Welcome to the November 2009 issue of IDEAS, a periodic e-newsletter discussing the principles of our founding philosophy, The Northwood Idea, as they relate to enterprise, ethics, life and liberty.

We hope you notice a new word – periodic - in the first sentence.  When IDEAS was launched last spring, our plan was to publish quarterly.  We have decided not to limit publication to just four times per year, but rather to publish as needed when there are messages and ideas we feel are too important and critical to wait.

The September edition of IDEAS introduced Dr. Richard Ebeling, the renowned economist who joined our faculty in August.  Dr. Ebeling has an outstanding academic and professional background, and is passionate about national and global affairs. We are pleased to present his essay on the Berlin Wall - twenty years after its fall. We think you will find it stimulating and thought provoking.

The Health Care Reform activity in Washington has been fraught with emotion and considerable rhetoric.  For those of us who understand free-enterprise principles, we know the effects of misguided decisions by the members of Congress could be catastrophic.  Dr. Timothy Nash, assisted by Michigan Campus senior William Freeland who is majoring in economics, prepared an outstanding White Paper detailing the health care situation and offering viable, affordable solutions.  We’ve reprinted it following Dr. Ebeling’s essay.

This issue concludes with the many exciting activities promoting entrepreneurship and free enterprise on our Florida, Michigan and Texas Campuses.

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The Fall of the Berlin Wall and the Tyranny of the State

by Richard M. Ebeling, Ph.D.

This November marked the 20th anniversary of the fall of the Berlin Wall. On November 9, 1989, as the shaky East German communist government resigned, the Berlin Wall came tumbling down. Large crowds formed on both sides of the Wall. East and West Berliners climbed on top, and then people began using sledgehammers and pickaxes to cut holes in it. People started to move back and forth through the Wall, capturing the spirit of a freedom to move without political barriers standing in the way.

It is worth recalling how and why the Berlin Wall was constructed in the first place, and what it meant in the great struggle between freedom and tyranny in the stream of 20th century political events.

On August 10, 1961, Nikita S. Khrushchev, the premier of the Soviet Union, attended a birthday party in Moscow for Sergei S. Verentsov, the Soviet marshal in charge of the missile program of the Union of Soviet Socialist Republics. Khrushchev informed the celebrating assembly of leading Soviet military and political dignitaries that something momentous was about to occur.

"We are going to close Berlin," Khrushchev announced. "We’ll just put up serpentine barbed wire and the West will stand there like dumb sheep. And while they’re standing there, we’ll finish a wall." The crowd broke into an enthusiastic applause.

The city of Berlin had been divided into four Allied occupation zones at the end of the Second World War in Europe. The eastern half of the city was the Soviet zone. The western half was divided into American, British, and French zones, surrounded by the Soviet zone of occupation in eastern Germany. The closest British or American zone of occupation in western Germany was 110 miles to the west. The Soviets had established a "people’s republic" in their zone — the German Democratic Republic, with East Berlin as its capital.

Between the late 1940s and 1961, more than 4 million East Germans and East Berliners took advantage of the relative ease of crossing from the Soviet zone in Berlin to one of the Western zones to "vote with their feet" not to live in the "workers’ paradise" that Moscow had been generous enough to impose upon them. This mass exodus was a huge embarrassment to both the Soviet and the East German governments. It also represented a huge loss in skilled labor and in many of the professional occupations.

The Soviets had been almost completely successful in keeping the secret that West Berlin was to be sealed. On Saturday, August 12, 1961, 1,573 East Germans crossed the line separating East and West Berlin and registered as refugees desiring to live in the West. They were the last group to be allowed to freely depart. The Soviets stretched barbed wire across the Brandenburg Gate facing the Western zones in the center of the city. And at 2:30 on the morning of August 13, the border between East and West Berlin was closed.

"Successes" and "Failures" of the Wall
Two days later, on August 15, work began on the Berlin Wall; it was made of brick and concrete and took two years to complete. When finished it was 28 miles long and 9 feet high, with barbed wire at the top. East German guards armed with machine guns fired upon any who attempted to cross it. There was also a 200-yard area leading up to the Wall covered with land mines and patrolled by police dogs.

