March 21, 2010
Why reform health care?
Amidst all the preoccupation with the procedural details of how health care legislation is likely to be implemented, I was glad to see Paul Krugman make the case for why reform is needed in the first place.
Americans overwhelmingly favor guaranteeing coverage to those with pre-existing conditions-- but you can't do that without pursuing broad-based reform. To make insurance affordable, you have to keep currently healthy people in the risk pool, which means requiring that everyone or almost everyone buy coverage. You can't do that without financial aid to lower-income Americans so that they can pay the premiums. So you end up with a tripartite policy: elimination of medical discrimination, mandated coverage, and premium subsidies.
I find it helpful in thinking through these issues to consider two polar extremes of what the objective of health insurance is taken to be. In the first case, consider a group of people, all of whom are healthy at the moment, all of whom have the same risk of needing significant assistance with medical expenditures at some point in the future, and none of whom know whether they are the one who is going to need assistance. If the individuals each pool their resources, with the funds subsequently used to assist those for whom the needs arise, each of them would perceive themselves to be better off as a result of being included in the pool. Such health insurance is Pareto improving-- everyone perceives themselves to be better off with insurance than without. And precisely because it is Pareto improving, private insurance markets have no difficulty delivering this kind of financial product.
Now consider the opposite extreme, namely a group of people each of whom already knows with perfect certainty who is going to need medical expenditures and who is not. In this case, if the funds of the group are pooled, with payments going from the healthy to the sick, it is not Pareto improving-- those receiving the funds are better off and those supplying the funds are worse off. For this reason, the private market would never produce a financial product to implement this outcome, and describing such an arrangement as "insurance" is mislabeling. It is instead a pure income transfer policy.
We might make various arguments in favor of such an income transfer, such as going back to an earlier point in time before people knew the conditions to which they might be susceptible, and reason on this basis that the two cases are strictly comparable. This is the essential Rawlsian perspective on social justice, which argues that we should seek a distribution of resources that each member of the society would advocate if they could not know in advance which position in the society they would occupy.
But I think instead the more fundamental argument in favor of assisting the needy in the second example is one of compassion. Are we really prepared to insist, conditional on knowing who is who, that medical assistance only be provided to those who are able to pay? I think Krugman is correct that the vast majority of Americans would answer "no" to this question. Most of us want to help others we perceive to be in need, even if there is no direct benefit to ourselves from doing so.
But the question then becomes a very practical one-- exactly how many dollars should the healthy surrender, and what's the limit on what the funds will be used to pay for? Do the same moral principles call on Americans to provide health care for everyone in the world, or just those within our borders? And if the latter, do we cover those who came into the country illegally, or only legal residents and citizens? For whatever subset of humanity we do decide to cover, we're still going to have to draw the line somewhere, and say no to certain procedures. When, where, and how shall we draw the line?
Now reality of course is a mix between the two polar extremes I've sketched above, though the discussion of "pre-existing conditions" suggests to me that we've definitely moved into the realm of issues raised in the second example rather than the first. And that's why I believe it's important for Americans openly to face the core underlying question that confronts us in that second example-- how shall we make a determination of who is going to receive medical services, and which services are going to be provided?
Posted by James Hamilton at March 21, 2010 06:56 AMdigg this | reddit
1. Health insurance is not health care, just as automobile insurance is not transportation.
2. Very few, if any, people are deprived of health care in the US right now for want of insurance.
3. The rising cost of insurance is a real problem for many people. But, it does little good to mulct the insurance companies for that. Higher health care costs are driving the train. The insurance companies are mere middle men.
4. Controlling health care costs is the real issue. Subsidizing health insurance purchases, so that more people can buy more health care with less cash outlay, will increase the demand for health care, and, will in the absence of an increased supply, result in price increases that will increase the demand for subsidies. The unintended, but obvious, consequences, are horrible to contemplate.
5. In order to control costs we need to increase the supply of medical services before we increase demand. Some actions that might increase supply include: opening more medical schools and nursing schools, decreasing the requirements for pre medical education (not the five or six required courses -- the BA), increasing scholarships for medical education, allowing insurance companies to issue "bare-bones" and high, even ultra high, deductible policies across state lines, and abolishing medical malpractice litigation*.
6. First dollar insurance must be restricted. Out side of closed panel HMOs, deductibles and co-pays must be increased. If the country is spending 1/6th of GDP on health care, the average American, who makes $55,000/yr. will need to spend at least $9,000/yr on premiums and deductibles.
Posted by: Fat Man at March 21, 2010 08:16 AM
"Now consider the opposite extreme, namely a group of people each of whom already knows with perfect certainty who is going to need medical expenditures and who is not. "
But that hypothesis is completely silly, since anyone, of any age and health history, may find out tomorrow they have some form of cancer, an undetected heart deformity, etc.
Those who forgo insurance voluntarily are overwhelmingly young people. And I think what guides them is more likely to be a young person's lack of appreciation of risks, rather than a cost benefit analysis or a lack of altruism.
I think Krugman is right about this, but frankly this whole reform is really a joke.
If health insurance companies continue taking their 14% cut, pharmaceutical companies continue mass-marketing expensive, marginally effective drugs, and hospitals continue spending money to buy ads in the New Yorker, etc., this is not reform.
Unless, maybe, the plan is to keep spending an ever-greater percent of GDP on healthcare until the system completely collapses and we can start from scratch.
Posted by: Bob_in_MA at March 21, 2010 08:17 AM
This seems to be mixing government and society. Reasonably we want everyone covered, but that doesn't mean we should want the government to be the one making the decisions. There are private charities, which can serve particular subsets of society, however they choose to define it. There are regular drives for medical research and medical care over a variety of situations. Thus the choice of health care subsidy for these situations doesn't have to be made by political agreement. Everyone can support what they want to support.
Posted by: Anonymous at March 21, 2010 08:24 AM
Isn't there an intermediate position? Between successful private insurance (in the case of equal ignorance about who is going to get how sick) and pure need-based redistribution (in the case of complete knowledge of who is going to get how sick) we have the real world, where there is a lot of uncertainty, but also a lot of information asymmetry, leading to adverse selection. In this case, a singe-payer insurance system can be more efficient. Joseph Heath makes this point well, I think (but I'm not an economist) in "Health Care as a Commodity" (http://www.chass.utoronto.ca/~jheath/health.pdf):
"Markets for private health insurance are subject to extremely severe information asymmetries. This leads to serious adverse selection problems (insurers attract bad risks, forcing firms to refuse insurance to certain groups, and institute costly underwriting practices for others), and moral hazard (cost control is difficult, because it is very expensive for insurers to determine whether claims that they receive are justified). Both of these problems generate enormous transaction costs at best, complete market failure at worst. The Canadian “single-payer” system eliminates the adverse selection problem in one fell swoop, by creating a single mandatory universal plan. It also minimizes moral hazard, by centralizing negotiations over fee structures, and eliminating the collective action problem in enforcement. However, it is extremely important to the structure of the Canadian system that the government delivers health insurance as a public good, not health care. And the reason that government provides insurance of this type is not that there is something intrinsically wrong with buying and selling heath insurance, it is that markets fail to do so efficiently."
Of course a single-payer system isn't on the table in the U.S., and Canada's system has its problems, but it's important for people to see that the case for public involvement in health care isn't just about justice (though it is about that too).
