May 2018

Book Review: The Case Against Education

Most people believe education increases students’ skills, and thus, education is a way to improve your life and career through learning how to be an engineer or a… (checks most common majors) …business…person… psychologist. Bryan Caplan’s latest book disputes this claim, arguing instead that education, especially college and graduate degrees, but even high school, is largely signaling, and not skill building. What does this mean?

Caplan believes employers look at your college degree and GPA and see that you are smart, hard-working, and conform to social norms, and it is that information, not skills you have, which gets you hired (mostly). Prior to reading this book, I held views that higher education had some issues, and I was particularly suspicious of the increasing cost of a college education that has significantly outpaced inflation. With new technological breakthroughs that make teaching much easier, is it really that much more expensive to teach undergrads than it was 30 years ago? With all the new amenities American colleges are adding (study abroad programs galore, student life funding, food, study rooms, etc), it seems like most of the money is not going to teaching, but shouldn’t a free market among colleges force them to compete on price?

The Case Against Education presents a solution to this puzzle, and much more that I had not considered. Signalling is about relative appearance. If the US and USSR both have ICBMs, no one will fire them out of fear of retaliation. But if one superpower develops submarine launched missiles, then there is a relative difference, and now the other must develop submarine launched missiles as well, or they risk being destroyed in a submarine first strike. Afterwards, the new equilibrium re-establishes a balanced peace, but both countries have wasted time and resources building submarines only to get back to the exact same situation. College is an academic arms race; if everyone could agree not to go to college, we’d be in the exact same place but without having to pay all that expensive tuition.

How can this be though? We know college raises people’s earnings, ergo shouldn’t the market fix this by finding better ways to figure out if prospective employees are worth hiring? Not really. College degrees give employers a “free” way to see which prospective applicants would be best to hire, paid for entirely by the applicants (or the government). Most jobs require pretty specialized skills that can only be learned on the job, so what employers are really looking for is intelligence and commitment. Having a good GPA (and getting into a good college) indicates not only intelligence but also the ability to work hard to achieve long term goals. This system is wonderful for employers, and they have no incentive to change their hiring practices to target non college grads who would probably be more productive with direct on the job training. Those hires are riskier on average as some hires will have been unable to enter college, rather than more interested in work. Employers essentially outsource job screening onto colleges at no cost to them. Colleges also have no incentive to fix the system of course, and the government funding that helps make the problem worse doesn’t respond to financial incentives, especially as education is pretty popular. Students can’t escape either as they are stuck in the arms race, and thus the problem persists.

We Don’t Learn Much From School

Nonetheless, the signalling case may not be intuitive. Most people know they learned things in school, after all, we all had tests on the material! I earned a pretty good GPA at my school, and I had to learn a bunch of stuff for it! The Case Against Education‘s second chapter addresses this quite aggressively, and the following few paragraphs are discussions arising from that chapter. First, it points out that a large fraction of what we learn in school isn’t very applicable to our jobs. I really enjoyed my social studies classes, and I certainly use some of the things I learned when writing this blog, but I do this as a hobby. In my actual employment, I have never needed the years of history, government, or economics classes I took. My counter is that Caplan just asserts some classes are worthless. He has some numbers to back up the particular claim that despite most American high schoolers being forced to learn a foreign language, very few actually speak anything other than English as an adult. There also don’t seem to be many useful careers in the social sciences outside academia. Maybe you need to study civics to get a job in government, although not for most basic bureaucracy desk jobs. I think some more concrete numbers would help his case, although I concede he’s probably right on most accounts.

(Caplan also points out that some “useful” classes, like Math, aren’t necessarily that useful if you break them down; almost everyone takes Geometry, yet very few people need to reason about triangles in their everyday life.)

There’s also an excellent counterargument to the idea that knowledge might become useful later (e.g. “Latin might be helpful if I need to know meaning of an unknown word”). Hoarders make the same argument, “I might need this 17th water bottle someday!”. Education costs resources, and we shouldn’t be purposefully spending them on concepts that may never be useful to students.

Caplan also extensively evaluates whether students actually retain what they learn in school years later. The results are incredibly dismal. Even basic literacy and numeracy, which Caplan argues are the most practical skills we learn in school, are pretty awful when tested. Civics, Science, and foreign language skills were similarly terrible. It’s even suggested that 38% of American citizens would fail the citizenship exam.