Yet, in spite of this, during the 28 years of the Wall’s existence, between 1961 and 1989, an estimated 5,000 people managed to escape either over, under, or through the Wall. Some escaped through the sewer system under the Wall. Others dug tunnels — the longest one was 500 feet long through which 57 people made their getaway to West Berlin in 1964.

One woman sewed Soviet military uniforms for three male friends, who drove through one of the Wall’s border checkpoints with her crammed under the front seat. An archer used an arrow to shoot a cable over the Wall from a building in East Berlin and slid along it to freedom.

Some constructed hot-air balloons and crude flying machines using bicycle motors to power their flight over the Wall. Others swam across canals or rivers that separated parts of East and West Berlin.

There also emerged a smuggling business that ran ads in West German newspapers. One such company, Aramco, with headquarters in Zurich, Switzerland, gave out press releases referring to their "most modern technical methods." The company’s prices were not that unreasonable: $10,000 to $12,000 per person, with "quantity discounts" for families, payable into a numbered account in a Swiss bank. If an escape attempt failed, the company refunded most of the money to the person financially sponsoring the breakout.

The East German government issued "wanted" posters on the East Berlin side of Checkpoint Charlie, offering 500,000 German marks for the director of Aramco, Hans Ulrich Lenzlinger. The "wanted" posters negatively referred to him as a "trader in people." In February 1979, someone collected the bounty on Lenzlinger’s head, after he was shot repeatedly in the chest and killed at his home in Zurich.

He was not the only victim of escape attempts. During those 28 years of the Wall’s existence, 80 people lost their lives trying to get to the western side of the Wall. And more than 100 others lost their lives trying to escape along other points of the highly fortified East German border.

One of the most inhuman border killings happened in August 1962. Peter Fechter, an 18-year-old bricklayer, was shot while attempting to climb over the Wall. For 50 minutes he begged for help as he slowly bled to death from his wounds in sight of soldiers and journalists watching from one of the western border checkpoints. Only after he died did the East German guards retrieve his body.

The Berlin Wall came to symbolize the Cold War and its division of the world into halves, one half still relatively free and the other half under the most brutal and comprehensive tyranny ever experienced by man in modern history. Nothing was supposed to cross the Iron Curtain of barbed- wire fences, land-mined farm fields, and machine-gun watchtowers that cut across central Europe from the Baltic to the Adriatic Sea, without the permission of the Soviet masters in Moscow.

The Wall vs. the Right to Move
What the Berlin Wall epitomized was the 20th century idea of the individual as the property of the state. Behind that Wall the East German government told the people where to live and work, what goods they could consume, and what enjoyments and entertainments they would be permitted. The state determined what they read and watched and said. And they could not leave the country — either for a visit or forever — unless it served the goals and interests of their political masters. And if anyone attempted to leave without permission, he could be shot and left to die, alone and helpless, with others forced to stand by as horrified observers.

In the 19th century, the great triumph of classical liberalism had been the abolition of the last of the ancient restrictions on the right of the individual to his life, liberty, and honestly acquired property. This had included the right of people to freely travel without undo government interference or control.

In earlier times not only the physical difficulties of transportation prevented men from widely moving from one region or continent to another. Matching these physical barriers were the legal barriers of taxes, tolls, passports, and serfdom, which bound the vast majority of people to the land owned by the privileged and titled political castes.

Classical liberals and classical economists of the early 19th century argued for the removal of such restraints on people’s freedom. The guiding principle was that a man has a property right in himself, that he owns himself. As the classical economist John R. McCulloch expressed it in the 1820s:

"Of all the species of property which a man can possess, the faculties of his mind and the powers of his body are the most particularly his own; and these he should be permitted to enjoy, that is, to use and exert, at his discretion . . . in any way, not injurious to others, [as] he considers most beneficial for himself."

A logical extension of the right of self-ownership over one’s mind and body and its use to further his personal and peaceful purposes was the right to move to where he believed he could best improve his circumstances. As the 19th century progressed the various restrictions on the freedom to move were removed. Passports were virtually eliminated throughout the major countries of Europe and North America, and legal barriers to both emigration and immigration were almost completely abolished in these same nations.

Tens of millions of people, on their own personal account and with private funding, left their places of birth in pursuit of better lives and fortunes in countries and on continents of their own choice. Free trade in people matched the increasingly free trade in goods and capital. About 60 million people took advantage of the greater freedom of movement between 1840 and 1914, when the First World War began.