Posted by: Andrew Lister at March 21, 2010 08:28 AM
What is not presented by Krugman is any argument as to why it should be absolutely essential (as opposed to merely politically preferential) to combine the actuarial cost of insurance with the medical-transfer-to-the-needy (or to the not-necessarily needy elderly) in a single premium instead of separating the two into different programs, with perhaps the charitable function being provided from general tax revenues.
This is the supposed rational for the necessity of the disturbing "mandate", but the actual answer is that congress wishes to avoid explicit tax-increases to fund marginally popular redistribution schemes, and so it finds it convenient to bury such a contrivance in uniform "premiums" for "health insurance".
Posted by: Indy at March 21, 2010 09:45 AM
Jim: have you ever been in the private insurance market? My parents (now 59 and 64) have been in that market for at least the last 30-odd years. You can't BUY full insurance even as a healthy person with no medical history, there isn't such a thing. You can buy a promise to pay part cost of a future bad health event (assuming that they can't find a pretext not to pay, a pretext to revoke coverage, or even a pretext of a pretext allowing them to tie you up in lawsuits since legal fees are cheaper than care for catastrophic events).
Now, take skin cancer, as soon as one tiny cancer has been treated by a dermatologist at a cost to the insurance company of a couple hundred bucks, you are no longer a healthy person, you can no longer shop around to get a good insurance rate at another insurer. This makes sense, right? You need to stay with your existing insurer, BUT they don't (in real life) have to keep you, AND they can raise your premiums so high you can't pay. If you do manage to change insurers, even if you can get coverage without a waiver, you won't likely get coverage of a second cancer, since the cancer was a pre-existing condition, and even though the cancer started while you were insured by the first carrier, they won't have to pay, since this is a NEW cancer (obviously not just a continuation of the first cancer).
It ISN'T EVER insurance, it's just a racket. There is no way to buy continuing coverage at a rate set WHILE you are healthy.
Posted by: benamery21 at March 21, 2010 10:32 AM
Yes, it is time to move forward on who and what is covered, and particularly what new should be covered. We have lost half the innovation in health care due to an unwillingness to face costs and ask the question whether the results are worth the cost.
(If no one is denied health care, then the demand for health care is not being increased. Actually health care has been denied and demand will be increased, but at least it will provided more rationally rather than through an imploding insurance system. Reform could have been done differently, but what has been done is what is politically possible and we will have to move forward from here.)
Posted by: Lord at March 21, 2010 10:34 AM
FAT MAN: "Very few, if any, people are deprived of health care in the US right now for want of insurance."
YOU ARE WRONG. I personally know more than a few who have suffered or have died due to either no insurance or underinsurance. I'm not even a healthcare provider. You must not know very many poor people (or else the poor people in your life have been very lucky).
Posted by: benamery21 at March 21, 2010 10:41 AM
Yeah, as Bob_in_MA points out first this:
"Now consider the opposite extreme, namely a group of people each of whom already knows with perfect certainty who is going to need medical expenditures and who is not. "
is completely erroneous. You do not in general know ahead of time if or when you will get cancer. It is just false to claim otherwise.
Second, it is also odd that the existing structure is undiscussed: for a right winger to side with large corporations (and unions) and against small businesses and entreprenuers is one of the primary hypocrisies of the modern political era. Why do you do this? I cannot figure it out. I mean, this existing structure is completely the unintended consequences of wage/price controls in WWII. It is NOT the optimal market determined outcome.
I could go on, but it should be clear that the idea that this whole HCR business is about pareto optimality between precisely two states is ridiculous. (And I otherwise have had enormous respect for JH's analysis on many things over the years).
Posted by: Russell L. Carter at March 21, 2010 10:54 AM
Nicely put. You probably stated the case at least as eloquently and concisely as Krugman...and that's quite an achievement.
And soon enough the Obama Administration and Congress are going to have to wrestle with one of those boundary questions you posed because immigration reform will soon be moving off the backburner and onto the front burner.
Posted by: 2slugbaits at March 21, 2010 11:00 AM
FatMan, thanks for articulating the obvious. Health care is exorbitant because supply is constrained by training limitations and byzantine licensing requirements balkanized in 50 separate states. The US is ranked #52 in international league tables with 2.3 doctors/1000 people, and would be in far worse shape if it didn't supplement it's ranks with 23% foreign graduate physicians.
We have seen market capitalism gone amok in America. We have seen trillions of federal dollars in subsidies expended on services, drugs and medical technology, enriching all the incumbents, while training of more physicians has taken a back seat. Why? Market forces. Practicing physicians benefit from reduced competition. Higher service demand can be mitigated by drugs and technology without increasing physician supply.
Posted by: MarkS at March 21, 2010 11:10 AM
Oh, and benamery21's discussion of skin cancer (that would be melanoma) in the individual market is exactly correct. That all happened to me. Even 12 years after I had one removed, with the twice yearly exams and the doc's certification that I am cancer free, I cannot get individual coverage in the state of AZ for ANY price.
Shocked me, to say the least. I had an incomplete view of how health insurance really is allocated in the good 'ol USA. But I fixed that.
Posted by: Russell L. Carter at March 21, 2010 11:17 AM
Jim and Krugman are right. The bill makes some really needed, and widely supported, reforms such as the matter of pre-existing conditions, and includes other elements to offset the negative consequences of just doing that by itself, which has been the problem for those who say, "chop it up into pieces and pass them one by one."
As it is, whatever one thinks of it, this bill is basically an extension of the existing system with no fundamental change, for all they hysterical hooting and hollering about "socialism" and so on that has been going on. There are basically six systems out there: 1) pure laissez-faire, now only seen in some very poor countries (witch doctors in Malawi anybody?), 2) the US mixed system, that has the only unregulated for-profit health insurers among high income countries, the only high income country without full coverage, and, except for those working for DOD, privately employed health workers, 3) universal coverage with non-profit (Netherlands) or highly regulated private insurers (Switzerland), 4) universal coverage with a mixed system of public and non-profit private coverage (Germany and France, the latter rated by the WHO as having the most effective system), 5) single payer government coverage, but with privately employed health workers (Canada), 6) fully socialized medicine, with health workers employees of the state (UK, former USSR).
Posted by: Barkley Rosser at March 21, 2010 11:31 AM
While it is true healthy people will end up caring for sick people one way or the other, it is not at all clear that the distribution of the burden should be through insurance. Why not a minimum safety net (free medical treatments that pass strict benefit to cost analysis) funded through tax and everything else through private insurance?
Posted by: HZ at March 21, 2010 12:21 PM
Fatman: If the country is spending 1/6th of GDP on health care, the average American, who makes $55,000/yr. will need to spend at least $9,000/yr on premiums and deductibles.
The basic question that is never addressed is why we should be spending 1/6th of GDP on health care when that is two or three times the amount spent by all other developed countries and with no better health outcomes. For comparison:
Total spending on health care per person
United States: $7290
United Kingdom: $2992
These countries manage to cover 100% of citizens at 1/2 to 1/3 the cost. Measures of health care results are similar. In fact the U.S. ranks lower than the others on infant mortality and longevity.
Posted by: Anonymous at March 21, 2010 12:24 PM
"In order to control costs we need to increase the supply of medical services before we increase demand. "
I think the problem isn't due to an inadequate supply (except for general practitioners). The problem is primarily one of *over-treatment* and *over-specialization*. Throw in mind-boggling prices for patent medications that cost pennies to make and dollars per pill to buy and you have the nut of the problem right there. Pharmaceutical companies spend somewhere between 15-25% of the cost of drugs on marketing. Do we really need TV ads for prescription medicines? I think not. What's happened is an inflated *demand* for over-priced treatments IMO.
