the FTA, Taiwanese trade with ASEAN grew by 20.1 percent compared to annual growth of South Korean – ASEAN trade by 16.6 percent (source: China Post).  Moreover, the current failure of the WTO to resolve tariff disputes means Taiwan cannot use its membership in the international trade organization to solve trade disputes with China, yet another example that the Doha round needs revival.

An FTA would have modest effects for the US, interestingly providing the greatest benefit for US auto sector, increasing auto exports by $1.6 billion according to a 2004 study (Nicholas Lardy and Daniel Rosen, Prospects for a US-Taiwan Free Trade Agreement, Institute for International Economics Research, December 2004);  Chen Tain-Jy, Taiwan’s Minister of Economic Planning and Development cited this benefit and provided an interesting sidenote for those interested in the Social Security debate in the US: Taiwan implemented a nationwide pension program at the beginning of this year, yet will likely face problems for the program’s fiscal solvency in the long run, as Taiwanese families have of 3.1 members on average, less than the replacement rate. When asked about his solutions for an eventuality where pension payees far outnumber pension payers, Chen said a good solution did not exist, refused to cut benefits, and said the government would raise revenues to compensate for the difference.

Beyond securing the freedom of a country whose democratic system and independence deserve protection, Taiwan probably has more soft power influence than any other country in promoting democracy in China. Given that the PRC leadership recognizes Taiwan as a part of China, the Communist Party may have an increasingly hard time denying that democracy cannot work on the mainland. Taiwan’s Deputy National Security Advisor Ho Szu-Yin claimed that most tourists from China – as many as 2500 daily according to President Ma – make visits to Taiwan’s bookstores and watching Taiwanese TV news priorities in their trips to China. Ho also cited statistics that as many as 80 million PRC citizens watched a recent Taiwanese election via satellite television. Given the closed nature of the PRC (and resulting lack of statistical evidence to back up the anecdotal accounts) and long timeline of democratization in China, is difficult to assess how successful engagement with Beijing will be in promoting democracy in China. But, as long as Taiwan persists, more mainland tourists may begin to ask: if it can work in Taiwan, why not here?

Yesterday, we visited the island of Kinmen, a Taiwanese possession that lies, at low tide, just 1800m from the mainland coast. Meeting the military leadership there, talking with junior officers who had recently graduated from the Virginia Military Institute and West Point, and touring tunnels built to withstand PRC bombardment reinforced the seriousness of the challenge. While debate may exist in Taiwan over its proper approach, the US role seems clear: a broken international trade system and increasing Taiwanese trade isolation necessitate a US-Taiwanese FTA so that East Asia’s entrepreneurs can continue to show the success of their model to their mainland neighbors.