Barriers to Freedom
But with the coming of World War I, governments reinstituted passport and other restrictions on the freedom of movement. And with the rise of the totalitarian ideologies in the years following the end of the First World War, the freedom to move was abolished. Communism, fascism, and Nazism all worked from the premise that the individual was subordinate to and lived and worked only for the advancement of the interests of the state. As an "object" owned by government, the individual stayed put or was forcibly removed to some other location under the brutal orders of the political authority.

Even outside the totalitarian systems of the 20th century, barriers to migration have been logical extensions of the emergence and growth of the interventionist-welfare state. When the government influences the direction of production, has responsibility for both the amount and types of employment in the society, and is the paternalistic administrator of a redistribution of wealth and income for retirement, health care, unemployment, housing, and education, it is inevitable that the same government will be concerned about and responsible for the amount, types, and demographics of any individuals or groups desiring to move into a country under that government’s jurisdiction.

The growth and development of the regulated economy, in other words, has provided the rationale for barriers to free migration. They stand as legal and political walls far higher that the Berlin Wall in preventing people from passing freely and unmolested from one part of the world to another. The passport that each and every one of us is forced to apply for and carry on our person whenever traveling outside the territorial jurisdiction of our own country, and which we must present upon our attempt to return to our own land, clearly shows that we are all in fact subjects under — not citizens above — the political authorities controlling our lives.

The conservative, German free market economist, Wilhelm Roepke, once pointed out that,

"Modern nationalism and collectivism have, by the restriction of migration, perhaps come nearest to the ‘servile state.’. . . Man can hardly be reduced more to a mere wheel in the clockwork of the national collectivist state than being deprived of the freedom to move. . . . Feeling that he belongs now to his nation, body and soul, we will be more easily subdued to the obedient state serf which nationalist and collectivist governments demand."

It has become a cliché that the world, every day, becomes a little smaller. Methods of global transportation improve the quality of travel and reduce the time between any two distances around the world. Computer technology — the Internet and email — have made virtually everything written, said, or photographed a simple and almost instantaneous mouse click away. The expanding worldwide network of business, trade, and capital markets is increasingly making the globe a single market for commerce and culture.

On this 20th anniversary of the fall of the Berlin Wall, we should remember all that it represented as a symbol of tyranny under which the individual was marked with the label: property of the state. He not only was controlled in everything he did and publically said, but his every movement was watched, commanded or restricted.

Freedom in all its forms – to speak, write, associate, and worship as we want; to pursue any occupation, profession, or private enterprise that inclination and opportunity suggests to us; and to visit, live, and work were our dreams and desires lead us to look for a better life – are precious things.

The history of the Berlin Wall and the collectivist ideology behind it should remind us of how important a loss any of our freedom can be as we determine in what direction – toward greater individual freedom and private enterprise or more government command and control – we wish our country to move in the 21st century.

  • This piece on the fall of the Berlin Wall has been translated into German and published as a short paper by the Liberale Institut in Zurich, Switzerland. Dr. Ebeling is on the Liberale Institute's academic board of advisers.
  • (A slightly different version of this essay appeared in Freedom Daily [November 2001], published by the Future of Freedom Foundation, Fairfax, Virginia.)

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Health care — Two-part series looks at short- and long-term solutions

By Keith Pretty, J.D, Timothy Nash, Ph.D., William Freeland

"Distrust and caution are the parents of security." Benjamin Franklin

Numerous polls indicate the vast majority of Americans are satisfied with their health care. In fact, the Gallup organization released noteworthy data early this September from a series of public opinion polls on health insurers and health care they conducted between 2006-2008. The report sheds light on why President Barack Obama is having an uphill battle to reform our health care system. Simply put, the data shows people seem to like their health insurance. According to Gallup, 82 percent of Americans covered by Medicaid and Medicare and 87 percent with private insurance view the quality of their health care as good or excellent.  When asked to rate the actual insurance plan, 74 percent of Americans on government plans and 75 percent with private insurance rate their insurance plan as good or excellent. In addition, a late September Rasmussen Poll showed only 42 percent of Americans support the president’s health care proposal with 59 percent of senior citizens opposing it.