The claim that school teaches you how to reason or how to think and analyze is also refuted. Moreover, as I would add, if that’s the main benefit of school, why not teach that directly instead of lots of classes based off of memorization? There may be some argument against the exact examples and studies Caplan uses; perhaps the ability to apply statistical knowledge in non-academic areas is slightly better than the book suggests, or perhaps a year of education raises your IQ slightly more than a few IQ points higher, but overall these themes are hard to overcome; students don’t retain much information from decades of education, they don’t become brilliant by being in school, and they don’t learn skills they eventually use on their jobs.

More Signalling Evidence

Other interesting observations by Caplan that impressed me were that top educational institutions give their classes away for free. You can watch many of the best lecturers online without paying anything, but you can literally walk into Duke or Harvard and watch lectures from professors. If schools were charging for the education, there would be barriers to getting into classrooms, but there aren’t, because that’s not why you pay to go to college; you pay for the degree. Also of note, in Chapter 3, Caplan analyzes whether some college degrees are useful in building skills while others are not, which might indicate that the “human capital story” could be true, just not true for every major. He points out that even if you are mismatched in your career from the major you studied in college, you often earn significantly more money than a high school graduate.

This is clear evidence for the signaling model, but time for a little bit of pushback. Caplan estimates signaling’s share at 80% of the value of education. However, this obviously changes with subject level. In the wheat-chaff section of Chapter 3 I was referring to in the last paragraph, the book states that engineers see a 20% decrease in earnings if an engineering degree holder works in a non-engineering field. But the entire premium of engineering is about 60% above HS graduates, adjusting for ability. This means a 20% drop in earnings brings us back down to 28% above HS grads. That means about 53% of engineers’ higher earnings are due to skills, since they lose half of their bonus above HS grads if they are working in a field without those skills. Not to mention there could be some skills engineers pick up that helps them in other areas, despite Caplan’s points otherwise. Of course, humanities majors are much worse for this case, since many of them see zero loss of earnings if they do not work in their field. Anthropology, liberal arts, sociology thus might be demonstrations of pure signalling. Interestingly, their college premiums are pretty close to engineers’ premiums if the engineers are working outside their field.

The point I make here isn’t that Caplan is necessarily wrong about 80%, but rather that I thought this particular discussion clarified where these numbers might be coming from and what the interaction is between my prior concept of “school teaches me useful skills” and this new concept of “school is mostly signalling”. In other words, these compensation numbers indicate that while there are some skills taught in school, large swaths of students are taking classes that do not teach many skills. Signalling may be argued as a reflection of “people study useless subjects”, rather than “school is inherently bad at transferring skills”, which may provoke outright dismissal by some readers.

Another counterpoint to Caplan is that Sheepskin Effects, the effects of graduation on earnings, may be a reflection of ability bias, rather than all signaling. This blog post discusses a possible method, where people who make it to 3 years of college and then drop out may be disproportionately people who could not complete the hardest classes, saved them for the final semesters, and then failed them, causing them not to graduate. Had they spread them out, perhaps they would have failed out earlier, dragging down first and second year benefits, while allowing third year benefits to rise.

The problem is that signalling would still make up a massive fraction of education, even if Sheepskin Effects are partially reflection of ability; Caplan doesn’t discuss professional schools, as they tend to be pretty good about teaching skills, but he also doesn’t mention that even for medical school, the vast majority of required undergraduate classes in the United States are not skill-building. Calculus, physics, and organic chemistry are not necessary for practicing medicine, yet they are still required.

The Case Against Education also discusses how you might calculate selfishly whether college or advanced degrees are worth pursuing. Caplan even includes helpful spreadsheets that you can manipulate yourself to calculate the returns to your own education.

On the other hand, the following chapter on social returns asks if perhaps there are positive externalities to education that might be helpful besides teaching people useful career skills. I found the section that it was hard to find nation-level benefits to economic growth surprising at first, but more realistic given slow US GDP growth despite higher and higher educational attainment.

There’s also a brief, but thought-provoking section in Chapter 6 regarding the impact of education on democracies and policies. Education correlates with higher political engagement, although whether that’s due to ability bias or actual impact of education is not dealt with. Instead, Caplan asserts that whether education’s impact on policy is good or bad “…the social value of participation hinges on the quality of participation”. This is a statement I strongly agree with, but I’m not sure most people would necessarily endorse. He rightly points out that the quality of participation is inseparable from the question of the quality of policy itself, which is way too big a topic for an education book. Nonetheless there is an implication that the general promotion of civic participation is not necessarily good for society, and I suspect such a notion is controversial.