Posted by: Doc at the Radar Station at March 21, 2010 12:34 PM
Good observations. There are medical treatments that have genuine benefits and most of these are all provided for by all the other developed countries with universal access while access here is not uniform. On the other hand our focus on "choice" leads to a lot of discretionary medical spending (funded by third parties). On average we end up with a system that is less effective medically yet more expensive. However the perception of the system is good from those who are in (the majority BTW) because of the focus on choice, which makes the system hard to reform.
Posted by: HZ at March 21, 2010 01:20 PM
People of all incomes pay taxes and taxes, in some sense, are one way to transfer income from wealthy to poor. That´s how it is! Why should health insurance be different?... By the way, migration is mainly an economic transfer too. Migration may be illegal but is it immoral to illegally migrate and save your life from hunger?
Posted by: chm at March 21, 2010 01:24 PM
Stupak's on board so it looks like it will pass with no problem. The only way this will work is if Congress can get our fiscal mess cleaned up. In a best case scenario, entitlement reform would have been packaged with this bill, but that's probably too much to ask of our legislators.
I am very skeptical that this bill will reduce health care price inflation. It hasn't accomplished that goal in Massachusetts.
There is an approaching fiscal tsunami approaching for the U.S. Social Security, Medicaid/~care are now paying out more than they are bringing in. Obama Care will be no different.
Posted by: tj at March 21, 2010 01:29 PM
My ex-significant other lost the function of her kidneys for lack of health insurance. She may have been guilty of miserliness but I know if she had health insurance she would have sought treatment for her hypertension and that would have enabled her to avoid the inevitable result.
Due to the peculiarities of our existing health insurance system she now qualifies for Medicare (she's in her 40s). As a result the taxpayers now pay her $70,000 year hemodialysis bill for life.
Let's be honestly thankful that this old incredibly economically inefficient system is about to be forced kicking and screaming into its coffin so we the living may live more healthfully and productively.
Posted by: Mark A. Sadowski at March 21, 2010 01:39 PM
There are at least three above Canada and above $4000 per person: Norway, Luxembourg, and Switzerland, but none of them are above $5000.
Posted by: Barkley Rosser at March 21, 2010 04:45 PM
Russell Carter: Happy to hear you beat melanoma, especially that long ago.
Yeah, my Dad (also in AZ, BTW--Mesa) is really lucky that his has been confined to pre-cancerous, and basal and squamous cell(so far). He's been having them cut (or frozen, or what have you) off for more than 20 years now. My grandfather died of the stuff (that's what happens when you're Danish and grow up in Florida or Arizona). Anyway, Dad finally got a company to lift the waiver, after 5 years cancer free. But I suspect that if he ever had a recurrence they won't actually pay.
On a tangentially related subject, he got into a pretty big battle (just short of lawsuit before they backed down)) years ago with the school district when he'd just had a squamous cell removed, and they were preventing my sisters from wearing (unlabeled straw wide-brim -- totally uncool) hats on the playground in elementary school (due to 'gang ID problems.').
Can you think of anything much more stupid than forcing a kid out into the sun (all the trees on the playground had been cut down for liability reasons after a kid fell out of one) at noon in AZ in August (they lengthened the school year after I got out) without a hat?
Posted by: benamery21 at March 21, 2010 05:03 PM
Mark Sadowski: My most-repeated non-coverage story is of a self-employed mechanic I knew (now dead), who broke his back (pretty much literally) and sustained spinal cord injury when he was thrown from a horse and landed on a rock.
The first hospital ER he was taken to (high-end private) told the ambulance to take him to County. County kept him for a day, took a shot of his back, gave him pain meds, a back brace, and crutches (though they told him he'd probably never walk), and kicked him out the door. They also told him that he needed surgery but that it wasn't an emergency. It took him more than a year to (sort-of) walk again. It was painful to watch him. I still believe that this mobility issue complicated his other health problems and led to him dying earlier (in his 50's).
So that's back surgery.
Joint replacements are another good one. And try to get care for cancer in an ER. Or any kind of cardio work BEFORE a heart attack.
Posted by: benamery21 at March 21, 2010 05:13 PM
New York and a few other states already disallow medical underwriting for years (i.e. no exclusion based on pre-existing condition). Check out how much insurance costs in New York. Having insurance available =/= access.
Posted by: HZ at March 21, 2010 05:26 PM
IHS also runs a healthcare system (since 1787) in which providers are federal employees. Although this department is a uniformed federal service, they aren't under DOD, or even BIA, they're HHS.
Local governments, particularly counties, also run healthcare services in the U.S. where providers are public employees.
Posted by: benamery21 at March 21, 2010 05:40 PM
JDH: Nice post, as always. I think that it's a good approach to distinguish the risk pooling aspect and a compassionate transfer payment aspect.
One minor point about the risk pooling case:
"and none of whom know whether they are the one who is going to need assistance"
Even if no one knows whether they are going to get sick, there remains the issue of whether someone else knows what they know. So, for example, even if people wanted to bypass insurance companies and (somehow) form some sort of voluntary self-insurance risk pools, information asymmetry, moral hazard and adverse selection seem inextricably baked in from the get-go.
Posted by: Robert Bell at March 21, 2010 05:44 PM
Well if we want to play the big maestro in he sky here is a thought experiment:
-smoker of 20 years with chronic bronchitis and maybe things in the lungs do not look good; follow up scheduled
-Long time health nut that has required ankle/knee/shoulder/hand surgery due to rock climbing or whatever
-Monsterr fat person that has several issues
So who gets care and who does not? orthopedic surgery is a huge cost, so is the health nut helping things?
I see people running in Cambridge every morning with two knee braces and an ace bandage over their ankle. How is that going to resolve?
Whole thing is ugly.
Posted by: GYSC at March 21, 2010 07:25 PM
~85% of Americans [those with Medicare, Medicaid, or good insurance] consume health care as if someone else is paying. As if they had socialized medicine. In as much as this situation arises from gov't policy, socialized medicine is what it is.
Obamacare will exacerbate this dynamic. Enjoy.
Posted by: bryce at March 21, 2010 08:04 PM
I'm playing Beethoven's 9th on window shattering volume tognight. Anyone want to join me?
Posted by: Mark A. Sadowski at March 21, 2010 08:42 PM
I haven't been overly impressed by any argument stemming from Mr. Krugman regarding health care--except for the obvious that the costs are soaring--; so, I must admit a bit of surprise to see an invocation of his name in support.
Where in the economy soaring costs raise its ugly head are in health care and education; and, yet, surprising few regarded economists succeed in at least making a rudimentary correlation between the soaring costs in these two fields and heavy governmental intervention. Let's never mind any actual investigation. It truly is surprising to watch blindness of the elephant in the room of such a large section of a profession like economics.
These "health care" policies, though, are simply another symptom of decline, where once again we see the responsible and healthy being penalized for being: responsible and healthy? Interesting to charge one for services they're not receiving. I attended a fairly well regarded university in Boston, and there you might be surprised to discover that the great Mass. health care policies are extremely unpopular (as it sinks students more in debt that they'll never pay back).