The president is correct that our health care system is in need of change, even reform. The question is to what degree? While the Gallup poll certainly does not indicate a need for "historic change," it doesn’t address all of the legitimate concerns the president and others have regarding rising costs, efficiency, competition and the effect "change" will have on our general standard of living now and into the future. We have analyzed as many of the pressing issues in the current health care debate as possible in this paper and hope to offer a calm, rational solution to our short- and long-term needs as individual citizens and as a nation.

The Problem
Spiraling costs and inefficiencies threaten the very structure of our health care system and are at the heart of the current debate. In 1966, health care in general consumed roughly 5 percent of U.S. gross domestic product, and Medicare/Medicaid represented 1 percent of total government spending. Today, health care consumption represents 16.8 percent of GDP, and Medicare/Medicaid now consumes 20 percent of total government spending. Furthermore, studies show that the government spends eight times more on health care than on education and 78 times more on health care than is spent on law enforcement. These figures create real concern over the health care spending value proposition and government spending in general.

Since its inception in 1965, the Medicare tax rate has been increased seven times to cover rising costs. Couple these rising costs with the declining birth rate relative to working and retiring Americans and you get a fuller, and bleaker, picture of the issue. Today, there are 3.7 Americans paying into Medicare for every 1 receiving benefits. For Americans in their mid-40s, the ratio will drop to 2.4 to 1 by the time they retire, insuring future tax increases and more urgent debates regarding the system’s financial solvency if things do not change.  According to the American Enterprise Institute, Medicare will have a $37.8 trillion dollar shortfall between projected spending and revenue over the next 75 years. Medicare is the focal point of the long-term entitlement spending crisis, a fact those who advocate a public health care plan prefer not to mention. But the issue must be addressed.

A recent Atlantic Monthly article reported an increase in per capita health care spending from 2000 to 2005 in Canada of 33 percent, France 37 percent, and the United Kingdom 47 percent (each have government-run health care systems). Costs in the United States rose 40 percent over the same period. These figures show U.S. cost increases are in line with supposedly more cost efficient government-run systems. For an example closer to home, those who claim government-run plans lower costs and increase coverage should consider Massachusetts. In 2006, under Republican governor Mitt Romney, Massachusetts passed into law one of the most far-reaching attempts to reform health care since the Clinton plan of the early 1990s.  The Romney plan predicted health care insurance premiums would decline by 25-40 percent with greater state involvement. However, the projection now is that health care insurance premiums in Massachusetts will have increased annually at 8.8 percent (2007-09) since the adoption of the Romney plan in Massachusetts while the national average over the same period increased only 5.7 percent. Nationally, health care premiums for a family of four average $12,700; a family of four in Massachusetts pays $16,897.

According to the latest U.S. Census Bureau figures, 45.6 million Americans do not have health care insurance, down from 47 million in 2006. Out of control costs and the fact that more than 15 percent of the U.S. population are uninsured represents the crux of today’s health care problem and a reason for change. Once again we ask the question — how should change take place? According to June O’Neill, former director of the Congressional Budget Office (CBO), an in-depth look at the 45.6 million uninsured American reveals the following facts: 

  • Most of the uninsured are young and healthy
  • 12 million Americans are eligible for Medicaid and the State Children’s Health Insurance Program (S-CHIP) but have not enrolled
  • 10 million "Americans" are at least technically not Americans with 5.6 millions being illegal immigrants and 4.4 million being legal immigrants but not citizens
  • Just under 20 million have household incomes of $55,125 or higher with 15.5 million earning household incomes in excess of $66,000

Other studies take considerable chunks out of the 45 million uninsured. Professor Mark Pauly of the University of Pennsylvania and Professor Kate Bundor of Stanford University published a study showing that almost 75 percent of uninsured Americans could actually afford health care insurance but chose not to purchase it.  Finally, research conducted by Cato Institute policy analyst Michael Tanner finds most Americans who are uninsured do not remain that way for prolonged periods. Tanner concludes that of the uninsured only 30 percent remain so for more than a year, approximately 16 percent for two years, and less than 2.5 percent for three years of more.

The Solution  in the Short Run
Based on the above analysis, we believe the vast majority of Americans currently uninsured can be insured while bringing down health care costs and increasing efficiency if the following five suggestions are adopted. Our plan provides needed time to ponder and debate a rational, long-term solution like the one proposed toward the end of this paper. 