Solutions

Finally, towards the end of the book, Caplan gets into his proposed solutions for the problem of signalling. The Case Against Education makes a strong argument that education doesn’t have great payoffs and wastes resources on relative signalling, and so Caplan suggests we reduce government subsidies for education. Notably, from a libertarian perspective at least, Caplan’s argument rests on the idea that the education free market itself wouldn’t be optimal, as signalling would actually cause an overconsumption of education over what is socially optimal. He actually has a section in Chapter 7 discussing if it would actually make sense to tax education. He makes the cursory libertarian argument that the government should leave people alone unless we know policy interventions will be highly successful. This is probably fair, but if we were to miraculously find ourselves in the position of having no government education subsidies, I suspect that some taxation of signalling heavy education might be socially ideal, if economically and politically untenable.

The book is also aware of how unpopular any calls to reduce education subsidies would be. Nonetheless, Caplan makes a good point that the proper response to poor education effects implies we should stop bad policy until we figure out better ones, not continue them while we debate alternatives. At the very least, college subsidies should be ended. Tuition will rise, but pushing more of the burden on students is what we want; education should only be undertaken from a social cost-benefit analysis if its benefits outweigh its costs. An excellent way to do this is to force individuals to undertake the costs, since they will be incentivized to go to college only if they can study something that will pay for it. This will negatively impact humanities enrollment, but right now much of humanities coursework is subsidized by the taxpayer and seems to be largely signalling. We should save the money.

The Case Against Education also makes the point that the poor are by far the hardest hit by credential inflation. Reducing government subsidies means the poor will have a much harder time getting to college, but it also means you should see a systemic decline in the necessity of college degrees for jobs that don’t need them.

Caplan also devotes a chapter to the benefits of vocational education, and getting young students (especially those who aren’t doing well in school) on the job experience as early as possible. I don’t have much to add, but it seems disturbingly obvious; if school doesn’t teach us much that we remember, and if there exist jobs that aren’t taught in school, but can be taught with work experience, we need to change the cultural aversion to vocational education ASAP. Additionally, I’ve been following many of my friends in medical school and, it’s incredible to me how vastly it differs from the requirements to enter medical school. Important parts of medical “school” is literally on the job apprenticing with actively working doctors, nurses, residents, etc. Meanwhile, med school undergrads spend 8 semesters learning things that are virtually useless in their planned vocation. It’s absolutely bizarre, although well explained by the signalling model.

Finally, I want to briefly discuss Caplan’s explanation for why no one else is talking about education with similar critiques. He places most of the blame on social desirability bias; basically, it’s unpopular and costs us socially if we critique popular views as incorrect. This story make some sense to me: calling for education cuts is often seen as heartless and evil, yet so are lots of calls to cut government spending, and there are plenty of libertarians and fiscal hawks that are ok with taking those views. I think a significant part of the puzzle arises from the fact that the signalling model is not widely known or understood. It’s also counterintuitive, since we have quite plausible explanations for many things signalling suggests, e.g., people with higher education get paid more because education imparts skills, no signalling model required.

Overall, this book was really interesting and has convinced me that signalling is a substantial fraction of the benefits of education. I feel like there was no definitive place where Caplan calculated exactly why he thought signalling should account for 80%, but doing some of my own calculations around education premiums for workers working inside and outside of fields where their degrees were focused, I can see how there is a chance signalling could indeed be as high as 80%. Nonetheless, even if the proportion is much lower, say only 40% or 30% that would be incredibly wasteful for a trillion dollar industry. After reading The Case Against Education, I feel that a significant cut to at least college education subisidies is probably warranted, and further research into the usefulness of education and the signalling model is vital.

Weird Stateless Healthcare Solutions

Most developed countries have significant involvement in the healthcare market. I have written previously that it’s pretty clear down-sloping demand curves exist in healthcare, and thus we could realize efficiency gains in healthcare if a healthcare pricing system existed where patients could compare procedures and stand to benefit from getting them done for less money. This would not necessarily preclude government intervention. For example, Medicare could offer to pay its rate for various procedures directly to the patient who could then look at several hospitals, go to the one with the best deal and pocket the difference.