I'm not quite convinced this is a sound way to run a nation, however, this trend is prevalent in our entire culture (the bank bailouts would be another great example). Well, this course seems to be set as we have elite social engineers who are not yet convinced in the limitations of their own abilities to know what's good for everyone; and instead of beginning with the obvious governmental unwind in intervention, instead we're prescribe a dose of "more of the same"; if that doesn't work: it must've been because we didn't do enough.
Irregardless, this health care plan is destined for failure when the system is ultimate too expensive--that "preexisting" condition is obesity and the underlying conditions (which other socialized medicine countries do not suffer from). Since it appears to be going forward despite any reasoned argument (and no these reasoned arguments didn't come from the Republicans), I can only sit back and hope it works.
However, this much I suspect, but will have to wait for it to pan out: you and Mr. Krugman are probably going to be schooled in power politics and made the buffoons of policy propaganda. Let me see if I can get the gist of this: we pay for it now, but won't get the benefits for another four years? Sure, the government will just "save" that money, just as it has demonstrated in the past its fiscal discipline. More than likely, the health care reform bill will be killed in the courts over the next few years; of course just before the benefits would begin to kick in. I don't suspect these coming taxes have anything to do with a health care plan that will probably never be enacted: those taxes are going to be used to prop up social security.
By all means, please, argue on, argue on: in time we'll see where that tax money goes.
Posted by: Brian at March 21, 2010 09:30 PM
Please go walk into your nearest hospital and ask to speak to a finance AVP. Seriously.
Your theories about insurance companies who "can" provide some degree of care are just that - THEORIES. Unfortunately, you are deliberately choosing to overlook the cold, hard reality of the world of hospital economics.
Insurance companies SIMPLY DO NOT PAY. Yes. This is the reality.. they take premiums and DO NOT PAY OUT. No federal regulator is forcing them to pay.. so, they underpay all hospitals who approved their patients under the assumption that they would pay. And not by a minor percentage either -- most hospitals get a total of 30% of all private insurance dollars due to them by treating patients who were approved.
To recap: Hospital called insurance company prior to treatment. Company agreed to pay. Patient was discharged. Insurance company now refuses payment. Hospitals eat this because legal challenges are more expensive than simply providing the care and writing off the loss.
If private insurance companies were not simply a bloodsucking leech sitting between citizens and medical providers, they would still have a role to play. Tough for them.
But simply theorizing that a perfect economy somewhere "could" provide such a service does not deal with the reality on the ground.
Posted by: Unsympathetic at March 21, 2010 09:55 PM
Hamilton mentions, but then sets aside, Rawls. In fact, we do have a more Rawlsian outcome, and the Krugman argument which Hamilton favors is somewhat Rawlsian. It may not be necessary to turn to Rawls to get the answer we have gotten, but it certainly is an answer toward which Rawls points.
That won't do for Fatman, though, so I think we need to talk about Coase. Fatman wants us to continue on as we are until we have provided for a greater supply of medical care, in order to keep costs down. Makes sense, if nobody suffers along the way. However, the fact that Fatman thinks we need to increase the supply of medical care suggests that people are suffering from a shortage. In a simple, unconstrained market, more demand will lead to more supply, with prices first up, then down, as demand and then supply both rise. But we don't have a simple market. Fatman recognizes that some people (he suggests none or nearly none, but contradicts himself by suggesting the need for increased supply of medical services) need more care, but also that many are getting care without paying the full cost. That doesn't mean the cost isn't there. What we have now is an opaque system of payment, through which those with insurance pay for those without, through higher medical bills. Hospitals, faced with demands to treat all and to pay their own way, simply jigger the payment system to meat both demands. There is no clearly defined right to the full value of one's own flow of medical payments under the current system. Coase tells us there are problems when we don't have clearly defined rights - problems that lead to inefficiency and to litigation. The new law, by expanding insurance coverage to just about everybody, establishes property rights to the flow of medical payments. By the way, in setting a clearer standard for what insurers must provide in return for premiums, the law provides another clarification of property rights - you get the care you thought you were paying for through premiums, instead of only that care that insurers want to provide.
Posted by: kharris at March 22, 2010 05:00 AM
Market speaks on tax bill called "Health Care Reform." DOW futures down over 100 and falling. If you like the rollercoaster ride down more that the ride up this market's for you!!
Keynes versus supply side, couldn't be more clear.
Posted by: RicardoZ at March 22, 2010 05:09 AM
Oh yes, and welcome to the world of crashing tax receipts, something CBO can't score...But ironically Christina Romer has, go figure.
Posted by: RicardoZ at March 22, 2010 05:11 AM
Dow is down 100? Clearly this is the end of the known universe. After all, the stock market did so much better under Bush than under either Clinton or Obama (hack, cough).
Posted by: Barkley Rosser at March 22, 2010 09:55 AM
There are two issues: the allocation of more resources to medical care; and the best way to accomplish this reallocation.
Medicaid was an awful idea - it gives money to support demand for health care for the part of the population where results are sure to be worst, owing to its pre-existing condition (age), allowing that part to bid medical services away from others (such as lower-income workers with children or short-sighted younger workers).
For my tastes, more resources allocated to medical care is good. Given how joe six-pack has been spending his money - he has little imagination, he wants more and bigger cars (SUV's), and bigger houses farther out, since he does not pay the externalities of his pollution or congestion - it is better to take his money away from him to force him to pay more for health care. To do this more efficiently, we need a less progressive tax. The VAT is perfect for this, and there does not appear to be a viable alternative. It also has the advantage that it can be used to turn consumption towards things with lower social costs - e.g., higher taxes on high-fat fast foods, on energy and on salt.
Posted by: don at March 22, 2010 10:51 AM
Why not a minimum safety net (free medical treatments that pass strict benefit to cost analysis) funded through tax and everything else through private insurance?
This would be a great start. Medicare is going to be bankrupt in 2017, because it has no limits on its spending.
Try this: give a new government program a finite budget and a mission to improve health of all Americans to the best of its given budget. We won't have huge unfunded future liabilities (it's budgeted each year), and we won't have X million people who have to go to the emergency room to get health care.
People who want a better level of service can buy it.
Posted by: Dan Weber at March 22, 2010 11:07 AM
Achievements: elimination of medical discrimination, mandated coverage, and premium subsidies.
On the Come: Cost reduction either at the per person (out of pocket + subsidy) or aggregate (percent of GDP) level.
For healthcare reform to be a success, the "On the Come" cost reductions must be achieved. Do we (Republican and Democrat) have the political will to do it?
Posted by: Philip at March 22, 2010 11:31 AM
I would think that any disucssion of healthcare would have to consider these two articles:
THE AGGREGATE EFFECTS OF HEALTH INSURANCE:
EVIDENCE FROM THE INTRODUCTION OF MEDICARE*
How American Health Care Killed My Father
By David Goldhill
Posted by: Steve Kopits at March 22, 2010 12:36 PM
In regard to your remarks, let me note that as of now the DJI is up about 43 points for today. Some catastrophe. And if there are "crashing tax receipts," what pray tell does this have to do with passage last evening by the House of the health care bill? Sheesh.