1. Invention and Innovation
All reform proposals should be focused on innovation in medical technology, pharmaceuticals and the organization of firms in the health care industry. The greatest progress in medical technology and pharmacology has taken place in the free market and not under government-control. Breakthroughs ranging from biosynthetic insulin and new cancer therapies to first-ever treatments of severe sepsis are being discovered. The U.S. is the undisputed leader in the treatment of most forms of cancer with survival rates that are the envy of the world. Reform proposals must not inhibit advances that will improve life expectancy and quality of life for Americans.

The average life expectancy at birth in the U.S. today is 78; in 1928, it was 57. In the last two decades of the 20th century, new medicines accounted for 40 percent of the increase in life expectancy according to a Columbia University study. In the 50 countries examined in the Columbia study, new medicine was responsible for 5 months of every additional year of life expectancy.

It is essential to recognize the prerequisites for innovation. Adequate funding alone is not enough. A reform plan that focuses on facilitating innovation through government directed capital investment is not one that maximizes and leverages human creativity and ingenuity. Innovation in health care, much like any other field, requires a stable system of rules that allows entrepreneurs to plan effectively; markets that are largely free from government intervention, which clouds the signals that prices communicate; unbiased competition governed by the blind eye of the impartial law;  capital markets that are allowed to flow freely; and a system that embraces both profit and loss, rewarding prudent business decisions and penalizing poor ones.

Only a plan that embraces free markets and innovation through spontaneous order can provide these elements, which are absolutely necessary to maximize human potential. History has proved that centralized decision-making by enlightened bureaucrats is systemically flawed. Planners lack the requisite information and incentives necessary to foster the market’s maximum potential. Of particular concern are the criteria used by planners and politicians in choosing the "winners" who are to receive government capital investment and monopolies and the "losers" left to fend for themselves on an uneven playing field. Tempted with favors, contributions and other enticements offered by firms most able to supply them, bureaucrats may very well award funds to less innovative firms and not to those  with the most potential for breakthroughs in health care technology. Planners also lack the incentive to take big risks in research and development. These planners have no profit incentive that compensates taking big risks with the potential of big rewards. The incentive is to avoid errors and in so doing, planners promote stagnation, the safe route, the status quo, and not the entrepreneurial risk-taking that is the heart of any vibrant economy.

A free market relies on the self-interest of entrepreneurs and venture capitalists, not bureaucrats and politicians. Only a free market system can insure the continued progress in medical technology that has so dramatically increased our life expectancy and standard of living.

2. Tort Law Reform
Lawmakers and analysts who claim that medical liability lawsuits do not contribute significantly to rising health care costs are wrong.  If one considers a 2006 Harvard School of Public Health study, you would find that 4 out of every 10 medical malpractice lawsuits filed in the United States each year are "without merit."   Medical providers must defend against these lawsuits, which impose costs on doctors, hospitals, and insurers who often go out of business or pass the cost of said lawsuits on to the consumers of healthcare.

A recent Massachusetts Medical Society survey published in November 2008 found that 83 percent of Massachusetts physicians said the fear of being sued was the main reason for their practicing defensive medicine.  The study went on to say that doctors reported 18-28 percent of tests, procedures, referrals and consultations, and 13 percent of hospitalizations were ordered to avoid lawsuits. Studies indicate the annual cost of defensive medicine could be as high as $200 billion annually.  According to the consulting firm Towers Perrin, the tort system imposed $252 billion in costs on the U.S. economy in 2007 alone. Many experts believe that costs will decline sharply if plaintiffs who file frivolous lawsuits were simply required to pay the legal costs of defendants found to have done nothing wrong, which is common practice in most of Europe. Many politicians are eager to impose limits on how much doctors can earn, but are unwilling to impose limits on how much lawyers can earn from often frivolous lawsuits.

