Opinion: Is Central Planning the Answer to Health Care?

(Feb. 23) -- Last September, my 26-year-old daughter moved to Arizona, after having lived in the East her entire life. Without using a map, newspaper or land-line phone, she bought a used car, found an apartment and furnished it. She used services and technologies that didn't exist when she was born -- a laptop, free Wi-Fi at McDonald's, CarMax, a GPS, a cell phone and numerous Internet sites.

These time-saving, cost-saving innovations didn't come from any central planner. There was no Relocation Services Czar, Federal Internet Board or Used Car Rate Authority involved.

And yet, when it comes to health insurance and health care delivery, President Barack Obama and congressional Democrats seem to believe top-down central planning is the only solution. Obama's current plan, in fact, goes further than the House and Senate bills by proposing a federal board designed specifically to approve insurance company rate increases.

But health reformers' faith in central planning for health care is completely out of step with the trend toward dispersion and specialization of knowledge in the rest of the economy.

Our society is becoming more interdependent and more complex. We use technologies that are impossible for any one individual to understand. My daughter's used-car purchase and apartment search involved an incalculable number of people: workers who manufactured electronic equipment, software designers who built the Web sites and business workers who provided services.

Markets, like the Internet, operate in a decentralized way with no planner. A new business, like a new Web site, can be launched or disappear at the whim of an individual owner. Many new businesses fail, as do many new Internet applications. Indeed, entire industries and entire classes of Internet applications can become obsolete.

It's true that decentralized systems, like the market and the Internet, are flawed. However, they are dynamic -- entrepreneurs constantly try to develop new businesses, while software engineers try to develop new applications to correct existing flaws.

The fallacy of central planning is the belief that complexity can be overcome and failure avoided by wise technocrats. Unfortunately, technocrats are even worse than the markets at dealing with a complex world of dispersed knowledge.

For health care and health insurance, what we need isn't central planning but more market innovation. Indeed, a truly radical idea for reform would be a free market in health care. That would mean undoing federal and state rules and regulations that are the cause of many problems we face today. Among them:

Ban on interstate sale of insurance: The inability of consumers to purchase health insurance from a state other than their state of residence creates a Balkanized health insurance system. Allowing interstate commerce to take place regarding health insurance would help unleash the forces of competition.

Distorting tax subsidies: Rather than subsidizing employer-provided health insurance, our tax code ought to be neutral with respect to where people obtain their health insurance. Decoupling insurance from employment would make the costs of health insurance more transparent and would spur competition and innovation.

Subsidies and mandates: Our current system of subsidies for employer-provided comprehensive coverage and state mandates for individual insurance have suppressed the development of innovative policies that provide true health insurance. In a free market, we would see a variety of insurance products emerge, including long-term protection against the cost of a major illness.

There are good reasons to question how our health care system works today in terms of the incentives given to doctors and the way health care is fragmented. But no central planner knows how to deliver high-quality health care at the lowest cost.

Health care delivery and health insurance could benefit from the creativity and innovation that made it possible for my daughter to obtain an apartment and a used car in a new city so easily.

Arnold Kling is the author of Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy. He is a member of the Financial Markets Working Group at the Mercatus Center at George Mason University.

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