However, I’m going to explore a much more difficult thesis, that a completely free market in healthcare could exist outside of state intervention entirely. Nothing should be taken from the following to imply I think such a system is “good”. I have free market inclinations, and so I think some liberalization of healthcare markets would be good, but changes discussed in this post are highly radical. Any such scenario is unlikely in the future unless an unexpected event occurs, such as a global geopolitical destabilization never before seen, or a mass adoption of a cryptocurrency as the reserve currency, rendering taxes on transactions (and thus strong central states) obsolete. In other words, it seems unlikely a healthcare market with no state intervention would be something purposefully implemented. Nonetheless, I think this is an interesting thought experiment to consider, and it may help point us to where the market is least able to provide solutions and thus where government might be most helpful.

Supply Side

Most of this will be a discussion from the patient’s side, but first let’s discuss some of the implications of the supply side. With less government, there are going to be a lot fewer restrictions. That means licensing will still be important (and in fact medical licensing is largely done by non state groups), it just won’t be state enforced. Just for fun, this would be a great application of digital signatures in an area we don’t use them today. Your doctor’s office could have a simple sign indicating all the doctors in the office have been licensed by the governing medical agency, with an accompanying QR code encoding a digital signature from the licensing agency, signing the names of the doctors or something similar. You could then scan the QR code with your phone, using a generic app, or perhaps one you can download from the medical agency, and it would check the signature against the agency’s public key to ensure it was them who issued it. This is similar to how website security works today, just used in real life.

Other things worth mentioning on the supply side is that certificates of need, which today prevent hospitals from being built unless the government allows it (yes this is really a thing), would optimally not be an issue. Additionally, with price pressure from individuals actually interested in price, medical providers would have to compete on price, meaning they would need to offer good services at competitive cost to gain an edge in the market, something they don’t do now. This is an extension of my previous post that downward sloping demand curves exist in medicine. Since they do, and if prices existed, costs would be driven down because patients prefer to spend less money if they can.

Individual Annual Insurance

We’ll now start with an average adult buying healthcare. This is going to be closest in distance to arguments about healthcare today, so the ideas I’m going to suggest aren’t too radical, and you may have even heard them before. In a free market, an average person can probably buy a lot of their procedures, consultations, and check-ups on the market. Perhaps they will buy catastrophic insurance coverage in case something large happens.

Individual insurance could take several forms. It could include catastrophic care, more comprehensive coverage, or perhaps something closer to the HMO model, where you pay a network of healthcare providers a fixed amount for a fully managed healthcare service. There are interesting questions regarding how the market would deal with insurance pools. One is how it would deal with healthy patients who do not buy insurance, an issue Obamacare is seeing today, and a related problem of where insurers could just reject patients with pre-existing conditions. I’m going to get to that in the next section.

What is worth thinking about, and about which I remain uncertain, would be to what extent civil society insurance groups would spring up. Right now, people often get their insurance through their employer, but I suspect many people would gladly take more cash from their employer in our hypothetical free market system, and then buy insurance themselves. They could buy it individually, but perhaps they would join a pool, not necessarily through their employer, but perhaps through other civil society groups, such as church groups, unions, political groups, etc. I imagine tablet wielding Libertarian Party recruiters offering membership benefits of joining the party insurance pool, as long as you promise to keep up with the libertarian reading list. These pools might be able to buy healthcare in bulk from specific providers, which might be cheaper, but that again separates patients from the price system, which is what is causing so much difficulty in the first place. The one clear benefit is that you could switch insurance purchasers much easier than you could through a job.

This is one possible equilibrium for annual healthcare markets, but it doesn’t take into account long term factors outside of a single year. Let’s explore that.

Individual Multi-Year Approaches

Suppose you buy catastrophic insurance on the market for a single year. There is a significant issue you could run into, namely a catastrophic injury or a diagnosis of a chronic illness. Now, when you return to buy insurance for the next year, the free market I’ve been bragging about creates an incentive for the insurance company to charge you much more or refuse to cover you. Not to worry, there’s a market solution here: you were just under-insured.

What is needed is a long term insurance policy that offers as a reward the option to buy insurance for years at a given rate, rather than actual coverage. This is a re-insurance market. This could be purchased early on and last for years, more similar to life insurance than health insurance.