3. Interstate Commerce — Allow for Across State Borders Sales of Health Insurance
Americans are able to purchase life insurance, automobile insurance, and homeowners insurance across state borders in order to get the best value for each dollar spent. If the same opportunity to purchase across state borders were afforded to individual consumers of health insurance, we believe the result would be dramatically lower average prices across the system, increased quality and coverage, and greater competition and efficiencies. Most Americans do not realize that they cannot purchase health insurance from another state like they can life and automobile insurance; furthermore they do not realize that many states have excessive regulations and mandates that lead to inefficiencies and high costs. Open trade among the states, or interstate competition, made the U.S. the world’s most efficient consumer-driven marketplace. Even states compete against each other in attracting business with variations in regulations and taxes. Why do we not allow the same with health insurance? Allowing companies to sell health insurance across state lines is an excellent idea and has been brought before the U.S. Congress since at least 2005. Consider that a 25-year-old male in New Jersey paid $5,880 annual year for health care coverage while the same person would have paid only $1,000 for duplicate coverage in Kentucky in 2006. There are 1,300 insurance companies across the United States providing health care insurance plans. We believe that Americans should be able to choose the best policy option from any of these providers, not just ones located in their own state. A University of Minnesota study estimated that if an individual from New Jersey could purchase health insurance across state lines in a national market, 49 percent more New Jerseyans would purchase health care and much of the individual and small group market would then have coverage. Allowing companies to compete across state borders would produce a more rational regulatory policy in all states and reduce costs considerably.

4. Tax Treatment
In the book Economics: Private and Public Choice by James Gwartney and Richard Stroup, the authors note that employee health insurance purchased through a company plan is tax-free. Yet medical bills and personal health insurance policies must be paid for with after-tax income. This encourages third party payment of medical bills and low co-payment insurance plans. Their solution to this inequity is to equalize the treatment of out-of-pocket medical costs and the direct purchase of health insurance with health insurance purchased through an employer plan. This problem can be corrected by making out-of-pocket medical expenses and the purchase of personal health insurance fully tax deductible. However, deductibility may not be of much value to low income taxpayers or for those filing their federal income tax on a 1099 EZ form. These taxpayers would probably be better served by tax credits, which would ensure greater consumer choice and a market-based health care system.

5. Technology
Management information systems in the health care business need to catch up with those in consumer-driven market facing industries like banking. The health care industry needs to improve data collection and decision making or the government will mandate a common standard of reporting and disseminating data. We need to arm consumers, doctors, and hospitals with information. A standard needs to be created calling for a high level of transparency on services performed, pricing, results and customer satisfaction. This free flow of information would create a more competitive market in health care where consumers would vote for their health care with their feet and their checkbooks. A consumer armed with the relevant data and freedom of choice will prevent entrenched hospitals from hiding behind bureaucracy and red tape. New computer systems need to be developed that are sophisticated enough to take information and provide alternatives relative to quality, treatment and cost.  Many barriers to entry exist in health care simply because computer information systems often have trouble communicating across a single hospital, let alone throughout the industry. Private health care organizations and associations can and should lead in the development of such standards before they are mandated by the government. The business case for consumer-driven information systems in health care is obvious; where the mandates will come from is not.

The Solution in the Long Run
If we want to improve efficiency and avert a long term health-care crisis, the current system must be reformed. The following proposals are based on research by Gwartney and Stroup and will lead to more direct payment (and less third-party payment) of health-care expenses, lower the cost of catastrophic insurance protection (higher cost for low deductible, high co-payment coverage), and promote greater reliance on expanding the supply the medical services not stimulation of demand. 

1. Enhance Market-Based Competition
The U.S. health care system is experiencing rising prices and out-of-control expenditures because public policy relative to health care is devoid of rational economic thinking. Health care in America is lacking a system of incentives that cause consumers and providers to economize and send market-based pricing signals.  Third-party payments of health care expenses and employer subsidized health care insurance need to be curtailed or eliminated. If consumers were more responsible for obtaining and paying for their own insurance, health care markets would be more efficient and less costly to obtain for all consumers, especially people without jobs. If market-based reforms are not allowed to be implemented by the private sector, the government will certainly intervene with more regulations, including price controls and rationing to counter soaring costs. ntervention of this type has occurred in numerous countries and surely will be modeled here without such reforms. We believe it is impossible to centrally regulate the health care industry as it is too large, varied, and complex. We also believe the results of such central regulation would be inefficient and ineffective. True reform can only be realized by a free market-based solution led by private sector invention and innovation.