Posted by: Barkley Rosser at March 22, 2010 01:48 PM
JDH, your two case examples amply illustrate that you live in an ivory tower and have no knowledge of the reality of insurance company behavior. Take your first case of people entering insurance contracts with the same risk. Then add this profit maximizing behavior by the insurance company. If annual payouts to an ill person exceed about $40,000 per year, find a technicality and cancel the person's insurance. This is recision. Research has found that a very sick person has a better change of surviving Russian roulette, than getting past insurance companies' recision decisions. They are then "on their own" with a pre-existing condition for any new insurance company. This is commonly known as "screwed". This is reality - not your ridiculous alternative case. When this company behavior becomes commonplace, as it has become, you bet there will be a government solution to the problem because it is in society's best interest to remove this vicious behavior from the industry. Since industry costs go up to cover their original liabilities responsibly, coverage has to become widespread.
You really should learn to think through system impacts of economics, and stop constructing these ridiculous unrealistic uninformed straw cases.
Posted by: Mike Laird at March 22, 2010 02:39 PM
Good "thought experiment." My read of the situation is that we have slowly been going from Polar Extreme 1 toward Polar Extreme 2. Fifty years ago, we had pretty broad pools covering everyone in the group (all employees, union members, members of a religious mutual aid society, etc) with limited knowledge of who would need the most costly care.
Now, the private insurance companies have better underwriting data, and they've been shrinking their pools to a relatively healthy, homogeneous population by excluding the unemployed, non-unionized, and those with pre-existing conditions, not to mention Medicare recipients. This splits us into a pool of healthy/covered and unhealthy/uncovered. In this environment, healthcare providers charge the covered pool more by ordering more tests, more procedures, and increasing prices. At least part of their profits go toward caring for the rising pool of uninsured.
The healthcare bill enlarges the pool again in several ways (subsidies, rolling young adults in, controls on pre-existing exclusions and so on). In theory, this should improve the system because now the insurance industry, as the paying customer, has a vested interest in developing industry-wide "best-practices" for things like preventive care, portability of medical records, and cost-effective use of testing to identify and treat problems early. The best-case scenario is that this process helps reduce aggregate cost (for US Govt and everyone) while improving lifetime outcomes and protecting more patients. The worst-case scenario is that costs go up anyway because we have more patients buying more services they don't pay for, any cost-cutting is short term at the expense of quality, and insurers develop proprietary information that allows them to win the game of "patient hot potato" vs. competitors. I'm betting on an imperfect version of the best case, with ongoing examples of the worst.
By the way, 10Y Treasury yield fell 3 bp today, and is down 8 bp since Scott Brown was elected. Passage of bill doesn't seem to be creating panic among US govt bondholders.
Posted by: Tom Toerpe at March 22, 2010 05:26 PM
The current administration's spending programs require much higher taxes than we have at present.
Question: Will the President come clean and explain to the American people how high his administration plans to raise taxes in order to pay for his style of government?
Posted by: Babinich at March 22, 2010 06:25 PM
"In fact the U.S. ranks lower than the others on infant mortality and longevity"
Infant mortality is largely an accounting differences issue. This has been put to bed many, many, many times.
Life expectancy when adjusted for factors that impact the U.S. far more than other nations (particularly traffic fatalities and homicide) changes so much so that the U.S. comes in near the top of the heap.
While aggregate outcomes in certain areas for the U.S. may be somewhat inferior at a higher cost, outcomes for serious illness, particularly critical/catastrophic care, cancers, etc., and across the board nearly always superior - usually well so - in the United States.
I have never understood this need to create straw men in order to argue for health care reform. It's perfectly possible, and indeed is the case, that the U.S. system has produced tremendous benefits - both for the United States and for the rest of the planet through the research, development and dissemination of medical advances, as well as the widespread adoption of externally-developed advances that help to make the costs more affordable for others around the planet - and still need to undergo reforms. It doesn't HAVE to and indeed it is NOT the case that EVERYTHING about the system is inferior.
On the other hand, if you want to take a serious look at the stats and adoption of treatments and decide you'd rather go to the WHO-rated "better" systems in France or Germany when you're diagnosed with cancer, more power to you.
Posted by: MPO at March 22, 2010 08:03 PM
MPO says: "If you ignore all the bad outcomes, the outcomes are good. Even at three times the price it is still a bargain."
Posted by: Joseph at March 22, 2010 08:39 PM
The tax increase is already in the House fix, an increase on Medicare taxes for people making over $250,000. Seems OK to me. Are you one of those who views any tax incease as the end of the known universe? Did the known universe end as forecast by Republicans back in 1993 when Clinton increased taxes? (Hint: no)
Sorry, but your credibility is not much better than some commentator on Fox News. It has not been "put to bed" that the infant mortality numbers are all due to "accounting differences." This is true compared to some countries, but not most. It remains a fact that our infant mortality performance sucks.
Adjusting for "other factors," needs taking into account doing so for other countries, with, for example, the US having much lower smoking rates than other countries. Not all the adjustments work to make the US record look better relatively.
As for your claim about "across the board" better performance on major illnesses, more garbage. There are a handful where we are tops, not "across the board." Where did you come up with this drivel?
Posted by: Barkley Rosser at March 22, 2010 10:12 PM
It dawned on me that what is not being conducted is an investigation as to why health care is unaffordable to many people--and rarely does anything insightful originate from me die to my own volition, so I felt the need to express it.
Many examples are thrown about with little qualification such as France's system, Canada's system, or a comparison of costs per citizen; and this is done in such a fashion as if fact speak for themselves, but facts do not speak for them selves: it is people that speak for what they perceive to be facts. This of course applies to me as well, however, many of these publicly funded systems are beginning to show cracks, and as more and more promises are made by political leaders, the more of an unattainable and/or sustainable position these countries systems has reached. The game has been played for quite sometime, but that was in great help to a financial system that has been able to handle massive issuance of credit for the last 50 years; and now it has left these Western(ized) nations immersed in debt--and although these social programs themselves didn't put these countries on a course with bankruptcy (expect maybe Japan), it left the leaders of these countries little room to maneuver in times of crisis.
The same can be said of our education system, and why its costs are soaring. Today, we have more health care workers than ever before: yet costs are soaring. Today, we have more universities than ever before: yet costs are soaring. Are these soaring costs actually due to a demand deriving from population growth? Then we should expect to see such price driven action in other parts of the economy, let's say: cosmetic surgery. Yet, costs in cosmetic surgery has decline in terms of costs. Further, with the advent of better technologies and more efficiencies, costs are still soaring, at least in the United States. For example, in my home state of California there seems to be a law school on every corner in the major metropolitan areas; and once again we have a situation where supply is in abundance, but costs are rising. One might argue that there is a demand for law school; and I would agree, but this is not due to a shortage of lawyers in the market place, but an over abundance of student applications--so how/where did all these students discover the resources for this decision? What in effect has been created is a huge misstep between the university sectors and the economic needs of the market place: this is precisely what happens in governmental intervention is an inflationary effect that sends false signals to market participants--in this case the students who we've "helped" to do nothing more than graduate in debt, with little employment prospects.
What seems to be over looked is that when you flood a particular sector of the economy with money it causes an over expansion of the money supply that is relatively confined to that part of the economy, therefore, the inflationary pressures escape too slowly to have a meaningful impact on prices. A simple example would be food inflation caused from a massive issuance of food stamps.
Yes, the health care system is broken, I think that is something everyone agrees on, but there seems to be little thought dedicated as to why--besides the bland retort that it's too expensive, which is not a cause but a symptom.
The problem to me seems to be a one of misunderstanding or inverting cause and effect.