Re-insurance is also a useful policy for allowing healthy people who don’t want to bother with insurance the ability to buy into the market. Today, many younger people aren’t joining Obamacare exchanges because they feel the coverage is too high for what they want to pay. Re-insurance could offer them the ability to buy insurance later if needed, but skip the higher premiums for now as long as they’re ok with no coverage. On the other hand, perhaps this wouldn’t be needed as they could purchase lower coverage insurance plans more appropriate to their risk level.

The question insurance is solving generally is how best to spread risk. The way we are looking to spread risk today is through involvement of more people. The long-term re-insurance solution mentioned here applies the principle of spreading risk over longer periods of time. Government’s approach is theoretically to spread risk across time and people, just unfortunately under the management of a sprawling organization that doesn’t have an incentive to manage it well. The interaction between risk spreading between time and people will be difficult to predict in a free market. Individuals won’t just be allowed to join an insurance pool opportunistically, as that would punish the people who paid in over the long term. Perhaps non-monetary trades would exist to allow opportunistic joiners (e.g. Mormons allow you to join their insurance pool if you convert, and yes this is creepy), although they can be hard to enforce. Other options might include packaging (your dues cover several services including insurance, but perhaps also advertising for the group or funding a rec center), or paying in over several years before being allowed access to the insurance pool.

One could also imagine a different strategy for charities, such as health NGOs that instead of offering only free primary care to the needy, they also buy transferable re-insurance options. When someone comes in with an infection, they can provide free care, but when someone comes in with a chronic illness, the charity can transfer one of their re-insurance options which would allow the patient to buy affordable coverage for the long term.

It’s also worth noting that while annual insurance policies in this regime don’t really have an incentive to get you to go for preventative healthcare (since if your doctor finds something, they have to pay for it, while you might switch to a different provider next year), long term re-insurance plans would actually pay you to obtain preventative care to catch something early since they are on the hook for long term costs if you wait.

So far, a patient actually has a lot of choices in this hypothetical system; they should be able to compare and measure different procedures and providers for various healthcare services; these providers could have different licensing regimes, and be less supply restricted resulting in lower costs. Competition on price should also drive down costs and drive up patient benefits. Unexpected expenses that are still too expensive could be covered by insurance policies purchased by patients. Various levels of coverage could be offered, including long-term re-insurance options to buy coverage at a set price. These could be combined with insurance pools to spread risk further both among different people and longer periods of time.

Insurance Information and Genetics

While patients want to spread risk, insurers don’t face the same incentives. They will get as much information as they can about a patient in this hypothetical world to charge them for risky behaviors. We could, of course, go back another layer and talk about “hobby insurance” or something like that; motorcyclists have higher health insurance premiums or something, so when people are young and don’t know what activities they will engage in later, they buy some insurance that covers them if they get into a dangerous hobby. However, this doesn’t work that well, as these risks are much more agent-driven than others; people can know they want to get into mountain-climbing or motorcycles, so they may buy the “hobby insurance” knowing they are going to do dangerous hobbies, which immediately provides a payoff. There are some ways around this; maybe you can only get coverage for several years in the future if you are still doing that hobby, and you take the full risk now.

Overall this isn’t very satisfactory, and that’s because we are thinking about this backwards. Setting aside things we can’t control, like genetics, engaging in dangerous hobbies voluntarily seems like something we would want to respond to incentives. After all, we are restricting this by definition to things the patient can control. The analogy is that the state wants us to be healthier especially if the state is covering our medical bills. But when the state haphazardly tries to promote healthy things or safe driving, it feels quite coercive and frustrating. The insurance solution is to just charge people more for risky behaviors. Sidestepping the libertarian-Marxist debate about coercion, this outcome doesn’t seem that bad from a consequentialist perspective. Motorcyclists get injured, which costs resources in our health system, even this free market health system we are describing. If fewer people did dangerous activities, there would be fewer resources needed to fix their medical problems, which means those could be used elsewhere.

This type of thinking seems much more unfair if we expand it to include other things such as being overweight, or being sexually active. In today’s world, it seems likely insurance companies would consider being sexually active to increase risk or health costs, not to mention likely cost discrimination against gay men. I’m not sure there is a good solution to this. There will also be debates between insurers and customers on what counts as “controllable”. We can hope that the market will efficiently figure out what can be insured against (things that are not controllable), and offer insurance accordingly. This will most certainly be unsatisfactory to people caught in the system without as much coverage as they would like.