2. Enhance Consumer Choice
On average, U.S. consumers pay less than 16 percent of their total health care costs out of their own pocket. If health care reforms were structured in such a way that consumers spent their own money, they would be more frugal and thoughtful in their choices, providing suppliers at all levels stronger signals and incentives to reduce costs and enhance quality. If this is true, how can a system that will enhance consumer choice and provide more robust competition be developed? We suggest that three changes to our current health care public policy must come out of Washington to enhance consumer choice.

First, our public policy must encourage greater use of health savings accounts (HSAs) for the payment of medical bills. Health savings accounts allow qualified individuals to make tax deductible deductions of $2,850 per year for a single person and $5,650 for a married couple to a savings account which will cover future bills. We propose that employers making contributions in an employee’s name to an HSA be allowed to deduct it as a business expense.

Second, reforms must encourage purchase of catastrophic health care insurance void of multiple mandates while discouraging purchase of policies with small co-payments and payment of first-dollar expenses. Insurance is designed to protect against catastrophic risks. These insurance "pooled" dollars would insure against loss from an unpredictable and/or uncontrollable loss. The premiums of those not suffering losses under such a program will offset the losses of those negatively impacted (just like home-owners or automobile insurance). HSAs were created to be used with high deductible, modest co-payment insurance plans that can be purchased at a reasonable cost. Severe injuries or catastrophic illnesses like diabetes or cancer generally fall into these categories. Gwartney and Stroup note that high deductible policies as an example cover all or most medical expenses above $3,000 per year and are relatively inexpensive to purchase in a competitive market. In 2005, a policy of this nature was $1,600 a year and would be affordable to most Americans with the proper tax credit structure in place.

Third, public policy must shift as much of Medicare as possible from a reimbursement system to a defined benefit plan. Individuals covered by Medicare would receive a set dollar amount to directly pay medical bills and to purchase private medical insurance. All medical patients would be required to have a catastrophic insurance plan. Money not used in a given year would be rolled over for use the next year or into the future. This would allow for greater choice in medical services and the optimal payment system for each individual.

If politicians and the American public paused and reflected on insurance in general, they would discover that all other insurance they purchase is made to protect against potential catastrophe. Automobile insurance does not cover gasoline or tune-ups, and home owners insurance does not call for the reimbursement of utilities or food. These policies are sought to protect against the potential of catastrophic loss from a fire, accident or the like. Why should we not have similar choices with health insurance? Consider the following areas in our current health care industry where most transactions take place directly between consumer and provider with little if any third party insurance involvement. They provide reason for optimism regarding the above noted reforms.  According to an Eye Surgery Education Council survey released in 2003, Lasik eye surgery has had a declining cost curve since 1995, with 93 percent of the patients satisfied with the results and 85 percent saying the surgery improved their quality of life. According to George Mason University Economics Professor Alex Tabarrok, "Laser surgery has the highest patient satisfaction ratings of any surgery and continues to improve in quality over time." In their book, The Business of Health (2006) Robert L. Ohsfeldt and John E, Schneider determined medical service fees increased 73 percent and health care costs increased 71 percent from 1992 to 2005, while the Consumer Price Index increased only 40 percent and the cost of cosmetic surgery increased only 20 percent.

The current U.S. health care system does not take full advantage of the efficiencies of market forces while many reform advocates exaggerate the case for greater government involvement in and regulation of our health care system.  We often fail to consider that when normalized for murder and obesity (factors outside of the influence of health care insurance) U.S. life expectancy is the highest in the world according to Ohsfeldt and Schneider. While our proposed reforms will not provide universal care, they will go a long way toward resolving our health-care problems in a sound economic manner that will not harm the efficiencies, productivity and foundation of our current health care.

  • Dr. Timothy G. Nash is Vice President for Strategic and Corporate Alliances and the first David E. Fry Endowed Professor in Free Market Economic. In his role as Endowed Professor, Dr. Nash teaches economics and philosophy across the system, works with faculty and staff on whitepapers, media reports, and other philosophical outreach pieces

    Dr.  Nash’s recent whitepapers addressed the U.S. Financial Crisis of Fall 2008 and A Kennedy/Reagan Stimulus Package. These whitepapers can be accessed online.
  • William Freeland is a senior on the Michigan campus majoring in economics. He spent the summer of 2009 as in intern at the prestigious Cato Institute. The Cato Institute was founded in 1977 by Edward H. Crane. It is a non-profit public policy research foundation headquartered in Washington, D.C. The mission of the Cato Institute is to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace.