As an interesting side note, I'm sure you're intuitively aware of this notion, but it really can have a more profound effect if deep contemplation is applied: humans have been going along now for many thousands of years without socialized health care. I realize many will scoff at what I've just said and will provide all sorts of rebuttals that I have no doubt will "correct" me; however, I've always subscribed to the notion, with a feverish blind faith, that true philosophy is realizing the profoundness in the trivial.
Posted by: Brian at March 23, 2010 12:23 AM
I though you were going to write about reforming health care, but all I see is stuff about insurance. health care costs are still our problem.
Posted by: wally at March 23, 2010 05:38 AM
I don't think your idea is crazy at all; in fact I think David Warsh opined in the Boston Globe many many years ago about the cost of education vis-a-vis the surge in availability of student loans. 'nuff said there.
Lot's of reasons why health costs go up. The New Yorker had a great piece years ago on drug prices, which contrary to what many think are not the biggest driver in health care costs. Sure a lot of the biologics are crazy high, but in some cases they can cure or modify a disease progression. I tried to explain to mom that yea, your osteoporosis meds are expensive, but they beat a fractured hip followed by a hospital stay from which you might not escape... On this issue (drugs) patents matter. And the issue with biologics, of which there are many is that currently there is no regulatory pathway for generic biologics. There is also the issue of substitutibility (immunogenicity and the like), but clinical trials may solve this and generic companies are chomping at the bit to enter this space. And bring prices down.
Many have said it before but I'll repeat it. We don't have health insurance in this country (for those with jobs). Those thay pay "insurance" feel they are entitled to visit the doctor as frequently as they wish, "since they've already paid."
Agreed with everyone who postulates, and is correct that most of us are one cancer diagnosis away from BK, so why not what some bureaucrat once suggested: Everyone pays dollar one of their doctor costs, when it gets to be more than x% of your income (or above a threshold), real "INSURANCE" kicks in. Govt, private? Does it matter, but I look at my paystub, notice govt deductions for services I don't currently use, and note that all those programs are, or will be in dire straights.
As Brian noted, in non-subsidized/non-"insured" medicine, competition works. The PK's of the world say, "but not when you're having a heart attack." Real insurance kicks in. Pre-negotiated rates by who-ever is the insurer. And for all those that love the govt solution, hospitals lose money on govt payments, and make it back on privately insured, or so everyone says.
Finally, I think Mankiw touches on an important price that many trivialize. There will be rationing. Unless of course you have the duckets. It always comes back to money and people want to think that they have a god given right to the labor of others: doctors, nurses, people at the bench in pharma all the way up to the CEOs. All are economic actors too...
Posted by: Rob at March 23, 2010 07:46 AM
Steve Kopits' recommendation is the best discussion of US healthcare I have ever read. It should have been mandatory for any decision-maker.
How American Health Care Killed My Father
By David Goldhill
Posted by: bryce at March 23, 2010 08:12 AM
Do not make it difficult.
Demographics drive usage.
Older people are heavier users of medical services.
Usage drives total dollars spent.
Healthcare costs are not accelerating as rapidly as healthcare insurance premiums.
Premiums are increasing because of the boomer demographics.
Insurance companies need to increase premiums in order to pay for the boomer usage before the boomers move to Medicare.
Medicare is the tax payer provided "put" given to the private insurance industry. Without Medicare, premiums would be astronomically higher.
Why? Because diseases which cause death cease to become outlier events as we age. Simple math.
The "reform" is as Krugman says, to get more young and healthy (read "fresh money") to keep the ponzi system afloat until the boomers can be "put" to medicare. At that time, it will become the tax payers problem once again.
It is not more complicated than that.
Posted by: MEW at March 23, 2010 01:04 PM
Joseph & Barkely,
You chastise MPO for not stating facts but you don't post any either. Here are few facts for you:
Cancer Survival US versus Europe
Percentage of Claims Denied by Carrier
Hint - US survival rates are vastly superior. And the medical provider with the highest rate of denying claims is.....Medicare.
Posted by: Dean at March 23, 2010 05:13 PM
"The tax increase is already in the House fix, an increase on Medicare taxes for people making over $250,000. Seems OK to me."
Are those the only taxes being raised?
Posted by: Babinich at March 23, 2010 06:38 PM
Depends on the type of cancer. US does best for breast and prostate. Colon and rectal are best for men in Japan and best for women in France.
Could not find figures on the biggie, lung, but the US has one of the lowest smoking rates in the world, which would make me suspect we have a propensity to be better on that one, ceteris paribus on our medical care system.
Also, keep in mind that these are after diagnosis. In the US, many people do not get diagnosis at all, so overall we do not do as well as we could (and should).
Posted by: Barkley Rosser at March 23, 2010 06:56 PM
I'm not an expert in this but I know that a working group associated with CONCORD completed a study comparing five-year cancer survival rates for several malignancies: breast cancer in women, prostate cancer in men, and colon and rectal cancer in both women and men. It combined the results of hundreds of researchers and drawing data from almost two million cancer patients in thirty-one countries. The study, published in the August 2008 issue of The Lancet Oncology, stated that Cuba was on top, because it recorded the best overall outcome for breast cancer and colorectal cancer in women, and beat the U.S. health care in three out of the four categories:
Isn't this some kind of victory for Michael Moore?
Posted by: Mark A. Sadowski at March 23, 2010 09:23 PM
Mark A. Sadowski
"Isn't this some kind of victory for Michael Moore?"
Yes, in the sense he sold a lot of movie tickets.
No, in the sense that he's about the only person on the planet that would believe data published by Castro.
I first heard the rebuttal on Fox News, but I don't believe everything they say either, so I dug around a little. Wiki corroborates the Fox News version.
Unlikely fact #1. Highly capable Cuban doctors are paying off their student loans from Med school making an income of $20/month.
"According to the World Health Organization, Cuba provides a doctor for every 170 residents, and has the second highest doctor to patient ratio in the world after Italy.
Medical professionals are not paid high salaries by international standards. In 2002 the mean monthly salary was 261 pesos, 1.5 times the national mean. A doctor’s salary in the late 1990s was equivalent to about US$15–20 per month in purchasing power. Therefore, many prefer to work in different occupations, generally in the lucrative tourist industry (e.g. taxi drivers), where earnings can be 50 to 60 times more. as
The San Francisco Chronicle, the Washington Post, and National Public Radio have all reported on Cuban doctors defecting to other countries. According to the San Francisco Chronicle, one of the reasons that Cuban doctors defect is because their salary in Cuba is only $15 per month. "
Unlikely fact #2 - The good hospitals in Cuba are used by Cubans.
"Cuba attracts about 20000 paying health tourists, generating revenues of around $40m a year for the Cuban economy. Cuba has been serving health tourists from around the world for more than 20 years. The country operates a special division of hospitals specifically for the treatment of foreigners and diplomats. Foreign patients travel to Cuba for a wide range of treatments including eye-surgery, neurological disorders such as multiple sclerosis and Parkinsons disease, cosmetic surgery, addictions treatment, retinitis pigmentosa and orthopaedics. Most patients are from Latin America, Europe and Canada, and a growing number of Americans also are coming. Cuba also successfully exports many medical products, such as vaccines. By 1998, according to the Economic Commission for Latin America and the Caribbean, the Cuban health sector had risen to occupy around two percent of total tourism."
Other than that, thinking about US health care gives me a headache, so I don't that much.