On the topic of things you definitely can’t control, genetic factors affect health, and it seems in this unregulated environment, customers will be forced to take genetic tests in order to be offered coverage. Of course, what is needed here is a form of “genetic insurance”. But when exactly would you buy that? Your genes are part of you already! There is no time you can buy insurance to avoid risk of a state that you’re already in. Well, it turns out there is still a good time to buy it, and that’s before you’re conceived. Parents can purchase “genetic insurance” for future children. In all likelihood, it would probably be combined with long-term chronic health insurance as well, as chronic problems could arise because of genetics. There may be different approaches to this, as you’d want the insurer holding the other end of the policy to be able to pay out potentially many decades into the future.

Finally, the pre-conception insurance piece would probably include pregnancy related complications as well. Or perhaps that will remain the domain of the health coverage of the mother. Exactly where it falls though is important for understanding the incentives which can be quite disturbing; since parents are looking to gain coverage for various genetic problems, insurance companies may calculate that it’s cheaper to pay for abortions of fetuses that are diagnosed with very expensive genetic problems. Pregnancies themselves can cause lots of complications though, so perhaps companies won’t want to have women go through lots of pregnancies. However, this depends on whether the same company is covering the mother and the child. If they don’t have the correctly aligned incentive, they could offer discounts to mothers who put their lives at risk. In an efficient market, the mother’s insurance company would compensate them for not doing that, so it would work out. Of course, markets are never as efficient as we would like.

Conclusion

I’ve constructed a complex series of possible insurance schemes, however I suspect an individual could roll most of them into a single long term life/health/genetic insurance policy initiated as early as possible, preferably by their parents before they’re even conceived. There’s a chance this approach will be too risk inclusive, and it will end up being a re-insurance scheme, but that’s really up to the market to decide. The main point is that insurance schemes can be constructed to properly shift risk around and avoid catastrophic and unplanned health issues. There are some lingering risks about how best to utilize risk pools or how to deal with insurance companies that go bankrupt, but generally speaking, there seems to be a framework for a free market solution to exist.

Nonetheless, the ability of insurance companies to use every possible way to gather information about you means that there will be a real “tax” on freedom to live our lives the way we want. I suspect from a consequentialist perspective, there is a lot to gain here, like people having financial incentives to exercise more, drink less, do fewer drugs (since drug laws probably won’t be enforce). On the other hand, from a libertarian ideal, having to pay for more expensive insurance because you drink a lot or have lots of sex seems patently unfree. Yet, this seems better in many ways than how government might deal with risky behaviors: bans, massive public relations campaigns that might not work, or simply doing nothing and letting the problem build. Social solutions, like public shaming for risky or different hobbies also seems fairly aggressive and unfree. Perhaps this is an acceptable middle ground where risk averse people are compensated by risk takers through the method of insurance.

There are serious issues though. The most obvious is that many people would have trouble buying insurance, especially if anything needs to be paid ahead of time, or all at once. In response, many would probably forego insurance altogether. This would result in poorer health outcomes and more expensive costs in the long run. The solution here, if the state were available, would be something like government transfer payments, or health credits.

Another issue is that people are poor planners. If cultural norms were changed such that everyone purchased some insurance plan when having children, that would probably help the situation. With today’s technology, they probably wouldn’t even need to do it prior to conception because genetic data on fetuses in the womb is scarce apart from diagnosing trisomies (like Down Syndrome). Of course, this stateless healthcare system would only come about through serious upheaval as mentioned in the intro. The “correct” social norms surrounding this new insurance model may not properly take hold, as tons of social norms will be overthrown. Even though it would probably help fix other issues we see today like mothers who can’t afford pre-natal care (since long term insurance companies would be heavily invested in making sure the pregnancy goes well), hoping social norms are correct seems optimistic.

Finally, the takeaways are that insurance is a pretty powerful tool, and where government could perhaps be most useful is in fixing income problems so that those with few means can participate in the market. The system described here is radical, and probably not something anyone but the most radical libertarians would choose to move society towards. At the same time, it also shows that there is room for significant improvements in insurance incentives even while keeping the high amount of government involvement in the healthcare market today.