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Enterprise and Entrepreneurship on Campus

This fall our Florida, Michigan and Texas Campuses hosted various activities supporting our mission to develop the future leaders of a global, free-enterprise society.

Our Florida Campus and the World Trade Center Palm Beach (WTCPB) recently welcomed Deputy Prime Minister Caplovic of the Slovak Republic and other Slovakian leaders at Northwood’s Jeanette Hare Art Gallery.  This familiarization tour, designed to foster increased trade and promote cross cultural awareness as well as provide insight relating to Palm Beach County and the South Florida community, came as part of an ongoing collaborative effort between the WTCPB and Mrs. Cecilia Rokusek, Honorary Consul of the Slovak Republic for Florida.

In addition to the Deputy Prime Minister, other dignitaries included Slovak Ambassador to the U.S., Peter Burian;  Director of the Deputy Prime Minister’s Office, Katarina Haskova; Deputy Prime Minister Advisor, Stefan Komjaty; Second Secretary from the Embassy of the Slovak Republic to the United States, Vit Koziak; Emeritus Slovak Honorary Consul for Florida, Dr. Robert Petrik; and Honorary Consul of the Slovak Republic for Florida, Cecilia Rokusek.  Industries of interest for this familiarization tour included the biomedical and life sciences, technological transfer sciences, and bi-lateral travel, tourism, and scholastic enrichment.

In Michigan, the Northwood University Economics Association and Students for a Free Economy sponsored The Cato Institute’s Michael Tanner who spoke about "Health Care Reform, Free Markets, and YOU!"

Michael Tanner has been one of the most influential and articulate advocates for market-based solutions to our most stubborn social policy problems.  Given the high stakes of health care reform for our health, our finances and our freedom, Mr. Tanner’s views were timely and thought provoking.

The power of the entrepreneurial spirit took mid-Michigan by storm in mid-November when the Michigan Campus hosted The Extreme Entrepreneurship Tour (EET). Students and budding entrepreneurs were invited to the event.

With state unemployment at a record high and job prospects grim, more and more college students are thinking about starting their own business.  "Colleges are looking for new ways to generate creative and innovative businesses that create jobs," said Georgia A. Abbott, Director of the Alden B. Dow Center for Creativity & Enterprise at Northwood University, host of the EET on the Michigan Campus.  "Bringing the Extreme Entrepreneurship Tour to Northwood University is an out-of-the-box strategy that taps a largely overlooked resource: the creativity and energy of our young people."

"Our parents worked for big companies, but our students are living in a different business environment," commented Jim Hop, Professor and Chair of Northwood’s Michigan Campus Entrepreneurship Department.  "My most recent student classroom discussions center on starting up their own companies, controlling their own destiny, and controlling the process.  When you work to create value for something you own, how cool is that?"

The Tour helped students take the next step by offering inspiration and practical advice about starting a business.

The Texas Campus is in the unique position of hosting students from the People’s Republic of China who have come to Northwood to study Automotive Retail Management. Three Chinese students have arrived on Northwood University’s Texas Campus to study an industry they cannot study in their homeland: automotive retail management.

The students are seniors who previously attended Lambton College, a Canadian school that works in partnership with Jilin University in Changchun, China. Steve Brazill, assistant professor and chair of the Automotive Retail Management department on the Texas Campus, notes this partnership has afforded about 30 students from China the opportunity to attend one of Northwood University’s residential campuses in Texas, Michigan and Florida.

The students have travelled halfway around the world for the quality educational experience Northwood offers. "In China, we don’t have this major," said one student "This is a competitive advantage for us. We want to earn the best degree we can, and this is the best place for us."

Professor Brazill has taught a combination of Automotive Marketing and Aftermarket Management curriculums at Jilin University/Lambton College about a dozen times since 2007, just a few miles north of North Korea. 

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This concludes our November 2009 issue of IDEAS. If you prefer to receive a printed copy of this newsletter, please call the Advancement Office at 989.837.4356.

As usual, your comments and suggestions are most welcome and appreciated.

Keith A. Pretty, J.D.
President and CEO