Posted by: Cedric Regula at March 24, 2010 12:38 PM
No one can credibly argue the US health care system is efficient.
US health care us like the US auto industry in the 1960s - denying the quality problems, transitioning into the 1970-80s when the quality/cost crashed and the industry lost all claim to leadership.
The focus on cost, is as Deming kept trying to point out to Americans, the path to failure. He instead called for a focus on total quality by continuous quality improvement. While he became like a god to the Japanese when he taught quality improvement in manufacturing, they and he saw it applied broadly to all activities.
In parts manufacturing, the quality metrics are easy to obtain initially, over time, one must shift to total quality and the measurement problems become much higher. Yet, it is possible to greatly improve quality, and ironically it seems, costs fall, almost without effort.
In health care, the Deming method can be applied at the "parts manufacturing" level: hand washing between patients yields extremely big quality gains - one suspects the emphasis on public hand washing in the past year have had great health quality impact, and with it huge cost reductions relative to the costs. Check lists is another low cost quality improver with small costs and huge quality gains with similar cost reductions.
Systematic changes that have large quality improvements at relatively small costs would be dealing with infectious disease prone to developing anti-biotic resistance. Here, having clear payment methods to deliver the quality improvements to the most vulnerable are key systematic quality issues. The poor are the sources of much of these drug resistant strains - they get incomplete treatment of TB or infections, and then end up bringing these strains back into over crowded and chaotic ERs and then into under funded public hospitals. New antibiotics will need to be developed always, but delaying resistance by a few years for each saves billions in development costs and even more in complications.
One might argue "let's fix the infect problem, but nothing else" as if it is possible to identify the risk cases among the poor and in the ER, and then treat only the TB or wounds where drug resistance might result and ignore all the other health problems of the poor.
In some cities, pilot programs have focused on the high ER users, and deal with their homelessness first, then their chronic health problems, then their drug and alcohol abuse, with huge improvements in health quality, and drastically reduced total social welfare costs. The problem has been arguing to spend $20,000 a year to save a $1,000,000 in medical once the $20,000 has eliminated the $1,000,000 annual medical costs. The Japanese embrace of Deming allowed them to spend more to save even more over all, while the US focus on cost over quality generally cuts the cost saving spending, and then seeks to deny the resulting quality problems and their costs.
Just like Toyota lost its commitment to total quality first and saw some minor design problems spiral over a decade into million vehicle recalls, the US health care system has tried to cut costs and increase profits by denying quality problems and push the poor quality costs on others, the US health care system total cost has doubled as a share of GDP while our national competitors who pay for the total quality cost have seen at worst 50% cost increases. Further, our competitors seek ways to improve their health care system quality by changing the system, and spending more. All the nations have the added cost option of supplemental insurance to provide faster service and more care options as competition to the basic care. Those become the means of evolving the basic care to higher quality.
Seriously, look at the history of US health care in the past three decades. The focus has been on cutting costs first, then, the argument goes, we can use the cost savings to pay for better care for the poor. The result has been more people denied regular access to health care, an increase in emergency and critical care demand, and costs rising even faster.
The easy excuse that makes no sense "health care costs more because of the new high technology." Wait, you are reading this on a much higher tech computer than the computers of 1960, so ignoring inflation, your computer, applying the health care technology excuse should be $10,000,000 at least, or maybe $1,000,000,000. Technology is adopted because it saves money when delivering te same thing, and in health care, that is quality (of life). The $10,000 antibiotic delivers the life saving of the $10 drug that no longer works because the $10 drug was misused by being prescribed too often 90% of the time, and not delivered fully because of cost the other 10%. Giving an ER patient a few samples and a script for a $10 drug to be taken for another three weeks means the infection develops drug resistance. The diabetic can be brought back to life for $10,000 of high tech to make up for their lack of money to pay for a $100 of drugs and testing supplies each month.
Maybe if everyone's health bill is a burden on everyone in society, people start looking at the food served in schools and more money is spend in delivering fresh fruits and veggies that are attractive to kids, and spending the time and money to get the kids active. The emphasis on cutting tax spending has resulted in cutting food quality efforts and the physical fitness quality efforts. In one way, cutting them is easy because promoting healthy eating and physical activity is hard to sell to kids, so being creative is expensive. Letting kids become fat and lazy is much cheaper for the schools and seems to result in lower school taxes. But does it cut the total taxes - do unhealthy kids lead to lower cost, and more efficient, employees for US industry?
For the past three decades, the approach to cost of health care and so much else has been blaming the victim. The 30 year old fat guy with diabetes is to blame because he chose to be born to the wrong parents who couldn't afford good food before he began school, the bad lifestyle the school promoted to reinforce that bad start, and then the lack of really helpful health care advise as a young adult to lead him to a better lifestyle before problems result. After all, it is more profitable, in our current cut the easy cost mindset, to treat the diabetes and complications than to prevent them.
Of course, the cost cutters argue "better lifestyle is easy - just chose to be healthy." After three decades of conservatives shouting "individual responsibility!" why have the costs to society and taxpayers of health care gone up so much? Is anyone going to argue that the solidly conservative regions of the nation where they proclaim the government is evil and they take "individual responsibility" are iconic examples of health quality excellence?
Posted by: mulp at March 24, 2010 01:14 PM
The health care bill, while making significant changes in a flawed system, will have major unintended consequences. We know what the bill is supposed to do. On the other side, however, it encroaches on the fundamental liberties of ordinary Americans in a most egregious way. The publicï¿½s view is clear from the polls. Indeed, parts of the bill may be found to be unconstitutional. A critical mass of states may well coalesce and call for a constitutional convention. So egregiously does this bill flout the publicï¿½s will that this country has now entered into a psychological state akin to civil war. We are still in the early stages of recognizing this, but before the November elections this movement will take on a name. Another consequence is the cost overruns that are coming. These are easily predictable from the past history of government programs of this scale. The CBOï¿½s cost estimates followed from the guidelines set down by Congress. Those guidelines were micromanaged to produce a political outcome that would give supporters ammunition and cover to pass the bill. Yet any careful observer knows those cost estimates in no way give a best-estimate of the unvarnished truth in an expectational sense.
Look at the CBOï¿½s 10-year ahead projections for the budget deficit. Cumulative surplus (!) of $1,397 billion projected for 2004-13. Surplus of $2,384 for 2005-14. The same for 2006-15. Surplus of $2,137 for 2007-16. And finally as of January 2007, it flips to a cumulative deficit of $1,886 for 2008-17. Multi-trillion dollar swings in accuracy. You might argue we ran into a major unforeseen event that precipitated the new outlook. But thatï¿½s very much my point. The trajectory of government spending, the deficit, and interest expense on the debt looking out over the next 10 years are now our number one economic problem. The burden on the private sector in terms of higher taxes, more regulation, and a higher cost of capital are (net of a productivity effect from health reform on some workers) going to be inimical to longer-term GDP growth going forward. The private sector is the only and golden goose.
The CBO has a tough job; I donï¿½t impugn their work. I am simply taking into account the independent information contained in the history of their projections. A coming crisis due to the fiscal situation, worsened because of this health reform, is as predictable as the underlying demographics. Just as a new hot war somewhere on the planet within the next decade is also predictable, with its own budget ramifications.
In forecasting socio-political-economic outcomes one must cast the net widely to successfully predict the future. To get it through Congress on the narrowest of votes, the trillion dollar health care bill had to be framed just right in terms of its budget implications; it was partial equilibrium analysis all the way. By not taking the 30,000 foot view, the economics profession has again made the same mistake it did in missing the financial crisis. What does it say for the profession when not even one Nobel winner saw this coming? Similarly, who is recognizing that peak oil, global labor washing away jobs here in the US, ramifications of an out-of-control federal budget, deleveraging of consumers and the pressing need to save for retirement out of income, and a host of other events such as terrorism that are surely coming at us ï¿½ who was there championing that this reform should have been done more carefully and perspectively?
Health reform could have been done piece at a time solving problems with a much lower risk of unintended consequences. Krugmanï¿½s premise is that you canï¿½t do it without broad-based reform. This premise is as narrow as the CBOï¿½s scoring. How shall we make a determination of who is going to receive medical services and who is going to pay? By taking into account all aspects of the problem including provisions for unintended consequences, making cost estimates that are not biased toward political ends and are best-in-class, and openly informing the American public so they can make the decision. Compassion this reform was maybe, but hardly good economics. Controlling health care costs is the core issue and that has not been adequately addressed. The consumer needs to be more connected with the doctor as to the true costs of his or her care and have skin in the game. This reform fails at that.
Posted by: JBH at March 24, 2010 01:21 PM
Hmmm, sounds like you have been getting your information about the polls from Fox News and Rush Limbaugh. In fact, since the bill passed, public opinion has turned around. Gallup has a plurality supporting it, and the generally conservative/Republican biased Rasmussen poll has 52% supporing it. The "the public does not want this" narrative has become bogus.
Regarding all this whining about violating rights, are you talking about the mandate for most people to have to buy insurance (supported by a subsidy if they are poor enough)? Every state mandates that drivers buy auto insurance, and there are no low income subsidies, and there are many parts of this country where owning a car is all but a necessity.
Hey, a nice country with a nearly totally private health care system is Guatemala, whoop de doo! Their public spending on health care is barely above 1% of GDP, oh good for them! However, only about 40% of the population has access to a hospital, but, heck, that is clearly efficient.
Posted by: Barkley Rosser at March 24, 2010 02:38 PM
Can I opt out of the program? If I choose to participate who decides what insurance is best for me?
Posted by: Babinich at March 24, 2010 06:59 PM
It is my understanding that there are some groups who are not in it (Indians? Amish?), but that most people above a certain age and income level (if below the cutoff, one can go on Medicaid), must buy insurance, no opt-out. However, there will be choice, indeed, with the exchange system, for many choice will be expanded.
Posted by: Barkley Rosser at March 24, 2010 11:53 PM
Barkley says: "Every state mandates that drivers buy auto insurance, and there are no low income subsidies, and there are many parts of this country where owning a car is all but a necessity."
That's weak; auto insurance is based on the individual's free choice regarding the purchase of an automobile. Mandating health insurance is tax for being a citizen.
Posted by: Babinich at March 25, 2010 02:59 AM
Thinking about the second of your scenarios, it wouldn't be insurance, but neither would an individual savings plan work, for I don't think those that experience truly catastrophic losses could ever save enough to cover them on their own. It would mean abandoning them to their fate. I don't even think charity would be attractive; most would conclude it would only be a waste of funds, or misdirection of too much to too few, beyond hospice care. So while redistribution may be the effect, I still doubt it would be the intent.
Posted by: Lord at March 25, 2010 07:16 AM
In many areas, having a car is all but a necessity. However, the larger issue is that in both cases there is an externality involved. Expanding the pool shares the risk across a broader set of people, and also there is an interest in having everybody covered based on the assumption that this will improve public health. If you are sick, I am more likely to get sick. This is why we have mass inoculation campaigns and enforce quarantines, and so on.
Posted by: Barkley Rosser at March 25, 2010 10:54 AM
The only car insurance that is required is liability insurance to cover damage to another person's property for which you are at fault. There is not a requirement to cover damage to your own car. An apples to oranges comparison.
If you read the history of health insurance, it got its start as "pre-paid" healthcare.
Why? Primarily because in a paper cash based society, people didn't always have money on them when they got hurt or sick and the paper billing and collection system of the years past left much to be desired.
Now we all have these modern inventions called debit and credit cards.
If you want to reset the system, throw out the non-value added middle-man (ie insurance company - effectively a glorified billing and collection company from days ago) and let patients and doctors relate like we do in the rest of our lives - transparent pricing. Like most of the stuff we consume, 99% of medical care can wait. Let people shop at their leisure for the doctor of their choice in a cash market and have the government pay for and run emergency centers for acute intervention.
Posted by: MEW at March 25, 2010 02:02 PM
The insurance "mandate" has the same effect as an income surtax with both a tax credit and capped deduction for private health insurance. Anyone who thinks this will be found unconstitutional is probably nicknamed Rip.
Posted by: benamery21 at March 25, 2010 04:37 PM
Barkley says: "However, the larger issue is that in both cases there is an externality involved. Expanding the pool shares the risk across a broader set of people, and also there is an interest in having everybody covered based on the assumption that this will improve public health."
If the improvement of public health is the goal and the first step is to require the purchase of an approved health insurance plan why require the purchase of organic produce? Here the positive externality is that an increase in demand for organic produce improves the well being of organic farmers.
Posted by: Babinich at March 25, 2010 06:35 PM
Babinich: Purchase of health insurance is not "required" for citizenship. We aren't going to turf you out. If you don't want to pay the (income-based) fine, just exercise your free choice not to make any money. Some people do it involuntarily, of course.
Posted by: benamery21 at March 26, 2010 04:50 PM
"The only car insurance that is required is liability insurance to cover damage to another person's property for which you are at fault. There is not a requirement to cover damage to your own car. An apples to oranges comparison.
You mean I pay for my mistakes? How novel a concept...
"If you read the history of health insurance, it got its start as "pre-paid" healthcare.
Why? Primarily because in a paper cash based society, people didn't always have money on them when they got hurt or sick and the paper billing and collection system of the years past left much to be desired."
Your why is incorrect... To halt inflation During WWII the government capped wages. In an effort to make up for those capped wages, companies began offering health insurance.
Unfortunately by the time the cap on raises was lifted health insurance had become part of the DNA of the corporate world which used health insurance to attract and retain a workforce.
"Purchase of health insurance is not "required" for citizenship."
No only did I not say that I wasn't even thinking it.
We aren't going to turf you out. If you don't want to pay the (income-based) fine, just exercise your free choice not to make any money. Some people do it involuntarily, of course.
Quite a nice touch; I like how you use income-based fine and free choice in the same sentence.
Posted by: Babinich at March 27, 2010 09:56 AM
"auto insurance is based on the individual's free choice regarding the purchase of an automobile. Mandating health insurance is tax for being a citizen."
I pointed out that you were wrong; that this is no more nor less than an income tax--the constitutionality of which is long-settled.
I'm glad you appreciated the intentional irony of my juxtaposition of "free choice" and "income-based." Unfortunately, you seem to have missed the irony inherent in describing the current income-rationing of healthcare or the auto insurance mandate as "free-choice."
Posted by: benamery21 at March 28, 2010 08:54 PM
Sorry my mistake; it is a fee charged by government for a service.
Posted by: Babinich at March 29, 2010 02:50 AM
Excellent post as usual, thanks for writing all this helpful stuff on a regular basis.
Posted by: Amos Kofahl at April 13, 2010 04:34 PM